A draft Ministry of Construction (MoC) law on property trading is being welcomed by some and criticised by others. 

The Ministry of Construction (MoC) has been preparing a draft law in which real estate investors will be permitted to set aside 20 per cent of their products for sale to strategic partners without having to go through a property trading floor. According to Mr Nguyen Tran Nam, Deputy Minister of Construction, if passed the law will create the conditions for property entrepreneurs to mobilise capital as well as provide houses for staff. 

Real estate investors are pleased. A representative from the Nam Cuong Group said that the law being passed would be a positive signal for investors to increase initial capital resources and mobilise capital. He also said it would hasten the conduct of projects.

Another reason for preparing the draft, according to MoC, is that it would discourage investors from side-stepping the existing law. Under existing regulations, all real estate transactions must be carried out on trading floors. But property developers, in reality, often dodge the law in the process of raising funds for their projects. The most common way is to call for capital investment in advance from strategic partners under the mode of capital contribution contracts. Under these contracts, strategic partners are given the right to own a large number of houses once projects are finished. By doing this investors also don’t have to trade their products on trading floors. The root cause of the problem lies in the fact that current housing regulations consider the transfer of capital contribution contracts not as a real estate transaction, so it need not take place on a trading floor.

The government wants all transactions to be carried out on trading floors, to increase transparency. The MoC proposal, to some extent, meets the above aim. In a recent conference held by MoC, leaders of the Ministry acknowledged that preliminary activities on the 226 property trading floors in Vietnam have been modest. However, in the first eight months of the year the country saw only some 3,500 transactions through property trading floors, accounting for about 15-20 per cent of the total. 

There are, though, doubts being expressed over the feasibility of the proposal. While property developers are quite happy with it, representatives from property trading floors are uneasy. “The policy would reduce the amount of property transactions on the floor so we will not have a large number of products to trade,” said Mr Mai Duy Lam, Director of the Vinalands real estate trading floor. “As a director of a trading floor I do not want any percentage of property transactions conducted outside the floor.” 

He added that there were many regulations, but investors still found ways to dodge the law. “Twenty per cent being allowed to trade outside of floors will not make any real different to investors in raising capital.” he said. One of the most notable points in the MoC draft is that it does not mention sanctions for offences. Mr Phan Thanh Mai, section head of real estate trading floors in the northern region, said that the draft should include fines for those who break trading regulations.

According to Mr Pham Ngoc Thanh, Director of the Tasecoland property trading floor, property developers are the ones to benefit most from the proposal. “I think the State should re-examine the investors being able to raise funds before their projects kick off,” he said. “With 80 per cent of transactions being traded outside, many trading floors now run the risk of going bankrupt.” 

But the actual effect of property trading floors is also under question. When asked about their operations, the representative from the Nam Cuong Group claimed that more and more property trading floors are appearing. Under current regulations, the minimum legal capital to establish a property trading company is just VND6 billion ($300,000) and this is why there are so many in Hanoi and Ho Chi Minh City. Information provided by the trading floors is far from up-to-date, so they fail to meet the needs of customers.

According to Mr Nguyen Manh Ha, Head of the House and Real Estate Market Management Bureau under MoC, the impact of property trading floors hasn’t been high so far because of their unprofessional operations. “Most have been set up by property developers in order to sell their own products and do not have a long term strategy,” he said. Explaining their shortcomings in recent times, Deputy Minister Nam was quoted as saying: “We have only conducted transactions for a short period of time and investors put quantity before quality. So weakness is unavoidable.” 

Acknowledging that the management of property trading floors is also an issue, MoC has been identifying a principal, expected to better provide detailed guidance on infrastructure, human resources, appraisal processes and periodic reports, as well as means of mobilising capital. 

However, if the MoC draft is given the green light by the government it may well contradict existing law.
Government Decree 88/2009/ND-CP stipulates that only people whose property had been traded through a trading floor can be given a red and pink book confirming their land use rights as well as house ownership. So the big unknown is whether people who buy without going through a trading floor will receive such ownership papers. Mr Phung Van Nghe, acting Head of the General Department of Land Administration under the Ministry of Natural Resources and Environment (MoNRE), said that the matter would be specifically defined in a forthcoming Ministry Circular.