The nature of legal risks in real estate investment

The introduction of the 2024 Land Law, the 2023 Housing Law, and the 2023 Law on Real Estate Business is not merely a technical legislative change. It represents a shift in regulatory philosophy. The State no longer regulates the market through flexible administrative mechanisms as it once did, but instead has moved toward a system of transparent control, stricter conditional requirements, and clearly defined responsibilities imposed on project developers. As a result, legal risk is no longer a peripheral factor, but has become a central component of project business strategy.

Legal risk in real estate projects may be understood as the possibility of adverse consequences arising from the application or amendment of legal regulations, administrative decisions, or the enterprise’s own transaction structure, thereby affecting the legality of the project, its commercial exploitation capability, or the liability of its managers.

Notably, legal risks do not necessarily stem from intentional violations. In many cases, risks arise from inconsistencies among procedures, changes in policy across different stages, or the failure of enterprises to adequately prepare for unfavorable legal scenarios.

The characteristics of real estate make this sector a “hotspot” for legal risks. First, real estate assets involve substantial value and long investment cycles. A project may last from three to ten years, or even longer if legal obstacles arise.

During that period, land policies may change, planning schemes may be adjusted, and land valuation methods may be updated. The 2024 Land Law abolishes the land price framework and requires land prices to be determined according to market mechanisms. This means that the financial obligations of project developers may fluctuate significantly if state authorities re-examine land valuation plans. An error at the initial stage may lead to severe financial consequences many years later.

Legal risk management in the real estate sector is not merely a supporting activity for business operations. It is part of a sustainable development strategy. Successful enterprises are not those that have never encountered difficulties, but those that can promptly identify weaknesses in their legal structure and proactively make adjustments before risks escalate into crises.

In addition, the real estate sector is highly dependent on administrative decisions. From investment policy approvals, land allocation, and detailed planning approvals to the determination of financial obligations, each stage is tied to a decision issued by a competent authority.

Under the current legal framework, these decisions may be subject to inspection, examination, or reconsideration. Once an administrative decision is called into question, the entire chain of transactions arising from the project may be affected in a cascading manner.

Another feature that cannot be overlooked is the extensive use of financial leverage. Most real estate projects combine equity capital, bank loans, and funds mobilized from customers or corporate bonds.

As the 2023 Law on Real Estate Business tightens conditions for capital mobilization and requires bank guarantees for off-plan housing projects, the boundary between lawful and unlawful fundraising has become clearer. If project developers fail to properly control the timing and conditions for launching sales, transactions may be declared invalid or, more seriously, examined from the perspective of criminal liability where elements of misappropriation are involved.

Legal risks in real estate projects rarely arise in isolation; they usually exist in a systemic form. For example, an issue concerning land origin, such as unresolved interspersed public land areas, may not immediately affect the stage of obtaining investment policy approval.

However, when the project enters the stage of issuing ownership certificates to customers, that issue may become a bottleneck causing land registration authorities to suspend procedures. If the enterprise has already mobilized capital and handed over properties, the risk of collective complaints or criminal accusations may increase significantly.

Practice during the 2020–2026 period shows that when projects lose liquidity, experience delays in handover, or fail to complete legal procedures for issuing ownership certificates, pressure from customers and investors may push disputes beyond the scope of ordinary civil disputes.

In such circumstances, legal representatives or members of the board of directors may face personal risks, including both civil and criminal liability. This creates a new requirement: legal risk management is not only intended to protect the project, but also to protect the individuals managing the enterprise.

A typical example illustrating the systemic nature of legal risk is a residential project that had completed the land allocation decision, obtained approval for detailed planning, and paid most of the land use fees. The developer signed principle agreements with customers, commenced infrastructure construction, and believed that the fundamental legal procedures had been completed.

However, during an inspection, authorities discovered that a portion of interspersed public land had not been handled in accordance with the proper procedures and requested a review of the land valuation plan. As a result, the issuance of ownership certificates to customers was suspended for three years. The enterprise not only faced financial pressure from banks, but also had to deal with customer complaints and the risk of criminal denunciations.

The issue did not lie in the developer’s intentional violation, but rather in the fact that the initial legal structure had not been reviewed thoroughly enough and lacked contingency measures. Many developers only realize legal loopholes when banks suspend disbursement or when customers gather in front of projects holding protest banners. By that point, the cost of crisis management is often many times higher than the cost of the initial legal review.

Solutions in such situations cannot stop at merely “fixing procedures.” Enterprises need to establish internal control systems, including legal reviews of land funds from the pre-feasibility stage, risk classification based on impact levels, and the development of crisis management scenarios.

Separating high-risk land areas from areas that satisfy legal conditions, proactively working with banks to restructure financial obligations, and maintaining transparency with customers are crucial measures to prevent escalation into disputes or criminal proceedings.

The core lesson drawn from market practice is that legal risks cannot be addressed through the mindset of “fixing problems only after they occur.” In an increasingly transparent legal environment subject to strict supervision, enterprises are compelled to adopt a preventive approach.

This requires the establishment of comprehensive legal checklists, periodic legal audits, the development of risk assessment matrices for each project, and, most importantly, mechanisms to protect legal representatives through transparent decision-making processes supported by professional advice and complete document retention.

Therefore, legal risk management in the real estate sector is not merely a supporting business activity. It is part of a sustainable development strategy. Successful enterprises are not those that have never encountered obstacles, but those that can promptly identify weaknesses in their legal structure and proactively make adjustments before risks evolve into crises.