Deposit when purchasing real estate is a requirement that almost all buyers must fulfill. However, not all buyers are aware that to receive a deposit from the buyer, real estate businesses or property project investors must meet specific strict conditions according to the law. If the buyer proceeds to deposit for projects or investors who do not meet these conditions, there is a high likelihood of encountering risks. In the following article, TNTP’s lawyer will provide notes on making real estate deposits in the future to help buyers ensure their interests.
1. Conditions for investors to be entitled to receive a deposit:
The law does not mandate a requirement for a deposit in real estate transactions. However, for property investors to have the right to receive any amount of money from buyers related to real estate transactions, the future real estate project must meet the following specific conditions to be put into operation:
According to the regulations in the Real Estate Business Law, the conditions for the future real estate project to be put into business include:
(i) Having documents regarding land use rights, project dossiers, approved construction drawings, construction permits where applicable, and documents on the acceptance of completed technical infrastructure corresponding to the project’s progress; in the case of future condominiums or mixed-use buildings for residential purposes, there must be an acceptance record of the completed foundation of those buildings.
(ii) Before selling, leasing, or buying future residential properties, the investor must provide written notice to the provincial housing management authority about the property’s eligibility for sale, lease, or purchase.
The provincial housing management authority, upon receiving the dossier, is responsible for responding in writing to the investor about the property’s eligibility for sale, lease, or purchase within 15 days; in case of ineligibility, the reasons must be clearly stated.
Therefore, for future real estate projects, the investor only has the right to receive a deposit from the buyer when this real estate project meets the conditions for sales as stipulated by the law. In the case where the property is not yet eligible for sale, but the investor or project selling entities request the buyer to make a deposit or pay a portion of the property’s value, all such actions are unlawful.
As a result, before making any payment to the investor or any intermediary, the buyer should request the provision of documentation proving that the real estate project has met all the conditions for sales to safeguard their interests and mitigate risks associated with unclear or ineligible projects.
2. Some tricks for investors to unlawfully receive money from buyers
Although the law has specified the conditions under which investors are allowed to receive and mobilize funds from buyers, many investors have found ways to “bend the rules” by employing various tricks to legitimize transactions that are otherwise prohibited by law. One common tactic used by investors to receive money from buyers before the real estate is eligible for sale is by proposing customers enter into different types of service contracts that essentially serve as a means of capital mobilization.
In such cases, the investor or a third party would propose the buyer to sign multiple contracts, such as agreements, capital contributions, purchase commitments, investment advisory contracts, real estate transaction service contracts, in which the buyer agrees to commit to using consultancy/support services for a certain amount of money. While the content of these agreements may not violate any legal provisions, the essence of these contracts is to raise capital and receive money from buyers before the real estate is ready for sale.
Many buyers, after being advised by investors or real estate agents, often do not doubt the legitimacy of such service contracts. Legally, these contracts may not fall into categories prohibited by the law, and buyers understand that placing a deposit is necessary to ensure the real estate transaction. In this situation, both the buyer and the investor/real estate agent have reached a civil transaction that is not restricted by the law. However, from our perspective, these civil transactions may be used to conceal the unlawful mobilization of capital by investors and could potentially pose significant risks to customers. Any form of customer payment before the real estate project meets the conditions for sale may be aimed at raising funds for that specific project. As a result, the investor may freely use these funds for investments in other projects or even engage in fraudulent activities. Therefore, buyers need to verify the conditions for sales and authenticate the documents provided by the investor or real estate agent. Additionally, buyers should confirm with relevant authorities to avoid the risk of investing in projects that are not eligible or may be fraudulent.
The above article, from the perspective of TNTP lawyers, provides valuable insights to help buyers safeguard their interests when engaging in future real estate transactions. We hope that this article will be of value to its readers.