What risks can you face when purchasing social housing?

What risks can you face when purchasing social housing?

Nowadays, buying houses in big cities such as Ho Chi Minh city and Hanoi city… is a burning issue of great interest to many people. The number of people who used to live on the outskirts but are now moving into the city to dwell and work is constantly growing. Specifically, the ones with low incomes and young families, needing to own a house, tend to find solutions in buying social housings.

So, what is social housing? Who is allowed to buy social housing? What conditions need to be met to purchase social housing?

1. The definition of social housing

Social housing can be understood as a type of housing under the ownership of State organs (at the central level through to the local level) or the types of house owned and managed by the State or non-profit organizations that were built to provide affordable housing to a number of prioritized subjects in the society such as: State civil servants who do not have stable housing, people with low incomes… and are sold, leased or allowed to stay in at a lower price compared to the market price.

2. Entities eligible for incentive policies on social housing

  • People with meritorious services to the Revolution prescribed in the Law on preferential treatment for people with meritorious services to the Revolution;
  • People with low incomes, households living in poverty or near poverty in urban areas;
  • Employees working in enterprises inside or outside the industrial zones;
  • Commissioned officers, professional and technical non-commissioned officers, standing army, and workers in the agencies of People’s Police and People’s Army;
  • Cadres, civil servants, public employees prescribed in the laws on cadres, civil servants and public employees;
  • Entities who have returned official residence as prescribed in Clause 5, Article 81 of this Law;
  • Households or individuals subject to land withdrawal and land clearance as prescribed without any compensation in the form of housing or residential land paid by the State.

3. Requirements for eligibility for incentive policies on social housing

  • The entities eligible for the policies as prescribed above when they have not had any house under their homeownership, have not concluded any agreements on social housing purchase, lease, or lease-purchase, have not benefited from any policy on housing or residential land support in any shape or form at the places where they live, study, or have houses under their homeownership, but the floor space per capita in the household is lower than the minimum space standard regulated by the Government in every period and every area;
  • They are required to register permanent residence in the province where the social housing is located; if not, they are required to register temporary residence in that province for at least one year;
  • With respect to entities prescribed in Clause 4, 5, 6 and 7 Article 49 of the Law on Housing 2014, they are required to be not subject to regular income tax as prescribed in law on personal income tax; with respect to households living in poverty and near-poverty, they must be subject to the households living in poverty and near-poverty as prescribed in regulations of the Prime Minister. With respect to entities prescribed in Clause 1, 8, 9 and 10 Article 49 of the Law on Housing 2014, they are not required to satisfy requirements pertaining to income as prescribed in this Point.

Attention: When all of the above-mentioned requirements are met, the person who registers to buy social housing has to prepare sufficient documents proving eligibility for social housing assistance as prescribed in Article 22 of the Decree 100/2015/ND-CP. After that, he/she has to submit the dossiers to the investor for approval. The investor is responsible for considering the documents before sending the list of entities eligible for purchase, lease, or lease-purchase of social housing to prioritize the Department of Construction of the province where the project is located to examine. Within 15 working days from the list’s receipt, if the Department of Construction does not make any remarks, the investor shall request the eligible applicants to meet, discuss, and conclude the contracts.

It is clear that the requirements for eligibility for incentive policies on social housing are very strict and the procedures the eligible applicants have to go through to purchase social housing involve many steps of examination. Therefore, nowadays, people tend to repurchase social housings from the ones who already have a slot to buy or already own social housing but do not need to use it.

So, are there any risks resulting from purchasing “second-hand” social housings?

