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Starting from August 2024, Vietnam’s rental real estate market will undergo a significant change as all rental business activities will be required to establish a business entity. This new regulation will impact not only individual investors but also the entire real estate sector.
The new regulation is expected to bring more transparency and professionalism to the management and operation of rental properties. However, it also poses challenges for individuals and organizations who are not familiar with the business model. This article will delve into the new regulation, its benefits and challenges, and provide insights into the future of the rental real estate market in Vietnam.
Current State of the Rental Real Estate Market in Vietnam
In recent years, Vietnam’s rental real estate sector has seen steady growth, with a notable surge after the Lunar New Year when many major cities enter the new student enrollment and hiring season. Additionally, many industrial zones and businesses enter new recruitment cycles, increasing the demand for accommodation and business space.
According to data from the Vietnam Association of Realtors (VARS), apartment rental prices in many areas have continuously increased. The surge was especially pronounced during 2021-2022, contrary to typical trends, due to the complex developments of the Covid-19 pandemic. As leases expired and movement restrictions were imposed, many rental properties saw price hikes of 20-40%, defying the downturn in other industries.
With these price benchmarks established during the pandemic, property owners continued to raise rents as the economy gradually recovered. The rapid economic development and urbanization also contributed to increasing demand for living and working spaces, especially in major cities. Rising real estate prices have made homeownership unaffordable for many, thus creating a substantial rental market.
Renting real estate offers flexibility and convenience, allowing tenants to easily change their residence or business location without significant financial barriers. Recognizing the potential, rental real estate has become an attractive investment channel for investors, providing a stable income stream.
Moreover, the growth of the tourism industry has boosted demand for short-term accommodations such as apartments and homestays. These factors, combined with state support policies, have contributed to the continuous development and diversification of the rental real estate market in Vietnam.
Requirement to Establish a Business for Rental Real Estate in Vietnam from August 2024
Article 9, Clause 1 of the 2023 Law on Real Estate Business No. 29/2023/QH15 (“2023 Law on Real Estate Business”) stipulates that organizations and individuals engaging in real estate business must establish a business entity in accordance with the law on enterprises or establish a cooperative or union of cooperatives in accordance with the law on cooperatives, with real estate as a registered business line (collectively referred to as real estate business entities), except in cases specified in Clauses 3 and 4 of this Article.
Accordingly, from the effective date of the 2023 Law on Real Estate Business on August 1, 2024, as amended by the 2024 Law amending the Land Law, the 2023 Housing Law, the 2023 Law on Real Estate Business, and the 2024 Law on Credit Institutions, individuals currently engaged in rental real estate in Vietnam will be required to establish a business entity, with certain exceptions.
Exceptions include individuals conducting small-scale real estate business as defined in Clause 3, Article 9 of the 2023 Law on Real Estate Business, and organizations and individuals selling residential properties or construction works, or leasing, subleasing, and buying properties in small-scale projects as specified in Clause 4, Article 9.
For individuals selling, leasing, or buying back residential properties or construction works, notarization and authentication must be conducted in accordance with Clause 5, Article 44 of the 2023 Law on Real Estate Business.
This new regulation, requiring entities and individuals in the rental real estate business to establish a company, is expected to bring significant benefits to the market. Not only does it aim to systematize and enhance the transparency of the real estate market, but it also plays a vital role in stabilizing rental and sale prices. By doing so, it helps curb speculative pricing and land price bubbles, creating better access to affordable housing for those with genuine housing needs.
Furthermore, the requirement to establish a business also enhances state management and control, ensuring more accurate tax collection, preventing budget losses, and securing revenue for the government. This regulation also plays a crucial role in protecting consumer rights, especially renters, by preventing landlords from inflating prices or exploiting their position to pressure tenants. As a result, people will have access to higher-quality rental services at fair and reasonable prices, contributing to improved living standards and social stability.
Given the already challenging real estate buying and selling market in Vietnam, if the rental real estate market also faces similar difficulties, it would be a double blow to the people’s rights, creating social instability and potentially leading to a scenario where people have no homes, thereby burdening public spaces and social maintenance.
