Mortgaging real estate including land use rights, houses, apartments is one of the basic rights of real estate users/ owners, and is also one of the types of security for performance of obligations has high security. However, whether the rights of the mortgage are made or not depends on mortgagees, because real estate is a property that is always strictly managed and has certain restrictions on the subjects who use/ own them.
Accordingly, to know whether foreign-invested enterprises that do not have the lending function as credit institutions, banks are allowed to receive the mortgage of real estate from Vietnamese individuals to secure loans between foreign-invested enterprises and Vietnamese individuals or not, it is necessary to know the following Vietnamese laws.
1| For the real estate which is land-use rights
According to point g Clause 1 Article 179 of Land law 2013, individuals that use agricultural land allocated by the State within land use quotas, are allocated land with land use levy or leased with full one-off rental payment for the entire lease period, have land use rights recognized by the State, or obtain land through exchange, transfer, inheritance or donation, have the following rights to mortgage land-use rights at (i) credit institutions which are licensed to operate in Vietnam, or at (ii) other economic organizations, or (iii) individuals in accordance with law.
However, according to Clause 27 Article 3 of Land Law 2013, “Economic organization means an enterprise, a cooperative or another economic organization as prescribed by the civil law, excluding foreign-invested enterprises.”. Therefore, “other economic organizations” mentioned at Point g Clause 1 Article 179 of Land Law 2013 should be interpreted as not including foreign-invested enterprises.
Therefore, the foreign-invested enterprises cannot receive the mortgage of land-use rights to ensure the loans between Vietnamese individuals and foreign-invested enterprises.
2| For the real estate which is houses, apartments
According to Clause 2 Article 144 of Law on Housing 2014:
“Article 144. Mortgagors and mortgagees
2. The homeowner is an individual entitled to mortgage his/her house at a credit institution, or an economic organization operating in Vietnam or individuals as prescribed.”
individuals who own houses/apartments may mortgage houses/ apartments for the following subjects:
- credit institutions operating in Vietnam;
- economic organizations operating in Vietnam; or
Described on Clause 3 Article 119 and point b Clause 1 Article 159 of Law on Housing 2014, Foreign-invested enterprises will only be allowed to receive the housing mortgage if they are eligible to own houses in Vietnam according to provisions of Law on Housing 2014.
According to Clause 2 Article 159 of Law on Housing 2014:
“Article 159. Foreign entities eligible for the homeownership in Vietnam and forms of the homeownership in Vietnam relating to foreign entities
- The foreign entities eligible for the homeownership in Vietnam if they:
a) Invest in project-based housing construction in Vietnam as prescribed in this Law and corresponding regulations of law;
b) Buy, rent and purchase, receive, or inherit commercial housing including apartments and separate houses in the project for housing construction, except for areas under management relating to national defense and security as prescribed in regulations of the Government.”
Foreign-invested enterprises may only own houses in Vietnam through the following forms:
- Invest in project-based housing construction in Vietnam;
- Buy, rent and purchase, receive, or inherit commercial housing including apartments and separate houses in the project for housing construction, except for areas under management relating to national defense and security.
Thus, the foreign-invested enterprises cannot own houses in Vietnam by receiving the mortgage.
Therefore, the foreign-invested enterprises cannot receive the mortgage of the ownership of houses or apartments to ensure the loans between Vietnamese individuals and foreign-invested enterprises.
With the above analysis, we can see that foreign-invested enterprises cannot receive the mortgage of real estate from Vietnamese individuals to secure loans between foreign-invested enterprises and Vietnamese individuals. Vietnamese law stipulates restrictions on the right to mortgage real estate of Vietnamese individuals and the right to receive the mortgage real estate for foreign-invested enterprises is to limit the ownership of the real estate in Vietnam for foreign entities.
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.