Merger and Acquisition (M&A) activities in the real estate sector have always been of interest and participated by many large domestic and international investors. In this sector, M&A transactions are largely regulated and influenced by the Land Law and the Real Estate Business Law. Recently, the National Assembly approved the early effectiveness of the Real Estate Business Law 2023 and the Land Law 2024 starting from August 1, 2024, and these are expected to have a significant impact on M&A activities in the real estate sector in Vietnam.
Below are some positive impacts of the Land Law 2024 and the Real Estate Business Law 2023 on M&A activities in the coming time:
1. Conditions for transferring real estate projects are more favorable:
According to Clause 2, Article 49 of the Real Estate Business Law 2014, one of the conditions for transferring part or all of a real estate project is that the transferring investor must have a certificate of land use rights for the entire or part of the project being transferred. This regulation somewhat complicates the transfer process in practice because a real estate project might meet all the conditions for transfer, but if it is still entangled in other issues and has not been issued a land use rights certificate (which is not one of the conditions for transfer), then it cannot be transferred.
For this reason, the fact that real estate projects are not required to have a land use rights certificate as stipulated in Clause 3, Article 40 of the Real Estate Business Law 2023 will create a more open corridor for the transfer of projects.
Therefore, the adjustment made by the Real Estate Business Law 2023 to remove the requirement of having a land use rights certificate is reasonable to facilitate smoother M&A activities.
Besides creating a more open corridor for M&A activities, Clause 3, Article 40 of the Real Estate Business Law 2023 also ensures the necessary strictness by requiring the transferring investor to fulfill financial obligations related to land for the project, including land use fees, land rent, and any related taxes and fees (if applicable) to the state of the project, part of the project being transferred before executing the transfer. This regulation stems from the practice where parties often agree that the transferee will fulfill the financial obligations for the project, making M&A activities more transparent. Moreover, this is considered a filtering clause for investors, allowing only those with strong financial capabilities to engage in M&A activities.
2. Adjusting the procedures for transferring real estate projects:
According to Clause 3, Article 51 of the Real Estate Business Law 2014, in cases where the investor receiving the transfer of a real estate project is a foreign-invested enterprise, after obtaining the decision allowing the project transfer from the competent state authority, the transferring investor (seller) must proceed to return the land to the state; the competent state authority will then decide on land allocation or leasing to the investor receiving the transfer (buyer) within 30 days from the date of receiving the complete and valid documents.
However, Clause 3, Article 42 of the Real Estate Business Law 2023 has made adjustments regarding this issue. According to it, after obtaining the transfer permission from the competent state authority and once the parties have signed the transfer contract, the procedures related to land will be conducted in accordance with the land law regulations. The purpose of this is to reference the changes in the Land Law 2024.
According to the 2024 Land Law, specifically Article 117 concerning the allocation and leasing of land that is already being used by others, the transfer of real estate projects under the real estate business law will not require the reclamation of land from the transferring party. Instead, economic organizations with foreign investment, after receiving the transfer of a real estate project, will be allocated or leased land by the state without going through an auction or tender process, specifically being allocated land with a land use fee as stipulated in Clause 3, Article 119 of the 2024 Land Law. Although it is still unclear how the land will be allocated to the transferee if it is not reclaimed from the transferor, the removal of the land reclamation procedure for the transferor may save time for the parties during the M&A process, helping the transferee to quickly complete the transfer process.
3. Regulations on selling land lease rights in annual rent land lease contracts:
The lease right in a land lease contract is a new concept introduced in the 2024 Land Law. According to this, it is the right of the land user formed when the state leases land for an annual land rent. The land user can transfer the lease right in the land lease contract; the recipient of the transferred lease right in the land lease contract inherits all rights and obligations of the land user as stipulated by the Land Law and other relevant legal regulations.
Although defined quite broadly, when referring to the specific regulation on transferring lease rights in a land lease contract under Article 46 of the 2024 Land Law, it is evident that this only pertains to a rather specific case. Specifically, a land user can sell property attached to the land and the lease rights in the lease contract when they meet the conditions to sell property attached to the land and have advanced payments for compensation, support, and resettlement that have not yet been fully deducted from the land rent due. This regulation aims to address the situation where land users renting land and paying annual land rent have advanced payments for compensation, support, and resettlement that have not been fully deducted from the land rent due, and are engaged in selling property attached to the land.
Under current regulations, the sale of property attached to the land results in the state reclaiming the land leased to the seller to lease it to the buyer, who must then sign a land lease contract and fulfill financial obligations for the remaining period. It can be seen that the current regulations have not addressed the issue of offsetting or refunding the amount that the seller has advanced for compensation, support, and resettlement that has not yet been fully deducted from the land rent due, against the land rent that the buyer must pay. Therefore, this is a complication in many M&A transactions involving the sale of property attached to the land, and it is also a matter that many sellers regularly consider, as after the transaction the seller still has to pay the land rent, while this amount may also have been included in the sale price by the buyer.
The new regulations of the 2024 Land Law will address this issue, as the amount the seller has advanced for compensation, support, and resettlement that has not yet been fully deducted from the land rent due will be transferred to the buyer, and the buyer will not have to pay the rent for this period. This promises to save the buyer a significant amount of costs for the transaction.
These regulations will somewhat impact M&A activities in the real estate sector and are points that parties involved in transactions need to be aware of. In addition to these contents, the 2024 Land Law and the 2023 Real Estate Business Law still contain many other new regulations that may affect M&A activities at different levels. These regulations promise to create positive changes in the coming time for the real estate market in general and M&A activities in the real estate sector in particular.
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