Mortgaged real estate projects are legal but risky

October 03, 2018 - 09:00

Lê Thu Trà, a woman living in Hà Nội’s Hà Đông District, lived in anxiety for days because she did not know what happened to the contract she had signed to buy an apartment from a new real estate project.

Illustration by Đàm Minh Chí
Viet Nam News

Chu Lan Huong

Lê Thu Trà, a woman living in Hà Nội’s Hà Đông District, lived in anxiety for days because she did not know what happened to the contract she had signed to buy an apartment from a new real estate project.

Trà’s worry was real – in some recent incidents at housing projects, customers came out on the losing end.

In some situations, apartment projects that were still mortgaged by banks or credit entities were sold to customers, leading to ownership disputes between the parties.

Gia Phú Residential Building in HCM City’s Thủ Đức District was the scene of one such incident.

The bank that funded the project announced its intention to auction off the building to clear the debt of the main investor, who had not paid the bank for the past seven years.

The building’s hundreds of residents live in fear of losing the money they spent their lives saving to afford an apartment. They sent letters to government agencies asking for help, but, so far, the dispute has not been solved.

Experts say mortgaging real estate projects to banks or other credit institutions is a common practice.

The 2014 Law on Housing permits investors to mortgage real estate projects to banks or credit entities in Việt Nam in order to secure loans to fund the projects.

But the law also requires that before selling the houses or apartments of projects mortgaged by banks, investors must end the mortgage contracts or come to agreements with the banks and customers.

The law is intended to ensure the rights of both investors and customers.

Analysts say that while mortgaging ongoing projects is legal, it may have consequences.

The involvement of three parties is not a problem when projects are completed smoothly and legally, but when incidents do occur, customers are the first to lose out.

In the cases involving an investor who fails to repay bank debts, projects end up with two owners: banks and customers.

In the Gia Phú case, residents were suddenly pushed into an unexpected dispute with the bank that had funded the development.

Customers argued they owned the apartments because they had signed contracts and paid for them. But the bank insisted on getting back the money it had loaned to the developer.

“We already paid the investors for our apartments,” one customer said. “The bank should have monitored the investors and collected money from them, but it failed to do that.”

His anger evident, he continued, “The bank should take the consequences, not us.”

But regulations protect credit institutions in these cases because they have guaranteed deals with the investors.

Phú Gia is not the only such case.

In many other instances, customers received their apartments but were unable to get land use certificates because investors had not yet cleared their debts.

Lost in a maze

Phạm Thanh Mai of Hà Nội’s Hoàng Mai District said that “buying an apartment is like getting lost in a maze.”

“If buyers do not check all the information carefully, they could wind up in unexpected disputes,” she said.

“Was the project mortgaged by a bank? Do the investors hold the land use certificates? Have they repaid their bank debts? These are all important details.”

Mortgaging ongoing projects is legal but State management agencies should have tools to protect customers and avoid disputes.

Mortgage records should be public so potential customers can make informed decisions about whether to buy into new projects; however, banks usually consider this information confidential.

Hà Nội’s Natural Resources and Environment Department recently released a list of 92 real estate projects which were mortgaged to secure loans.

Several large real estate investors have projects on the list, including Tân Hoàng Minh, Hải Phát, Nam Cường, Thủ Đô and others. HCM City made a similar announcement.

The list gave pause to people who were considering buying houses or apartments from any of the named developers.

“I prayed the apartment project I joined would not have any problems,” said Trà sadly. “I was counting down the days until I got the apartment.” – VNS