RISKS WHEN BUYING AN OFF-THE-PLAN HOUSE AND HOW TO LIMIT IT
Off-the-plan house is not a strange definition to us. With socioeconomic development, people’s demand for housing is increasing, especially in Vietnam – a country with a tradition of “have a stable life”. Buying an off-the-plan house will save costs because the price of such a house is often lower than that of an existing house. At the same time, the investor will also benefit from the capital rotation and have more investment sources for their projects.
What is an off-the-plan house? What does the law regulate in this regard? What kind of risks may investors face in purchasing off-the-plan houses? How to minimize the risk? Within the scope of this article, we will explain these above issues.
I. WHAT IS OFF-THE-PLAN-HOUSE?
Off-the-plan house is a form of real estate, and a house that was in the process of investment to construct and has not been permitted to be put into operation. The house is unfinished when signing the sale contract, and there is no Certificate of land use rights and ownership of houses. (Red Book, Pink Book)
Article 3 of the 2014 Law on Housing stipulates: “Off-the-plan house means any house which is under construction and has not been permitted to be put into operation”. For example, an apartment in an apartment building under construction is an off-the-plan house.
Thus, the purchase and sale of an off-the-plan house is an activity of buying and selling houses that are in the process of investment and construction, which have not yet been accepted and put into use.
II. LAW REGULATIONS ON OFF-THE-PLAN HOUSE
According to the 2014 Law on Real Estate Trading, the real estate investor is entitled to sell off-the-plan buildings. Requirements in terms of the off-the-plan estate to be put on the market are:
(i) Having a land use right document, project file, construction drawing design approved by a competent authority, a construction permit in case a construction permit is required, and papers on acceptance of the completion of the corresponding technical infrastructure construction according to the project schedule;
(ii) There is certification of completion of the foundation of the building of the off-the-plan apartment buildings or mix-used buildings;
(iii) To notify in writing the housing management agency of the province that the house is eligible for sale, lease-purchase before the sale or lease-purchase of future houses;
(iv) The provincial housing management agency is responsible for giving a written reply to the investor about the housing that is eligible for sale or lease-purchase; In case of ineligibility, the reason must be clearly stated.
Housing projects under construction are only permitted to be sold as off-the-plan houses when they receive a written reply from the Department of Construction- the provincial housing authority. The home buyer must request the investor to provide all the above documents to avoid the transaction being invalidated. If the investor lacks any conditions, the buyer needs to consider buying a house.
The 2014 Law on Real Estate Trading also stipulates the payment for off-the-plan houses. Specifically, the payment will be divided into several installments, which do not exceed 30% of the contract value for the first time. Subsequent payments are based on the progress of housing construction and must be consistent with the construction progress, but the total amount must not exceed 70% of the contract value before transferring to clients. If the seller is a foreign-invested enterprise, the entire installment does not exceed 50% of the contract value. If the buyer has not been granted the certificate of land use right, ownership of houses, and other land-attached assets, the seller shall not collect payment not exceeding 95% of the contract value.
During the process of working together, the buyer has the right to request the seller to provide information on the progress of construction investment, the use of advance money and the actual inspection of the work; and the seller is obliged to provide the buyer with information the buyer is entitled to know.
III. RISKS THAT BUYERS MAY FACE AND HOW TO MINIMIZE IT
When buying an off-the-plan house, buyers often face many disadvantages because they have to spend a lot of money to buy a property. Still, at the time of signing the contract, it has not been such a finished house. Some of the risks buyers may face are as follows:
– The project has not been allowed to be implemented, but the investor has put it up for sale. Specifically, construction documents have not been approved by competent agencies
– The investor does not issue a certificate to the buyer;
– The investor cheats, receives money, and then runs away;
– The project is not permitted to raise funds but has been put up for sale and started accepting deposits and bookings;
– The project is delayed in handing over; the investor fails to transfer the house on schedule as a commitment to clients;
– The project has a dispute with a third party without the buyer’s knowledge;
– The completed house does not comply with the original commitment.
In light of the above risks, we offer the best options to avoid risks as follows:
-Based on the documents provided by the investor, the buyer can use such documents to compare the information with the relevant competent authorities, such as the Department of Natural Resources and Environment and the Department of Construction;… In order to get the most accurate and complete information about the project you are about to buy;
– Seek project information from many different sources, not only believe in the advertisement from the investor;
– Monitor the project construction progress, to avoid the case where the payment schedule is on time but the construction progress is stagnant and slow;
– Be careful with the terms of the contract.
In today’s era, with the strong development of the real estate market, especially the housing purchase and sale activities formed in the future, buyers need to have the legal knowledge and anticipate the possible case risks, thereby finding ways to minimize risks and ensure the interests. We hope the above is of assistance when you consider to buy and sell off-the-plan houses.
TNTP & Associates International Law Firm