Renovation and Rebuilding of Apartment Buildings under the 2023 Law on Housing: Demolition Cases, Principles and the Compensation Coefficient

Across Vietnam’s largest cities — most visibly Hanoi and Ho Chi Minh City — entire clusters of apartment blocks built decades ago have deteriorated to a critical degree, making their renovation and rebuilding both urgent and highly sensitive in terms of competing interests. The issue is not merely the technical exercise of demolition and reconstruction; it is how to reconcile the lawful rights of hundreds of individual apartment owners with the investor’s need for a commercially viable project. For many years, it was precisely the deadlock in the consent and compensation mechanisms that left one old-apartment renovation project after another at a standstill.

The 2023 Law on Housing (Law No. 27/2023/QH15), effective from 1 August 2024, devotes an entire chapter to establishing a new legal framework for the renovation and rebuilding of apartment buildings, with a range of provisions intended to untie the long-standing knots. This article analyses the cases in which demolition is mandatory, the governing principles, and the compensation mechanism that both owners and investors need to understand clearly.

Mục 01When must an apartment building be demolished in order to be rebuilt?

Not every ageing apartment building may — or must — be demolished. The law identifies specific cases in which demolition is mandatory in order to safeguard the lives of residents. Under Clause 2, Article 59 of the 2023 Law on Housing, apartment buildings subject to mandatory demolition include: buildings damaged by fire or explosion to the extent that they no longer satisfy the safety conditions for continued use; buildings damaged by natural disaster or hostile action such that safety conditions are no longer met; and buildings whose principal load-bearing structures exhibit an overall dangerous condition with a risk of collapse, no longer satisfying the conditions for continued use, requiring the emergency relocation of owners and users.

In addition, the provision covers apartment buildings that are severely damaged or degraded and located in an area where renovation and rebuilding must be carried out on a synchronised basis in accordance with the approved planning. The heart of the new legislative approach is that any demolition decision must be tied to the results of a construction quality inspection carried out by the competent authority, rather than resting on subjective assessment. The inspection becomes the scientific and legal basis for establishing whether a building has genuinely become dangerous, thereby limiting protracted disputes between residents who wish to preserve the status quo and the party seeking to implement the project.

Mục 02Principles governing the renovation and rebuilding of apartment buildings

Where an apartment building has multiple owners, or constitutes public property, and falls within the categories subject to mandatory demolition under Clause 2, Article 59, its rebuilding in accordance with the approved planning must fully comply with the principles set out in Article 60 of the 2023 Law on Housing. These principles ensure that renovation both satisfies urban planning requirements and protects the lawful rights of existing owners. The consistent underlying policy is that owners of apartments in old buildings must be guaranteed accommodation — either through on-site resettlement once the rebuilt project is completed, or through a satisfactory compensation arrangement.

One significant reform under the 2023 Law on Housing is the recalibration of the consent mechanism. Where an apartment building must be demolished for safety reasons, relocation and demolition are no longer absolutely conditional upon the agreement of every single owner, as the rigid reading of the earlier regime was often taken to require, because human life takes precedence. This is the single most important knot to be untied: in practice, the refusal of only a handful of households could stall an entire renovation project for years, to the detriment of the remaining residents themselves.

Mục 03The compensation mechanism and the K coefficient: how are owners’ interests protected?

The issue that most often derails old-apartment renovation projects is compensation. The 2023 Law on Housing approaches this by requiring that the compensation, support and resettlement plan be prepared transparently and guarantee owners commensurate accommodation. Within that plan, the apartment-area compensation coefficient — commonly referred to as the K coefficient — is the pivotal instrument. This coefficient determines the floor area of the resettlement apartment an owner will receive relative to the area of the former apartment, and is generally greater than 1 in order to compensate the owner for having to relocate and wait during the construction period.

By way of illustration, suppose an owner holds a 50 m² apartment in an old building and the K coefficient approved for the project is 1.5. In principle, the owner would then be allocated a resettlement apartment of approximately 75 m² at the same project location once rebuilding is complete. The specific K coefficient is determined by the provincial-level People’s Committee on the basis of the actual conditions of each project and area, and may therefore differ between localities and between locations. Precisely because the K coefficient bears directly on owners’ material interests, it is a matter that owners should monitor closely and, where necessary, discuss with counsel in order to assess whether the compensation arrangement is satisfactory before signing.

A common risk is that an owner signs a compensation agreement without a clear understanding of the commitments on project schedule, the quality of the resettlement apartment, and the temporary accommodation arrangements for the waiting period. Where the project falls behind schedule, residents may find themselves having lost their former home without yet receiving the new one. Careful review of the contract, the compensation agreement and the investor’s binding undertakings is therefore an essential step in protecting one’s interests.

Mục 04The perspective of investors participating in renovation projects

For real estate enterprises, an apartment renovation and rebuilding project is at once an opportunity and a legal challenge. The opportunity lies in the land bank at prime central locations; the challenge lies in having to manage relationships with hundreds of owners, comply with planning requirements, and secure consent to the compensation arrangement. The new legal framework under the 2023 Law on Housing creates a clearer corridor for selecting the project developer and implementing the project, but it simultaneously imposes demanding standards of transparency and compliance. Investors should assemble a rigorous legal file from the moment the plan is first prepared, so as to avoid protracted complaint and litigation risk later on.

Mục 05Frequently asked questions

What rights does an owner have if it disagrees with the compensation arrangement? An owner has the right to comment on the compensation, support and resettlement plan and may file a complaint where it considers that its lawful rights have been infringed. However, in cases where an apartment building must be demolished for safety reasons, relocation must still proceed; the compensation question is then resolved in accordance with the law. Seeking legal advice early is accordingly far more effective than waiting until a dispute has arisen.

May an owner receive cash instead of a resettlement apartment? Depending on the approved plan and the owner’s wishes, an owner may be able to elect on-site resettlement housing, monetary compensation, or other forms permitted by law. Each option carries its own advantages and disadvantages in terms of value and security of accommodation, and should be weighed carefully against local market prices.

Mục 06How HTIC Law Firm can assist on apartment renovation and rebuilding

The renovation and rebuilding of apartment buildings sits at the intersection of ownership rights, urban planning and economic interests, and calls for legal caution on the part of both residents and investors. HTIC Law Firm assists owners in assessing compensation arrangements, the K coefficient and resettlement risk, and advises real estate enterprises on the legal procedures for implementing old-apartment renovation projects. See HTIC’s real estate lawyer services for professional protection of your interests.

Contact HTIC Law Firm — Hotline +84 379 044 299.