Bank guarantees for property meant to safeguard buyers

Property developper in Viet Nam are expected obtain guarantees from eligible commercial banks as assurances of their finanacial obligations to buyer. Photo batdongsanmuaban.com

Following Article 56 of the Law on Real Estate Business, to take effect on July 1, property developers, before selling or leasing unfinished or future property, must obtain guarantees from eligible commercial banks as assurances of their financial obligations to buyers.

Accordingly, in case property developers fail to hand over apartments to buyers following commitments, banks would be responsible for returning the buyers' money, in line with signed contracts.

The regulation was expected to protect the rights of home buyers, as well as contributing towards cleaning up the realty market.

According to Nguyen Manh Ha, Director of Housing and Real Estate Market Management Department, this would eliminate risks for home buyers, as their money would be guaranteed by banks, which would strengthen overall buyers' confidence.

Further economic expert Nguyen Tri Hieu said the regulation would stimulate home purchases and improve liquidity in the real estate market. Financial disputes arising when property developers failed to complete their obligations were also expected to be reduced.

Huynh Trung Minh from HDBank was quoted by Tri Thuc Tre (Young Intellectual) online newspaper as saying that bank guarantees reflected that the project met certain standards and development potentials. Therefore, home buyers could feel secure when spending money on guaranteed projects.

However, there were concerns that the regulation would increase property prices and cause disadvantages to small developers.

According to Le Hoang Chau, president of HCM City Real Estate Association, guarantee fees might be a factor to be calculated in property prices, which would push up selling prices.

Thus, it would be unreasonable to apply the regulation to all property developers, as guarantees for projects of prestige developers were, in fact, not necessary, Chau said. He added that, instead, buyers should be allowed to request a guarantee if they found it necessary.

While the regulation was expected to eliminate incompetent property developers and enhance market transparency, Nguyen Van Duc, the association's deputy president, worried that this regulation might burden small developers who could need to purchase less favourable guarantee fees, in comparison to large firms, or might face difficulties in negotiating with banks for guarantees.

Further, some voiced concerns that this would undermine their competitiveness and even force them to leave the market.

However, no guarantee fees have been disclosed, as the fees should be competitive, several banks said.

Detailed instructions

While several developers were taking pioneering steps in signing agreements with commercial banks to guarantee their property projects, others remained confused with the regulation, claiming detailed instructions about guarantee procedures were urgently needed.

To date, no decree or circular outlining the implementation of the regulation have been issued.

Most recently, Sacomreal signed agreements with OCB, ACB and HDBank to guarantee all of its projects. Previously, Novaland signed with VPBank to provide guarantees for its four projects and Thao Dien Company signed with Techcombank to guarantee its Masteri Thao Dien project in HCM City.

Meanwhile, a representative from a property company said he remained unclear about guarantee procedures due to the lack of instructions.

Doan Chi Thanh, general director of Hoang Anh Sai Gon Company, said detailed instructions were urgently needed, as there were only two weeks left before the regulation was to be enacted.