Future Real Estate is currently a popular investment channel chosen by many people. One of the advantages of this type of real estate is its relatively low value because it is still in the construction process or undergoing legal procedures. Many developers often attract buyers early on and require a deposit to purchase the land, with the price becoming more attractive when buyers act quickly to make a deposit. However, many developers often require buyers to make deposits for Future Real Estate, which contradicts legal requirements. In this article, TNTP’s lawyer will analyze and answer the question: “When is capital mobilized for Future Real Estate?”
1. What is Future Real Estate?
According to legal regulations, Future Real Estate specifically refers to houses and construction works that are being formed or are in the process of construction and have not been inspected and put into use.
Therefore, unlike existing or completed real estate, Future Real Estate has not been formed, constructed, or only exists within projects. Thus, in addition to being a potential investment channel, this type of real estate also carries inherent risks if buyers do not thoroughly examine the credibility of the project and the developer. Almost all profit scenarios from real estate projects formed in the future are based on data and have not been verified.
2. What is capital mobilization for Future Real Estate?
According to the provisions of Decree 99/2015/ND-CP guiding the detailed implementation of the Law on Housing regarding capital mobilization in commercial real estate development activities, there are two main forms: (i) Capital mobilization through capital contribution, investment cooperation, business cooperation, joint ventures, and partnerships of organizations, households, and individuals; and (ii) Capital mobilization through prepayment, lease, or lease-purchase of future-formed residential properties.
Capital mobilization must be ensured to serve the intended purpose and meet the conditions set by the developer for the sale of real estate. Additionally, the developer must use the mobilized capital for the construction of residential properties within the project as intended. It is strictly prohibited for the developer to mobilize an amount exceeding the prepayment or lease-purchase amount specified by the law. If the mobilized capital is misused or misappropriated, or if the developer exceeds the prepayment or lease-purchase amount, the developer must return the amount in violation of regulations, provide compensation (if causing damage), and be subject to administrative sanctions as stipulated by the law, and in some cases, even face criminal prosecution.
3. Conditions for capital mobilization for Future Real Estate
According to the provisions of the Law on Real Estate Business, the conditions for capital mobilization for Future Real Estate are as follows:
• The real estate must meet the conditions for sale, including having documents on land use rights, project files, approved construction designs, and construction permits (if required). For projects involving apartment buildings or mixed-use buildings intended for future occupancy, there must be a complete inspection report for the foundation of the building.
• There should be no disputes over land use rights, ownership of houses, or construction works attached to the land.
• The real estate must not be under a mortgage to secure enforcement of judgments.
Therefore, for a real estate project formed in the future to meet the conditions for sale, it must fulfill all the requirements specified by the law. In such cases, if a developer decides to sell a real estate project formed in the future, they must provide the necessary documentation, including documents related to land use rights, project files, approved construction designs, and construction permits (for specific cases). Selling a real estate project formed in the future without meeting these conditions is against the law, and the act of capital mobilization by the developer from buyers when the project does not meet the legal requirements is considered illegal capital mobilization.
4. Illegal capital mobilization
In reality, many developers have engaged in an illegal capital mobilization when their projects do not meet the legal requirements for sales. However, these developers have found ways to “circumvent the law” using various tricks, greatly impacting the legitimate rights of buyers, especially through transactions conducted by third parties.
In such cases, developers do not directly engage with customers to sign contracts but instead go through third parties, often real estate brokers. The capital mobilization is carried out through civil transactions using the form of service fee collection for brokerage, disguising the concept of “deposit for purchasing real estate.” By transforming capital mobilization transactions into regular civil transactions, they conceal illegal capital mobilization in accordance with the laws on the real estate business.
These contracts usually tightly bind customers’ payment obligations and often do not allow buyers to receive the deposit until the service is completed or impose penalty clauses if buyers unilaterally terminate the contract. In situations where issues arise with the service contract, such as the real estate project not being completed as promised by the developer’s schedule or the project not being ready for sale within the specified time frame, buyers may want to terminate the service contract. However, at this point, buyers will face unfavorable terms of the service contract and find themselves in a difficult situation as they cannot withdraw the deposit due to contractual obligations. If they choose to wait, they do not know when the developer will meet the conditions for sales.
Therefore, buyers need to be cautious before deciding to sign a deposit contract or engage in transactions for Future Real Estate, as these developers often carry out illegal capital mobilization through enticing incentives.
The above are the insights from TNTP to answer the question: “When is capital mobilized for Future Real Estate?” We hope this article is helpful to readers in their work and investment endeavors.