Pertaining to Clause 4, Clause 5, Article 62 of the Law on Housing 2014 and Clause 4, Article 9 of the Decree 100/2015/ND-CP:

  • The owner of social housing may not resell the house within at least 05 years from the date on which the total amount is paid off and may not take out a mortgage on the house (except for mortgage with banks to borrow money to buy or lease-purchase that social housing).
  • In the case of within 05 years from the date on which the total amount is paid off and the owner needs to sell the house, he/she may only resell the house to the management unit of that social housing (the State or the investor) or entities entitled to buy that social housing if the management unit does not buy the house at the selling price of the same social housing in the same location, at the same time. Income from this transaction is exempted from personal income tax.
  • After 05 years from the date on which the total housing amount is paid off and the Certificate of land use rights and ownership of houses and other land-attached assets is granted, the owner of social housing may resell their house according to market mechanism provided that they have paid land levies as prescribed in regulations of the Government and income tax as prescribed in law on taxation as required.

Therefore, in order to own social housing that has not been allowed to be transferred yet, the person wishing to repurchase often “circumvents the law” in many ways such as signing authorization contracts, making wills, signing deposit contracts… with the seller. However, in these cases, the buyer is the party that faces more risks. In the following paragraphs, we will analyze certain potential risks:

Firstly, signing an authorization contract

An authorization contract can be understood as an agreement between parties whereby the authorized person has obligation to perform an act in the name of a principal during an agreed period. However, the principal has the right to terminate the authorization contract at any time unilaterally. If the authorization does not involve payment of remuneration, the principal only needs to give the authorized person a prior notice within a certain period. If the authorization involves payment of remuneration, the principal only has to remunerate the authorized person in proportion to the acts performed and compensate for damage (if any).

Therefore, to protect the buyer’s rights, the authorization contract should be notarized, certified as provided by law. The authorized person will have full rights to manage, use and dispose of the social housing in the principal’s name..

However, relating to the authorization contract’s validity, if the principal or the authorized person dies, the authorization contract will automatically be deemed terminated. In that case, the actual buyer will not be allowed to perform any rights provided for in the authorization contract, which often leads to conflict with the actual seller’s will. For that reason, the buyer of social housing through authorization contracts may face many risks and even lose their money and house.

Besides, when conflict arises, the buyer’s rights is hard to be ensured. The reason is that a court often resolves disputes, and the court will likely declare the authorization contract invalid due to falsification. That is because the contract was signed to conceal another transaction.

Secondly, making a will

Wills can be understood as an expression of a natural person’s wishes, made to bequeath his or her property to others after his or her death. Therefore, making a will is even riskier for the buyer of social housing. That is because a will expresses the testator’s will, so the will can be amended, supplemented, replaced, revoked at any time. If the testator replaces it with a new will, the former will is revoked. However, to ensure the buyer’s rights, if the parties choose to make a will, that will should be notarized, certified.

Thirdly, signing a deposit contract

Besides authorization contracts, buyers of social housing that are not yet allowed to be transferred also choose the method of signing deposit contracts with sellers. In that case, the buyer will transfer to the seller a sum of money for a period of time as security for the entering into or performance of a contract. The signing of deposit contracts is not obligated to be notarized, certified by competent authorities. Therefore, the parties only need to sign in the contract and have legal value.

However, signing a deposit contract also poses many risks to the buyer. That is because the deposit contract only states that the seller receives a sum of money from the buyer. It does not state that the ownership rights of the social housing have been transferred to the buyer. For that reason, when conflict arises, the buyer can only proceed against the seller to ask for the deposited amount of money, not the social housing ownership rights. In order to ensure the buyer’s rights, when signing a deposit contract, he/she should ask the seller to transfer the original Certificate of land use rights and ownership of houses and other land-attached assets (if any). Moreover, the parties can state in the contract that if the depositary refuses to sell the social housing, he/she must return the deposited property and pay a certain amount of money (according to the parties’ agreement) to the buyer.

In conclusion, each of the aforementioned methods of the transaction will pose certain risks, so to ensure one’s lawful rights and interests, people who want to repurchase social housing should contact a reliable law firm to receive risk reduction advice and be helped with drafting the above documents in accordance with the law.

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.