LAW ON REAL ESTATE BUSINESS (“LOREB 2023”), effective from August 1, 2023, introduces several progressive regulations that align better with the practical development of the real estate market, including provisions on guarantees for future-formed housing. Notably, LOREB 2023 grants buyers the right to decide whether to request a financial obligation guarantee from the developer, providing greater flexibility for both parties based on their actual needs.
On October 25, 2024, the State Bank of Vietnam issued Circular 49/2024/TT-NHNN (“Circular 49”), which takes effect on December 10, 2024. This circular amends and supplements certain provisions of Circular 11/2022/TT-NHNN (“Circular 11”), thereby adjusting several regulations to align with the newly enacted LOREB 2023.
Expansion of Guarantee Providers to Include Foreign Bank Branches
Previously, guarantees for future-formed housing could only be provided by commercial banks (“CBs”) that met the conditions stipulated in Article 13 of Circular 11. These conditions included having specific authorization for this activity in their operational license and not being subject to any restrictions or prohibitions. The State Bank of Vietnam periodically published a list of CBs qualified to issue such guarantees on its official website.
However, Circular 49 removes these previous restrictions and expands the eligibility criteria to allow both CBs and foreign bank branches to provide guarantees for future-formed housing. With more financial institutions participating in the guarantee market, the supply of credit guarantees for the real estate sector is expected to increase. This will enable CBs and foreign bank branches to offer a wider range of guarantee products, catering to the diverse needs of businesses and homebuyers.
More Detailed Procedures for Future-Formed Housing Guarantees
Circular 49 provides a comprehensive and detailed process for implementing guarantees for future-formed housing in accordance with Article 26 of LOREB 2023. Specifically, based on the developer’s request, CBs and foreign bank branches will review, assess, and decide whether to issue a guarantee. The guarantee process is structured as follows:
- The guarantor and the developer sign a guarantee issuance agreement in accordance with the regulations.
- Based on the signed agreement, the guarantor issues a written commitment to provide a guarantee letter to the developer, who then sends a copy to the buyer upon signing the sale or lease-purchase contract.
- After signing the sale or lease-purchase contract, which includes the developer’s financial obligations, the developer submits the contract to the guarantor to request the issuance of a guarantee letter to the buyer.
- The guarantor, based on the contract, the guarantee issuance agreement, and the written commitment, issues the guarantee letter and sends it to the developer, who then provides it to the buyer.
According to Circular 49, the guarantor is responsible for issuing a written commitment to provide a guarantee letter to the developer after signing the guarantee issuance agreement. The developer, in turn, must send a copy of this commitment to the investor. By refining Circular 11 in alignment with the principles of LOREB 2023, Circular 49 clarifies the responsibilities of developers regarding project guarantees, thereby enhancing investor protection and increasing transparency in the real estate market.
