ILLEGAL CAPITAL MOBILIZATION IN TRADING OFF-THE-PLAN REAL ESTATE THROUGH A THIRD PARTY

Real estate investment in Vietnam has been an effective investment activity that easily attracts investors even on the duration of global economic difficulties due to the Covid-19 pandemic. Along with the profit opportunities that this market offers, investors can face many unpredictable risks. In this article, we hereby will mention and analyze one of the risks that real estate investors have encountered. That is the risk arising from the investor’s illegal capital mobilization in trading off-the-plan real estate by the way that a Third-party signs a contract with the purchaser.

1. How does the act of illegal capital mobilization take place?

a) The subject has the right to sell off-the-plan real estate

Under the provisions of the Law on real estate trading, investors have the right to open their real estate sales. Accordingly, the investors may perform such rights if the off-the-plan real estate meets the conditions for sale.

However, the fact indicates that if the investors want to open to selling their off-the-plan real estate before meeting the condition, they usually go through a Third-party to sign a brokerage service contract with the purchaser.

b) Methods of illegal capital mobilization

In order to carry out the act of mobilizing capital, the investor will go through a third party to sign a brokerage service contract with the purchaser. At that time, although the contents of the contract will imply the deposit of the purchaser, the contractual terms will only express the “The fee for brokerage services” instead of the “The amount of deposit to purchase real estate”. Such a way of drafting terms aims to cover up the deposit to purchase real estate, “legalize” it into a fee paid by the purchaser for the Third Party to carry out brokerage intermediaries – a civil transaction that is not prohibited by law. In this method, the investor will conceal and “circumvent the law” regarding the illegal capital mobilization in accordance with the law on real estate trading.

For the purpose of occupying the money gained by illegal mobilization, the investor will often integrate terms into service contracts that are harmful to the purchaser such as (i) fine a deposit penalty for the purchaser’s termination before the contract term; (ii) the purchaser is not refunded the deposit after a period specified by the investor; or (iii) stipulate that the purchaser is not allowed to get the refund deposit until the investor opens for sale.

These are provisions that seriously affect the interests of the purchaser when the purchaser has accepted to enter into the service contract. In case the purchaser notices abnormal signs in performing the service contract, for example, the real estate project has not been completed in accordance with the committed schedule of the investor; or the sale time expired but the project is not yet completed for sale,… the purchaser wishes to terminate the service contract. However, at that time, the purchaser is in a dilemma when impossible to withdraw the deposit due to the contract bond regarding the above unfavorable terms. If the purchaser continues to wait, the purchaser is also not aware of the timeline that the investor is eligible for sale.

2. How should purchasers recognize and avoid this risk?

According to our practical working experience, many investors trading real estate have been conducting illegal capital mobilization from purchasers through Third Parties. Despite this, the Competent Authorities are still “afraid” to receive and handle these cases. Agencies believe that the contracts between third parties and purchasers have the content and form of ordinary civil transactions. At the same time, there are many gaps and inadequacies in the applicable regulations of law on sanctions against third parties due to their illegal capital mobilization. Therefore, it is still difficult in protecting the interests of purchasers from a legal perspective against this risk.

To prevent and limit risks, purchasers need to equip themselves with skills to recognize and anticipate suspicious moves before signing any contract. Specifically, if the investor does not directly sign the sales contract but proposes the purchaser to sign sales or deposit contracts with any other third party, the investor is likely to conduct the illegal capital mobilization. The purchaser must carefully consider the guarantee commitment as well as the credibility and reputation of the third parties before entering into contracts or depositing money for them. If uncertain, the purchaser should not sign a contract and make a deposit to any third party to protect his/her own rights and property.

With the above legal analysis and sharing on, we hope this article will help you avoid investors’ illegal capital mobilization when participating in off-the-plan real estate transactions.

Best Regard.

TNTP & Associates International Law Firm