The Vietnamese government has issued new directives to reassure overseas property investors through guarantees and avenues of recourse for prospective projects.
Estella Heights -new project in District 2
As of August 9th, any new development must be guaranteed financially before a project is due to commence. This updated guidance is seen as a move to reduce perceived risks from overseas investors, who were granted new rights to legally purchase property for the first time on July 1st, 2015.
Institutions have acted following a spate of litigation by disgruntled buyers of projects which weren’t delivered on time. The State Bank’s updated guidance, emerging from Circular No. 07/2015/TT-NHNN, requires certain conditions to be met before a purchase or a project can be ratified.
Guarantees for buyer, developer and lending institutions must now be made clear and transparent before a purchase is recognized. Should either buyer or developer fail to meet their obligations, the lending parties will be liable to pay full compensation, including re deposits and advance payments.
While it’s expected that additional cost burdens related to securing guarantees from commercial bank may be reflected in marginally higher prices, the aim is to make the property market a more transparent and credible destination for foreign capital.
A bigger role for banks
It’s hoped that asking more of commercial banks will ensure projects are better managed throughout the development phase. Banks who previously issued lump-sum loans to developers were often left with debts and write-offs, whereas under the new stipulations, commercial banks have an active role in ensuring money is treated correctly through a project’s lifetime.
Lending banks are expected to perform more stringent diligence on a developer’s financial capacity, project feasibility and market conditions before sanctioning contracts.
Masteri Thao Dien apartment will be finished in 2016
Timely delivery and industry credibility are expected to be boosted by these measures, attracting further investment interest from foreigners. Financially insecure developers are likely to fall by the wayside, which while impacting ambitious start-ups will make the market healthier as a whole.
Overseas Vietnamese (Viet Kieu) and foreign investors will also benefit directly from the Circular updates, with pressure put on the banks to make it easier to access loans in-country rather than requiring guarantees solely from abroad. Buyers purchasing from established developers with good reputations will also be rewarded, as trusted partners are likely to be offered a lower guarantee fee than less credible competitors.
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