Deposit for project land: Should or shouldn’t
30/07/2019 18:06 | Source: Vnexpress
Due to the lack of regulation and sanctions, home buyers has to bear higher risk from property deposits, especially for land with land with high value.

Ho Chi Minh City Real Estate Association (HoREA) has recently petitioned on solutions for the "division of illegal land plots" issue, in which emphasizing the risk for homebuyers in deposit for buying land. 

Regardless of what mentioned in the Civil Code, Clause 1 of Article 328, which refers to deposit acts "as security for the entering into or performance of a contract.”, the deposit is not regulated in the Law on Real Estate Business. This is considered “a big hole” in the system of regulations on housing deposit, causing adverse impacts for homebuyers when making a deposit.

Deposit for project land
The act of deposit has not been stipulated in the Law on Real Estate Business

According to HoREA, those “sharks” of the property market have taken advantage of this loophole to sell the illegal future land plot, also known as project land that would be formed in the future. They can sell it via capital contribution agreement, deposit reservation agreement, investment cooperation agreement, and other forms, all with large deposits. This has pushed the homebuyers into a high-risk situation, in which they are more likely to walk out with penniless.

Pursuant to the provisions of the Real Estate Business Law, for a project to be formed in the future, after signing the contract, the investor can only receive the first payment not exceeding 30% of the contract value.

The inadequacy of deposit acts is also reflected in the Civil Code. Under the provisions of Article 117 of the Civil Code, civil transactions are only valid if they do not violate the prohibition of the law, are completely voluntary and not contrary to social ethics. The act of depositing has almost no sanctions facility due to the fact that the parties must comply with the form of a civil transaction, which is a valid condition of a civil transaction in case the law stipulates it.
In Clause 1, Article 328 of the Civil Code, it states: "Deposit is an act whereby one party (hereinafter referred to as the depositor) transfers to another party (hereinafter referred to as the depositary) a sum of money or precious metals, gemstones or other valuable things (hereinafter referred to as the deposited property) for a period of time as security for the entering into or performance of a contract".

By petitioning on the issue, the association affirms the importance of regulation and sanction on housing deposits, which should be clearly stated in the related legal documents to protect homebuyers from avoidable risks. For instance, a deposit for entering into a sale contract of future real estate must comply with both the Civil Code and the Law on Real Estate Business.

In addition, the limitation or ratio of deposit value on the contrac (or the expected contract) is also not stipulated in the Civil Code but by the parties themselves. This is another regulation hole to cause the situation.

The current law on Real Estate Business does not give approval for large deposits on properties. In fact, according to Law on Real Estate Business, developers can only collect 30% of contract value by maximum on the first payment, applied for future properties. But the actual deposits in most cases far exceed this rate. In the worst scenario, home buyers can be buried in the massive capital flows with no chance of taking back the deposit, all due to the loose regulation and lack of sanctions.