Conditions for an Enterprise to Do Real Estate Business Under the 2023 Law on Real Estate Business: 20%/15% Owner’s Equity and the Debt Ratio

Many enterprises assume that simply registering the additional business line of real estate is enough to freely buy and sell land and houses or to carry out projects. The legal reality is far more complex. The 2023 Law on Real Estate Business (Law No. 29/2023/QH15, effective 1 August 2024) tightens the conditions applicable to organisations and individuals doing real estate business, in particular the owner’s-equity requirement when implementing a project. Failure to meet these conditions may render transactions void, cause a project to be refused approval, or expose the enterprise to sanctions — consequences far more costly than the price of compliance from the outset.

This article analyses the conditions applicable to organisations and individuals doing real estate business under Article 9 of the 2023 Law on Real Estate Business, clarifying the requirement to establish an enterprise, the owner’s-equity thresholds of 20% and 15%, the limit on the debt ratio, and the exception for small-scale activity.

Mục 01Why the law imposes strict conditions on real estate business

Real estate business is a sector characterised by the mobilisation of large amounts of capital from clients — often money paid for off-plan housing — and by a profound impact on the financial and land markets. When a developer weak in financial capacity carries out a project largely with buyers’ money and then fails to complete it, the consequences do not stop at the two contracting parties but spread across society. For this reason, the law designates real estate business as a conditional business line, setting minimum barriers on legal standing and financial capacity in order to screen the actors that participate.

Understanding this logic helps enterprises view the conditions not as obstructive formalities but as a framework that protects their own reputation and legal safety. An enterprise that fully satisfies the conditions will find it far easier to obtain in-principle investment approval, to raise capital, and to transact with partners and banks.

Mục 02General requirement: an enterprise must be established

Under Article 9 of the 2023 Law on Real Estate Business, an organisation or individual doing real estate business must establish an enterprise in accordance with the law on enterprises, or establish a cooperative or union of cooperatives in accordance with the law on cooperatives, with a registered real estate business line. This puts an end to the situation of individuals freelancing, buying and selling real estate for business purposes without a legal entity standing behind them to bear responsibility.

In addition, a real estate business enterprise must not be within a period during which it is prohibited from doing real estate business, or suspended or having its operations halted under a court judgment or decision, or a decision of a competent state authority. This is a condition of standing, ensuring that the actors participating in the market are not entities currently subject to sanction.

Mục 03The 20% and 15% owner’s-equity thresholds when implementing a project

The most notable and frequently overlooked point is the owner’s-equity requirement for an enterprise implementing a real estate project. Under Article 9, an enterprise doing real estate business through a project must have owner’s equity of not less than 20% of the total investment capital for a project with a land-use scale of under 20 hectares, and not less than 15% of the total investment capital for a project with a land-use scale of 20 hectares or more. The enterprise must also ensure its ability to mobilise capital to implement the project.

To picture this concretely, suppose a residential-area project has a land-use scale of 10 hectares with total investment capital of VND 1,000 billion. Because the area is under 20 hectares, the enterprise must have owner’s equity of at least VND 200 billion, i.e. 20% of the total investment capital. If the same VND 1,000-billion project has a land-use scale of 20 hectares or more, the minimum is VND 150 billion, i.e. 15%. If the enterprise has owner’s equity of only VND 100 billion, it does not yet qualify to be the developer of that project and must increase its capital or find a cooperation arrangement before applying for approval.

Beyond the equity threshold, the Law also requires compliance with the ratio of outstanding credit balance and outstanding corporate-bond balance to owner’s equity. This provision aims to prevent thinly capitalised enterprises from piling up debt to take on projects, creating chain-reaction risk when the market fluctuates. From a lawyer’s perspective, an enterprise should assess both metrics — owner’s equity and the leverage ratio — right from the stage of drawing up the project’s financial plan, rather than discovering a shortfall after the application has been filed.

Mục 04The exception for small-scale activity

Not every transaction involving real estate requires establishing an enterprise. Article 9 of the 2023 Law on Real Estate Business provides an important exception: an individual doing real estate business on a small scale is not required to establish a real estate business enterprise but must declare and pay tax as prescribed by law. This is a point of balance between tightening the management of the professional market and not over-criminalising or over-administrating the ordinary civil transactions of citizens.

However, the boundary between “small scale” and professional business activity must comply with the criteria set by law and guiding documents, and enterprises and individuals should not construe it themselves to evade their obligations. An individual who continually buys and sells numerous properties in a manner that is commercial in nature but disguised as “personal transactions” runs the risk of back-tax collection and of being dealt with for conducting business improperly.

Mục 05Practical advice from lawyers

For an enterprise preparing to enter the real estate sector, the first thing to do is a comprehensive review of its legal standing and financial structure against the conditions of Article 9, in particular the owner’s-equity threshold corresponding to the intended project scale. For FDI investors, it should be noted that, in addition to the conditions of the Law on Real Estate Business, they must also comply with the regulations on investment and on the land-access rights of foreign-invested economic organisations, so the conditions equation is often more complex than for domestic enterprises.

Methodical preparation on the conditions not only helps an application to be approved smoothly but also lays the foundation for the enterprise to lawfully raise capital and sell later on. Your enterprise may refer to HTIC’s real estate lawyer service for advice tailored to each project model.

Mục 06Frequently asked questions

What does an enterprise in another business line need in order to add real estate? The enterprise needs to add the real estate business line and must satisfy the conditions of Article 9, in particular the conditions on owner’s equity and the debt ratio when implementing a project. Merely registering the business line without sufficient financial capacity is still not enough to qualify as a project developer.

At what point in time is the 20% owner’s equity determined? The owner’s-equity requirement is examined when the enterprise implements the project, in connection with the procedures for in-principle investment approval and selection of the developer. The enterprise must prove its capital capacity through financial statements and valid documents, so preparing transparent financial records early on is very important.

Is an individual selling a few of their own land plots considered to be doing real estate business? The transfer of real estate owned by an individual, being an ordinary civil matter, is not automatically regarded as doing business. However, if the activity is regular and continuous and aimed at profit to a degree determined to constitute business, the individual must comply with the corresponding obligations — at a minimum, declaring and paying tax.

Mục 07Legal support from HTIC Law Firm

HTIC Law Firm advises domestic enterprises and FDI investors on the conditions for entering the real estate market, on capital and project-entity structuring, and on completing the dossier to meet the conditions to act as a project developer. Fixed-fee quotation per matter/project — Hotline +84 379 044 299.