Loans for HousingCredits for housing construction
Prohibition of external loans to finance business housing construction project; penalties up to VND 300 million
Ever since the Housing Act No. 65/2014/QH13 of 25 November 2014 ("Housing Act") was introduced, it has been disputed whether loans from abroad can still be used to fund business housing construction as well. It is a big problem for Vietnam's developer community because in the past external indebtedness was one of the most important financial resources for the industrial housing sector.
This problem stemmed from the text of Art. 69 of the Housing Act, which sought to govern the source of funds for industrial housing use. As regards industrial housing loans, Art. 69 only allows loans from banks and finance institutes currently active in Vietnam. In addition, Art. 19. Decree No 99/2015/NDCP of the Government of 20 October 2015, which implements a number of provisions of the Housing Act, provides that'contracts for the procurement of funds for the construction of industrial housing must be carried out in strict accordance with the form laid down in the Housing Act, Art. 69'.
" In general, the competent authority interprets these rules in such a way that all loans granted from outside Vietnam to non-residential housing companies have been banned since 1 July 2015. The State Bank of Vietnam ("SBC") has found that, in practical terms, the State Bank of Vietnam (SBC) has refused to accept requests from builders to register loans for business housing use.
Registering with SBC is a prerequisite for repaying capital, interest and charges for loans from abroad. The MOC confirmed in OD 156 the Housing Law stance that external debts for housing projects are not permitted and that loans can only be granted by non-resident banks or non-resident banks that operate in Vietnam.
OD 156 also provides that loans mobilised in non-compliance with the Housing Act are null and void. However, OD 156 does not provide that loans mobilised in non-compliance with the Housing Act are null and void. 4. The Government has recently adopted Decree No 139/2017/ND-CP of 27 November 2017 ("Decree 139") on penalties for breaches of public order in the building and property-related industries, comprising the property and housing industries.
Regulation 139 enters into force on 15 January 2018 and replaces Regulation 121/2013/ND-CP on penalties for offences in the building and property industries and Regulation 180/2007/ND-CP on the treatment of infringements in town planning. The 139 December doubled the amount of the penalty levied for the act of "illegally obtaining capital".
" Borrowing a credit abroad for a business housing scheme can now be interpreted as "illegal procurement of capital". Regulation 139 also provides for penalties for other infringements of property rights, e.g. Regulation 139 also provides for supplementary penalties such as the interruption of the operation of the property for up to 12 month for certain serious infringements.
For more information, see our other customer alert on Decree No. 139 released this past month. Please see our customer alert page. Industrial housing development companies should make sure that the funding source for their project complies with the applicable regulations in order to prevent the above-mentioned new tightened penalties. Reforms of this constraint can only be anticipated if the Vietnamese finance and currency agencies are happy to reopen the branch so that external indebtedness can again be channelled into housing construction.