Transactions involving the purchase of future-formed housing offer numerous advantages to both investors and buyers. For investors, this approach serves as a means of raising capital without incurring interest costs to customers. Conversely, for buyers, it provides an opportunity to participate in the construction process, ensuring that the home aligns with their preferences. Additionally, buyers can benefit from installment payments at a reduced cost. However, when purchasing future-formed housing, buyers must exercise caution to mitigate potential risks.
Question 1: What risks might homebuyers encounter when purchasing future-formed housing?
Answer:
Transactions involving future-formed housing are prevalent in the real estate market, providing benefits to both developers and buyers. However, since the transaction pertains to an asset that has not yet been completed at the time of contract signing, buyers may face various risks if they do not conduct thorough research and implement appropriate safeguards to protect their interests.
Firstly, one of the most significant risks is the developer’s financial insolvency or construction delays. As stipulated in Article 24 of the 2023 Law on Real Estate Business, developers are only authorized to sell future-formed housing upon obtaining land use rights certificates, project documentation, approved construction design drawings, construction permits (if applicable), and a foundation completion inspection report. Nevertheless, in practice, many developers proceed with sales despite failing to meet these legal requirements or encounter financial difficulties that lead to project delays, resulting in losses for buyers.
Second, legal risks associated with the project are a critical concern for buyers. As stipulated by Article 26 of the 2023 Law on Real Estate Business, before selling future-formed housing, developers are obligated to obtain a commercial bank guarantee to ensure the refund of buyers’ payments in the event that the property is not delivered as scheduled. However, numerous projects lack bank guarantees, or buyers are not provided with adequate information regarding guarantee conditions, leading to potential financial losses if the developer encounters difficulties or the project is revoked due to legal violations.
Third, unclear sales contracts with unfavorable terms for buyers are a prevalent issue. Article 46 of the 2023 Law on Real Estate Business mandates that contracts for future-formed housing must contain specific details such as the sale price, payment method, delivery schedule, rights and obligations of both parties, and contract breach handling measures. However, in reality, many contracts drafted by developers contain clauses that disadvantage buyers, such as ambiguous delivery timelines, low penalties for late delivery while imposing high penalties for late payments, or allowing the developer to unilaterally modify the design without buyer consent.
Finally, even after receiving the property, buyers may face risks related to construction quality not meeting agreed-upon standards. According to Article 34 of the 2023 Law on Consumer Rights Protection, buyers have the right to request warranty services and repairs if the delivered product does not conform to the contract specifications. However, in practice, many developers deliver homes that deviate from the original design, utilize substandard materials, or delay warranty services, resulting in financial and quality-of-life issues for buyers.
To effectively mitigate the risks associated with purchasing future-formed housing, buyers must conduct a comprehensive review of the project’s legal status. This involves verifying compliance with sales conditions and carefully examining the purchase contract. Key areas of attention include bank guarantees, delivery timelines, and warranty obligations. Seeking guidance from a legal professional is highly recommended to safeguard buyers’ rights in real estate transactions.
Question 2: What specific recommendations do you have for buyers purchasing future-formed housing?
Answer:
As defined in Clause 24, Article 3 of the 2023 Housing Law, “future-formed housing” encompasses properties that are still under construction or have not yet undergone inspection for habitation, adhering to legal construction regulations. This implies that purchasing such properties entails acquiring assets that are not yet physically manifested. Therefore, buyers should not solely rely on information provided by developers or real estate agents but must consider a broader range of factors. Consequently, when purchasing future-formed housing, buyers should meticulously evaluate the following:
1. Legal documentation of the project and foundation completion records: Ensure that the project possesses a construction permit, land use rights certificate, and approval from competent authorities. Developers are only permitted to sell future-formed housing once the foundation has been completed and the Department of Construction has granted approval for capital mobilization.
2. Assessment of the developer’s financial standing and reputation: Buyers should thoroughly investigate the developer’s track record, including past projects and any disputes or delays. If a developer is facing financial challenges, the project’s progress may be jeopardized or even halted.
3. Thoroughly Reviewing the Purchase Contract:
Buyers must meticulously examine the purchase contract, paying particular attention to the following key details:
- Price: Ensure that the price is reasonable and aligns with market trends.
- Payment Schedule: Verify the payment terms and ensure that they are mutually agreeable.
- Delivery Timeline: Clarify the expected delivery date and any potential delays.
- Construction Quality: Review the construction specifications and ensure that they meet the required standards.
- Compensation Clauses: Understand the compensation provisions in case of contract breaches or unforeseen circumstances.
- Bank Guarantee Terms: Verify the terms of the bank guarantee, which is typically provided by the developer to protect buyers in the event of project completion delays or failures.
- Contract Termination Conditions: Carefully review the contract termination clauses to understand the circumstances under which termination is permitted and the associated penalties.
4. Understanding Delivery Timelines and Construction Quality:
Contracts should include binding clauses on handover deadlines and penalties for delays. Buyers should also verify detailed information about the property’s quality and included amenities to avoid any discrepancies between advertisements and actual conditions.
5. Market Price Assessment and Comparison:
Buyers should compare the property’s price with other similar projects in the area to assess its market value. If necessary, they should seek assistance from valuation experts or appraisal companies to obtain an accurate property valuation.
6. Clarifying Buyer Protections in Case of Project Delays or Failure:
Buyers should clearly determine the compensation terms in the event of project delays or incompletion. Additionally, they should review the contingency plans in case the developer becomes insolvent or fails to fulfill its obligations.
By carefully considering these factors, buyers can effectively mitigate risks and make informed decisions when purchasing future-formed housing.
Read more>>Real Estate and construction
