With the unpredictable changes in the real estate market in recent times, the construction industry is facing numerous challenges in its operations. Many construction projects are experiencing capital shortages or halted construction due to quality assurance issues. Additionally, the sudden surge in construction costs due to soaring real estate prices, affecting the purchasing power of investors, has resulted in the emergence of difficult-to-collect debts within the construction sector. In this article, TNTP’s legal team will provide insights into the challenges of debt recovery in the construction industry in Vietnam today.
1. Types of Debts in the Construction Industry
The construction industry encompasses various related and interconnected sectors, including raw materials, architecture, structural engineering, real estate, land administration, and more. Consequently, Debts in the Construction Industry are diverse and complex. In this article, we will focus on debts that arise during the execution of commercial real estate projects—a common source of challenging debt recovery.
Commercial real estate refers to properties constructed for commercial purposes, primarily for leasing and business activities. It is a preferred investment avenue for many investors. However, amidst the signs of a declining real estate market in Vietnam due to various reasons, Debts in the Construction Industry are increasing, significantly impacting the interests of investors, construction contractors, and stakeholders.
2. Classifying Debts in the Construction Industry
a) Debts Related to Project Progress
Project progress is a top priority for every investor and contractor when undertaking a real estate project. Ensuring that construction is on schedule minimizes risks associated with rising material prices, meets market demand promptly, and, most importantly, ensures timely capital recovery when properties can be sold. However, due to various objective and subjective factors, project delays can lead subcontractors to accumulate debts with investors. Slow progress on a project can result in increased capital requirements or penalty clauses for contract breaches.
b) Debts Related to Construction Materials
Construction materials are fundamental to shaping any real estate project. Without these materials, projects remain on paper. Both investors and construction contractors must carefully consider the quantity, quality, and prices of construction materials before and during a real estate project. Similar to other market factors, the value and quality of construction materials continuously fluctuate depending on various market-related and non-market-related factors. Many real estate projects fail to meet construction deadlines or even be complete due to the impact of construction materials.
c) Debts Related to Project Quality in the Construction Industry
Similar to every aspect of services in society, quality is a critical factor in determining whether a real estate project can be completed or profitable. Quality factors in a real estate project encompass numerous elements, including the quality of construction materials, the quality of construction work, and the quality of construction management.
Debts arising among parties involved in project implementation related to quality issues are also diverse. These disputes can range from conflicts over the quality of construction materials between construction contractors and material suppliers to disputes regarding the construction quality between investors and contractors during project execution or inspection. These issues can even extend to debts arising between investors or buyers of the project and the project’s developer or construction contractor. If these debts are not carefully resolved or balanced to safeguard the interests of all parties, they can lead to disputes among stakeholders involved in the construction project.
The above is an article by TNTP’s legal team expressing their perspective on the challenges of debt recovery in the construction industry in Vietnam today. We hope that this article provides value to our readers.