PURCHASING PROCESS AND PROPERTY REGISTRATION
Thanks to the new Housing Law (Luật Nhà ở 2014) from July 1st, 2015 any foreign individual as well as a foreign entity without diplomatic immunity and privileges has the right to buy and own freehold real estate in Vietnam. It worth noting that recently Vietnam has been the most closed country in the region but now ownership rights for foreigners are secured better than in any other part of Asia. This article will give you the most recent information about the real estate market in Vietnam, real estate purchasing processes, maintenance costs, taxes, mortgages and pricing.
REAL ESTATE MARKET FEATURES FOR FOREIGNERS
- In accordance with the Law on Housing 2014, there are 2 types of residential units from a land attachment perspective:
- Houses on a detached land plot (villas in gated communities, raw houses, detached houses etc.)
There are several more types of housing from a distribution perspective:
- Commercial Housing (nhà ở thương mại) – any house which is built for sale, lease, or lease purchase according to the market mechanism
- Social Housing (nhà ở xã hội) – any house provided for entities benefitting from the policies on housing support carried out by the State as prescribed in the Law on Housing
- Official Residence (nhà ở công vụ) – any house rented by entities entitled to live in official residences as prescribed in this Law over the duration of their employment
- House Serving Relocation (nhà ở để phục vụ tái định cư) – houses provided for households or individuals who have to relocate when the State resumes land or to carry out land clearance as prescribed in the regulations.
- Individual Development Housing(nhà ở của hộ gia đình, cá nhân) – a house build individually for the purpose of living.
- A foreign individual or entity can register its ownership rights only for house within commercial housing developments such as residential apartment complexes, villas or gated communities. Purchasing properties within social housing developments is prohibited.
- A foreigner has the right to register its ownership for the term of 50 years with extension for another 50 years, thus overseas individuals or entities have title to their property for 100 years. This property can be sold to a Vietnamese citizen at any time and in this case the purchaser will get it on a freehold basis without time limitation.
- Foreign individuals and entities may own up to 30% of residential apartments in an apartment building or up to 10% of the houses or 250 houses in a housing development area whose population is equivalent to that of a ward, whichever comes first. If there is more than one project is such an area, foreign entities may own up to 10% of detached houses in each project and up to 250 houses in all of the projects.
- Foreign individuals or entities eligible to own houses in Vietnam may only purchase houses from owners of housing construction projects, or purchase houses from other foreign entities. The only possible way to buy property from the Vietnamese individual is to purchase it in the development under construction when the current owner hasn’t obtained an ownership certificate and his sales and purchase agreement hasn’t been registered with competent authorities. In this case the developer and the current owner terminate an agreement and the buyer signs the new one. Thus from a legal perspective, the foreign buyer purchased the property directly from the developer and the deal is lawful.
- It is worth noting that all the above regulations are only relevant for housing. Not complying with the current regulations are:
- Tourist/hotel apartments (căn hộ du lịch/khách sạn), also called condotels. There are often many hotel rooms/apartments for sale within hotel complexes in some resort cities. Such transactions are legal but since such complexes are mainly developed on non-residential land they are not regulated by the current Law on Housing. Currently neither foreign individuals nor Vietnamese citizens can expect to obtain an ownership certificate, with legal tenure being long term leasehold. The term of this leasehold is limited by the leasing term of the land the project is built on (usually 50 years). In Nha Trang, the Nha Trang Center, The Costa, and Muong Thanh Nha Trang Center are examples of this kind of project.
REAL ESTATE PURCHASING PROCESS
- Real estate agencies provide a list of options to meet a client’s requirements.Certainly it can be done by the client himself but it is worth noting that in Vietnam such services are free for the buyer since the seller is paying the commission to the agency and it means that the potential buyer is not going to save money but can save time by receiving consultancy services and professional support from the agency.
- Obtaining Ownership (Certificate of Land Use Right and house and land-attached asset ownership. (giấy chứng nhận quyền sử dụng đất, quyền sở hữu nhà ở và tài sản khác gắn liền với đất),the so called Pink Book due to the colour of its cover usually is issued within 6 months of development handover at a cost of 0.5% of the property price.
- If late payment does not exceed 3 months the developer has no right to withdraw your property but can apply penalties (usually about 1-2% of the outstanding amount per month). In the case of longer delays, the developer may sell the property to another buyer, returning to the previous buyer the money spent.
- Payment Schedule. If the property is being purchased on the secondary market then you must pay the contract sum in full. If you are buying from the developer then the payment can be made in installments. Payment schedules may vary depending on the particular development but usually the down payment is about 20%-30% and the subsequent installments linked to construction stages. Typically, the final 5% is to be paid upon receiving an ownership certificate.
- Sales and Purchase Contract (SPC) signing. If you are buying property on the secondary market, it is strictly required by law to notarize the SPC (the usual notarization fee doesn’t exceed US$100). If the seller is a developer, it is his obligation to register the SPC at the local Department of Construction and local Tax Office and notarization is voluntary.
- Payment Methods. A real estate purchase transaction does not require a bank account involvement as payment can be done in cash. However it is strongly recommended to make every payment using a bank transfer in order to avoid any questions regarding the source of money in the future or when you decide to sell your unit and get this money out of Vietnam.
- Unit Booking. Usually in order to reserve a real estate unit you need to deposit from 50,000,000 to 200,000,000 VND (from around US$2,200 to US$8,800) depending on the unit type and usually this amount is deposited in cash. Upon depositing, the buyer will receive a Deposit Agreement and/or a receipt with reservation terms. The reservation is valid for 15 days.
Property Taxes in Vietnam
Taxes Related to Property Acquisition
- Purchasing on the primary market
- Sinking fund payment – 2%, payable upon property handover. Sometimes it is included in the price.
- VAT – 10%. Included in the price.
- Registration fee – 0.5% of the property price outlined in SPC
- Purchasing on the secondary market
- Notary services – usually around US$50-100;
- Registration fee – 0.5% of the property price outlined in SPC
TAXES RELATED TO PROPERTY OWNERSHIP
- There are no property taxes in Vietnam;
- Personal Income Taxes (PIT) applicable to income from property leasing – 10% of revenue.
TAXES RELATED TO PROPERTY TRANSFER
- PIT – 2% of the property price stated in the notarized SPC;
- Inheritance and gift tax – 10% of the property market price. Applicable only for non-direct relatives (i.e. non spouses, parents, brothers and sisters) or there is not enough proof of such connection.
- Electricity fee – around US$0.1 per Kw
- Water – around US$0.4 per m3
- Typically, a family with one child pays in the region of US$30 to US$100/month for all utilities
MANAGEMENT COMPANY SERVICE FEE
- The majority of apartment buildings and gated communities have a professional property management company responsible for overall maintenance of the complex, common areas cleaning, security, etc. Management fees usually range from US$0.4 to US$1 per sq.m per month and they are payable regardless if someone is using it or not.
- Most property management companies also provide leasing services for property owners. The commission is around 8-10% of total revenue.
- Property insurance is voluntary in Vietnam. But the owner may insure the property against fire, flooding and natural disasters. Insurance fees are about 0.1% of total value of the insured property.
- According to law, the developer’s financial obligations before purchase must be guaranteed by a competent commercial bank. This is in case the developer fails to transfer the building on schedule as per their commitment to the client. This is particularly relevant when the developer is selling off the plan.