The real estate business in Vietnam has experienced a significant growth over the past decades but also entail many problems and risks. Especially, disputes arise from transactions of purchasing and selling real estate products to be formed in the future although a wide variety of statutory documents have been issued by the competent state authorities to govern this matter.

Notably, in order to protect the benefits of the buyer in case the real estate project developers delay and fail to hand over the units or off-the-plan properties as committed, the applicable laws of Vietnam require that real estate projects have to be guaranteed by licensed banks in Vietnam before they are sold to the buyers. However, the current regulations still reveal numerous shortcomings and loopholes that need to be further researched and addressed in practice so as to create a transparent and healthy real estate market that would benefit stakeholders.

Regulations on bank guarantee for real estate projects

According to Article 56 of the Law on Real Estate Trading 2014, before selling, leasing purchasing off-the-plan real estate projects, the investor of such projects (the “Investor”) must be guaranteed for their financial obligations by the competent commercial banks (the “Bank”) to purchasers or lessees (the “Purchasers”) in case the Investor fails to hand over off-the-plan houses in due time as committed. In addition, the Investor has to send the copy of guarantee agreement to the Purchasers when the agreement for purchase or hire-purchase of off-the-plan house is signed.

Accordingly, the procedures for implementation of guarantee for off-the-plan house projects is stipulated in Article 12 of the Circular 07/2015/TT-NHNN (“Circular 07”) and amended by Article 1.3 of the Circular 13/2017/TT-NHNN, as follows:

      a.  The Bank shall consider, appraise and decide to issue guarantee to the Investor based on the request of the Investor.

      b.  The Bank and the Investor shall conclude an agreement for guarantee off-the-plan houses (the “Guarantee Agreement”).

         The Guarantee Agreement for off-the-plan houses shall be made in the form of a guarantee issuance agreement and include contents in compliance with Article 14 of Circular 07 and Article 56 of the Law on Real Estate Trading 2014. The guarantee issuance agreement shall come into full force and effect asfrom the signing date until the validity of guarantee obligations is terminated. 

      c.  The Bank shall provide guarantee commitment to each Purchaser as follows:

         (i)  Within 10 working days as from the signing date of the agreement for purchase or hire-purchase of house, the Investor must send the signed agreements for purchase or hire-purchase of house with each Purchaser to the Bank;

         (ii)  Within 5 working days from the receipt of the agreement for purchase or hire-purchase of house from the Investor, the Bank shall base on such agreements to issue and send the guarantee commitment to each Purchaser's address. The guarantee commitment is given in the form of a letter of guarantee in accordance with provisions in Article 3.12(a) and Article 15 of Circular 07. The guarantee commitment shall be valid from the issuing date and remain valid at least 30 days after the date of the purchased house being transferred to the Purchaser as agreed upon in the agreement for purchase or hire-purchase of house.

In addition, the Bank shall consider issuing guarantee to the Investor only if (i) the Investor has satisfied all of requirements set forth in Article 10 of Circular 07; and (ii) the Investor's project has satisfied all requirements for off-plan real estate to be put into the market as prescribed in Article 55 of the Law on Real Estate Trading 2014[1].

​Lack of legal framework and inadequacies in practice

As mentioned foregoing, in addition to the obligations to meet the conditions for the properties to be traded in the market, the Investor is also obligated to arrange the guarantee with the Bank and ensure that each Purchaser will obtain the guarantee commitment from the Bank in accordance with the Guarantee Agreement signed between the Investor and the Bank and the agreement for purchase or hire-purchase of house signed with each Purchaser.

Although the law has set out sanctions applied to the above infringement but they are not severe enough for the Investor[2]. This leads to the fact that many Investors have disregarded or ignored such regulations, causing damage to the Purchaser when they delay or fail to hand over the house to the Purchaser in due time. From our practical experience in consulting and representing involved parties solving arising disputes, there are many cases where the Purchaser is completely unaware of, and have not been provided with, the Guarantee Agreement and/or the Investor failed to work with the Bank to issue the letter of guarantee to the Purchaser in accordance with the laws. There are also other Investors who managed to deal with the Bank to issue documents with names such as principle guarantee agreement or agreement on policy approval of providing guarantee to Investors in the sale, lease-purchase for off-the-plan house. Nevertheless, these documents have no legal value in practice, thus when a dispute arise owing to the late handover by the Investor, the Purchaser cannot base on these documents to request the Bank to fulfill its guarantee obligation, giving rise to the interests of the Purchaser are not guaranteed.

Furthermore, the current laws do not provide explicit and strict sanctions for the Investor's breach and failure to send the Guarantee Agreement to the Purchaser or the Investor's liability in the event that the Bank fails to issue the letter of guarantee to the Purchaser due to the Investor’s fault.

Noting that the legal framework on regulations on bank guarantee for off-the-plan real estate is insufficient and inconsistent. Specifically, the Law on Real Estate Trading 2014, guiding documents as well as related Circulars of the State Bank of Vietnam only regulate the issue of bank guarantee for residential houses, while off-the-plan real estate also includes other types such as shophouse, condotel, officetel... Therefore, the legal system needs to be amended and supplemented with legal documents to address this issue.

In general, bank guarantee applicable for off-the-plan real estate projects is necessitated. However, there are still some problems that need to be studied and resolved in practice. As such, we take view that the current legal regulations could be amended to reflect the following issues:

      (i)  Supplementing and amending the legal framework so that regulations on bank guarantee shall consistently applied for all types of real properties to be formed in the future, other than residential houses only;

     (ii)  Forcing Banks to report figures relating to guaranteed projects. This regulation will be the basis for competent state authorities to monitor and handle violating Banks and Investors. In case the Banks and the Investors terminate the Guarantee Agreement prematurely, Banks must publicly notify the same and clearly specify the liability of the Banks and the Investors in this case; and

    (iii)  Supplementing provisions on legal sanctions for the Investor's failure to provide the Guarantee Agreement of the Bank to the Purchaser after signing the agreement for purchase or hire-purchase of house within a reasonable period of time; and concurrently increasing the current administrative fine level to limit infringements of the Investor.