Regulations on guarantees for residential house to be formed in the future


On 29 September 2017, the State Bank of Vietnam (“SBV”) issued Circular No. 13/2017/ TT-NHNN (“Circular No. 13”) to amend and supplement Circular No. 07/2015/TT-NHNN dated 25 June 2016 on the regulation of bank guarantees. Circular No. 13, which came into effect in November 2017, creates favorable conditions to bank guarantees.

The highlights of Circular No. 13 are set out below:

What is Circular No. 13 about?

Circular No. 13 creates a guarantee of purchase or hire-purchase of residential houses to be formed in the future. This guarantee (known as, “Off-plan Houses Guarantee”) enables commercial banks to assume the financial obligations of developers that fail to transfer a house on the agreed schedule without refunding or insufficiently refunding to a purchaser the advanced payment for a house. Developers on the other hand will have to repay the bank for assuming their financial obligations.

How are Off-plan Houses Guarantees beneficial to purchasers?

Because a credit-institution is on-hand to undertake the developer’s financial obligations under this Off-plan Houses Guarantee, concerns relating to unfulfilled purchases and delayed developments are minimised. As such, the purchaser’s rights are better protected.

What are the qualifying criteria for commercial banks under this scheme?

In order to qualify for this Off-plan Houses Guarantee, commercial banks must fulfill the following criteria:

  • Guarantee operations must be set out as one of the bank’s activities within its Establishment and Operation license, or in documents amending or supplementing the Establishment and Operation license.
  • The bank must not be prohibited from carrying out Off-plan Houses Guarantees during the period of special control.

The list of commercial banks satisfying the aforementioned criteria and eligible to carry out Off-plan Houses Guarantees shall be published from time to time on the SBV’s website.

As of today, the governor of the SBV has announced a list of more than 40 commercial banks eligible to provide guarantees. This list includes names such as ANZ Bank (Vietnam) Limited, HSBC Bank (Vietnam) Limited, and Shinhan (Vietnam) Limited.

What are the procedures to carry out Off-plan Houses Guarantees?

Circular 13 provides the procedures to carry out an Off-plan Houses Guarantee as follows:

Step 1:
The bank shall assess the developer and counter-guarantee issuing party’s request.

Step 2:
The bank and the developer shall enter into the contract in accordance with the law on real estate business. The contract shall be made in the form of a guarantee agreement for a sum not more than what the developer is permitted to receive in advanced amounts from the purchasers. This guarantee agreement shall come into force from the date on which it is signed to the date on which the validity of guarantee obligations is terminated.

Step 3:
The bank will issue a guarantee commitment to each purchaser in the form of a guarantee letter.

How are guarantee balances determined?

Circular No. 13 provides guidance on how guarantee balances are determined. Guarantee balances are the total advanced payment that a developer has received from the purchasers as per the schedule of payment. This guarantee balance will be gradually reduced until the guarantee obligations to the purchasers are fulfilled.

If you have any questions or require any additional information, you may contact Loan Danh, Trang Hoang or the ZICO Law partner you usually deal with.

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