However, the 2023 Law on Real Estate Business introduces an aspect that remains unclear and poses challenges in practical implementation. The gap lies in defining “small-scale” businesses, as there are currently no specific guidelines on what constitutes small-scale operations. Without a clear definition, individuals and entities engaged in rental real estate may struggle to comply, given that registering a business often involves significant time and cost.
They face uncertainty about whether short-term rentals, such as a few months a year, qualify as small-scale or whether this is determined by the value of the property and rental income. Enforcement agencies also face difficulties without a basis to penalize or mandate individuals and organizations to register businesses for easier management, complicating the involvement of parties in the rental real estate market.
Article 10, Clause 2 of the 2014 Law on Real Estate Business No. 66/2014/QH13, guided by Article 5 of Decree No. 22/2022/ND-CP, provides criteria for “small-scale” businesses but remains vague and lacks enforceability.
Recognizing this challenge, the first draft of the decree detailing the implementation of certain provisions of the 2023 Law on Real Estate Business includes conditions for individuals engaging in small-scale real estate business and for organizations and individuals selling or leasing residential or construction areas without a business purpose.
However, these regulations remain general, mainly ensuring basic conditions such as the business owner must hold a land use rights certificate, ownership of assets attached to the land, and no disputes. The second draft, prepared by the Ministry of Construction, proposes three evaluation criteria for small-scale real estate businesses:
Option 1:
- Individuals sell, transfer, lease, or lease-purchase between 3-5 existing or future housing units or apartments within a year.
- Individuals sell, transfer, lease, or lease-purchase between 5-10 existing or future construction works or floor areas within a year.
Option 2:
- Sell, transfer, lease, or lease-purchase real estate with ownership and use rights on 1,000-2,000 square meters in urban areas.
- Sell, transfer, lease, or lease-purchase real estate on 3,000-5,000 square meters in rural areas.
- Sell, lease, or lease-purchase real estate with ownership rights on 1,000-2,000 square meters of floor area for residential or mixed-use buildings.
- Sell, lease, or lease-purchase real estate with ownership rights on 3,000-5,000 square meters of non-residential construction area.
Option 3:
- Individuals build houses with at least 2 stories and fewer than 20 apartments for lease as per Clause 3, Article 57 of the Housing Law No. 27/2023/QH15.
- Individuals sell or lease-purchase houses or constructions inherited from family.
- Individuals sell or lease-purchase houses received as charity or social housing.
Currently, the criteria to define small-scale are primarily based on contract value, frequency of transactions, and size in a given year. From a positive perspective, if these criteria are approved, they will clarify what constitutes a small-scale rental business in Vietnam. Codified criteria would enable individuals and organizations to conduct transactions confidently, enhancing rental market activities across the country.
Small-scale, occasional operators who do not meet the criteria to exceed small-scale thresholds will not be required to register a business, reducing administrative burdens and allowing those with lower income to access affordable rental properties.
Additionally, this regulation will help limit land speculation and market manipulation often conducted by large-scale organizations, making it difficult for ordinary people to access housing. Entities with such intentions will need to reconsider investments, as they will be constrained by ownership and property quantity limits. Although there are potential loopholes, such as setting up or employing shell companies, these rules will generally curb speculative practices in Vietnam’s rapidly developing market.
Nonetheless, deputies at the June 17 meeting on the draft decree chaired by Deputy Prime Minister Trần Hồng Hà highlighted the need for further criteria, such as revenue from sales, leases, or overall investment in real estate within a year. For individuals, specific criteria regarding revenue should be established to accurately determine the ‘small-scale’ threshold.
To stay updated on the latest legal regulations and receive detailed advice on these changes and their impact on individuals and organizations, it is recommended to consult a reputable law firm specializing in real estate business in Vietnam.
ASL Law is a leading full-service and independent Vietnamese law firm made up of experienced and talented lawyers. ASL Law is ranked as the top tier Law Firm in Vietnam by Legal500, Asia Law, WTR, and Asia Business Law Journal. Based in both Hanoi and Ho Chi Minh City in Vietnam, the firm’s main purpose is to provide the most practical, efficient and lawful advice to its domestic and international clients. If we can be of assistance, please email to [email protected].
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