Transfering real estate projects through equity transfer in project-owning companies: Opportunities and legal risks

Amid significant fluctuations in Vietnam’s real estate market, the transfer of real estate projects through the assignment of capital contribution in the project-owning company has become a flexible and increasingly common solution. This method not only helps save time and costs but also minimizes complex administrative procedures. 

However, with the enactment of the 2023 Law on Real Estate Business, which takes effect on January 1, 2025, the legal framework governing such activities has been revised. These changes require parties involved in the transaction to have a clear understanding of the applicable regulations to ensure legal compliance and transactional efficiency. 

1. Project transfer vs. equity transfer: Legal distinctions 

Pursuant to Article 40 of the 2023 Law on Real Estate Business, the transfer of all or part of a real estate project must satisfy certain conditions, including the following: 

• The investment guidelines for the project or the investment in the project has been decided or approved by a competent authority;  

• A detailed planning for the project has been approved in accordance with regulations of the Construction Law and the Law on Urban Planning; 

• The compensation and support for resettlement in respect of the project or its part to be transferred have been completed; 

• The land use rights of the project must not be subject to any dispute or seizure for enforcement of a court judgment; 

• There is no decision to suspend or terminate operation of the project or decision on land expropriation given by a competent authority;  

• In case the project is being mortgaged as collateral to serve the fulfillment of obligations as prescribed by law, procedures for collateral release must be followed; 

• The project duration is not yet expired; 

• If a part of the real estate project is transferred, work items or their use or business purposes of that part must be independent from those of the remaining part of the project. 

These conditions are intended to strictly control the legal compliance, feasibility, and financial obligations associated with the project, thereby minimizing the risk of disputes or land speculation. However, these very conditions have caused numerous project transfer transactions to stall, affecting corporate cash flows and the rights and interests of transferees. 

By contrast, transferring capital contributions or shares in a project-owning company is governed primarily by the Law on Enterprises and the Law on Investment. It is not directly regulated under the Law on Real Estate Business. This creates a legal grey area where parties may effectively “change the owner of the project” by selling all capital contributions/shares in the legal entity that holds the development rights to the project without formally transferring the project itself. 

2. Advantages and risks of equity transfer 

The equity transfer offers several advantages, such as: 

• Saving time and administrative procedures, as there is no need to undergo the process of obtaining project transfer approval from the competent state authority. 

• Ensuring the continuity of the legal entity and its existing contracts; all licenses, contracts, and rights related to the project remain valid within the project-owning company. 

• Flexibility in negotiations, allowing the parties to freely agree on the value and conditions of the capital transfer. 

However, this approach also entails notable legal risks, including: 

• The project may not yet meet all legal requirements, posing the risk of suspension or inspection and sanction by the regulatory authorities. 

• If the project has only received an investment policy approval but has not yet been issued a land use right certificate (LURC), this may lead to significant valuation challenges since land use rights usually represent a substantial proportion of a real estate company’s total assets. Without an LURC, the parties lack a clear legal and financial basis to accurately value the capital contribution. 

• If the project has not completed land clearance, compensation, and resettlement support, the investor acquiring the capital must continue to undertake these obligations. In practice, this process often encounters multiple obstacles and even disputes between the developer and individuals or organizations whose land rights have not been satisfactorily resolved. Consequently, transferring a project before finalizing compensation and clearance works poses risks of delayed project implementation or, in serious cases, may result in the competent authority considering the revocation of the project for failing to meet legal requirements on progress and land use 

• Potential hidden debts, internal disputes, or outstanding financial obligations of the project-owning company, which will be transferred to the buyer if not thoroughly reviewed during legal due diligence. 

3. Legal recommendations for equity transfer deals 

To mitigate risks and ensure the legality of the transaction, the parties should: 

• Conduct comprehensive legal due diligence on the project-owning company, including land use rights, investment licenses, financial obligations, litigation status, etc.; 

• Verify the transferability of land use rights, especially in cases where land was allocated or leased with use restrictions; 

• Draft clear and protective share transfer agreements, with conditional payment terms tied to legal confirmations; 

• Avoid equating equity ownership with land ownership, and ensure correct post-transaction documentation is in place. 

While direct project transfers remain tightly regulated in Vietnam, equity transfers in project-holding companies continue to serve as a practical route for investors. However, this method requires in-depth legal knowledge, robust risk management, and professional legal support to ensure compliance and avoid post-transaction complications. When used responsibly and transparently, equity transfer remains a legitimate tool—but if misused, it could easily turn into a legal liability for both seller and buyer.  

Related posts

1. Conditions and procedures for establishing a real estate exchange
2. Corporate income tax on the transfer of real estate
3. Important considerations for future condotel under the new real estate business law

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