The trick of selling houses on paper and the shield from the New Law

“Ghost projects”, disguised capital contribution contracts or illegal payment requests have caused many people to lose money and suffer. From August 1, 2024, the Real Estate Business Law 2023 officially took effect, providing a solid legal barrier to protect future home buyers. In an article in Saigon Economic Magazine, Lawyer Ho Vuong Quoc Su - CEO of LS Law Firm shared a practical perspective on the sophisticated tricks of investors to avoid falling into contract traps.

(KTSG) – Once disadvantaged by asymmetrical contracts, future home buyers now have more legal grounds to protect themselves thanks to the tightened regulations in the new law.

Identify the investor’s tricks

“Ghost projects” and the trick of contributing capital and depositing to hold a spot

Many buyers have fallen into the situation of “losing money and getting nothing” when buying future houses in non-existent or unlicensed projects, even projects that are involved in disputes or have been mortgaged in another transaction. The investor created a grand perspective, promising superior amenities and profit potential, but in reality it is just an empty lot.

Another trick is to open for sale when the project is not yet legally qualified to be put into operation. Instead of signing a sales contract according to the law, many investors circumvent the law by signing capital contribution contracts, reservation agreements, and investment cooperation. When disputes arise, buyers struggle to get their money back.

illegal extortion

According to regulations, investors can only collect money according to construction progress, with a limited payment rate for each stage. However, in reality, many investors collect up to 50-70% as soon as the foundation is completed, even forcing buyers to pay up to 90% with the “bait” of high discounts. This causes buyers to lose their bargaining position to force investors to speed up progress. If the project stalls, the entire amount is almost “locked” indefinitely.

Contract traps

Many future housing purchase and sale contracts contain many risks:

Progress trap: The contract does not specify a specific handover date, but only states “expected” or “according to construction progress”, allowing the investor to extend indefinitely without being responsible, the buyer’s capital is locked up but it is difficult to have a basis to claim compensation.

The investor can only collect a maximum deposit of 5%, the first payment is a maximum of 30% including the deposit. The following payments are closely linked to the construction progress, the total payment when not yet handed over is a maximum of 70%, when not yet having the certificate is a maximum of 95%.

Entitlement trap: Buyers who pay late are heavily fined, lose their deposit, or even have their contracts canceled; while investors who are late in handing over are only fined symbolically or are not responsible. The right to unilaterally terminate the contract is often tilted towards the investor, putting buyers in a weak position.

Financial trap: The contract only states the selling price but leaves out fees such as management, maintenance, and registration, causing the buyer to be shocked when receiving the house because they have to pay too many additional fees. Many contracts do not clearly distinguish between common and private ownership, which can easily lead to disputes later, such as about parking spaces or commercial floors. Buyers should request a full list of all financial obligations in the contract.

Understand the law to protect your wallet

From August 1, 2024, the 2023 Law on Real Estate Business officially takes effect, replacing the 2014 Law, with many regulations tightening the buying and selling of future housing – a popular type of transaction but with high potential risks.

Tighten conditions for business

According to Article 24, future housing can only be sold when construction has started, there are legal documents on land use rights, construction permits (or notice of commencement) and documents on acceptance of completion of foundation or technical infrastructure according to schedule.

Before selling, the investor must notify the provincial housing management agency to confirm that it is eligible for business. The house must be in an approved project, free of disputes, not subject to seizure, and the investor must have fulfilled its financial obligations regarding the land.

This regulation aims to prevent the situation of “selling houses on paper” when the project does not have enough legal basis for sale.

Deposit limit is not more than 5% of selling price

The new law for the first time stipulates a deposit ceiling. Investors can only collect a maximum of 5% of the sale price when the project is qualified to be put into operation according to the provisions of this law.

Previously, without this limit, many investors illegally raised capital in the form of “reservations”, causing great losses to buyers when projects stalled. The new regulation creates a “legal barrier” to protect consumers.

Payment according to construction progress

Article 25 of the 2023 Law on Real Estate Business continues to strictly control payment progress. The first payment must not exceed 30% of the contract value (including the deposit). Subsequent payments must be linked to construction progress. The total of payments must not exceed 70% before handing over the house (50% if the seller is a foreign-invested enterprise). When the certificate has not been issued, the seller can only collect a maximum of 95% of the contract value. This regulation is to prevent the situation of “quickly collecting money, slow construction”.

Binding investor responsibility

The 2023 Law on Real Estate Business increases the responsibilities of investors such as having to publicly disclose project information, provide complete legal documents before signing the contract, and comply with model contracts.

Notes to avoid falling into the “trap”

In short, before the buyer “puts down money”, it is necessary to carefully check the legal documents: documents on land use rights, construction permits, minutes of acceptance of technical infrastructure construction according to project progress (for apartment buildings, the foundation must be accepted), documents from state agencies announcing eligibility for sale.

Only sign contracts directly with the investor, carefully read the terms of deposit and payment according to the progress and rate prescribed by the newly issued law.

For large value transactions, buyers should have a lawyer or expert review the contract to identify unfavorable terms and avoid risks due to ambiguous language.

Interested readers can learn more at: https://thesaigontimes.vn/chieu-tro-ban-nha-tren-giay-va-la-chan-tu-luat-moi/