NEW CONTENTS ON BANK GUARANTEES FOR FUTURE HOUSING DEVELOPMENT

In the context of a fluctuating real estate market, particularly with the upcoming enactment of the 2023 Real Estate Business Law, the demand for bank guarantees for future residential real estate projects has been on the rise. To address this increasing need, the State Bank of Vietnam issued Circular No. 49/2024/TT-NHNN (“Circular 49”) on October 25, 2024, amending and supplementing certain provisions of Circular No. 11/2022/TT-NHNN of September 30, 2022, governing bank guarantees (“Circular 11”). Some notable highlights of Circular 49 include: 

1. Foreign bank branches are permitted to provide guarantees for future housing developments.

Previously, under Article 13 of Circular 11, commercial banks were only permitted to provide guarantees for off-plan housing if they met both of the following conditions:

• The banking license or its amendments specifically outline the scope of banking guarantee activities that the bank is authorized to perform;
• Not subject to any prohibition, restriction, suspension, or temporary suspension on providing guarantees for off-plan housing.

A public list of commercial banks qualified to issue guarantees for off-plan housing projects will be published on the State Bank's website.

Circular 49 has repealed the previous restrictions and expanded the scope of institutions authorized to issue future housing guarantees. As a result, both domestic commercial banks and foreign bank branches are now eligible to provide this service. The requirement for public disclosure of eligible banks has also been removed.

2. Amendment of the procedures for executing guarantees on off-plan properties.

Circular 49 has amended the procedures for implementing guarantees for off-plan housing. Specifically, based on the request of the developer or the corresponding guarantor, commercial banks and foreign bank branches shall review, assess, and decide to issue a guarantee to the developer. The implementation of the guarantee shall be carried out through the following steps:

1. The guarantor and the project owner shall execute a guarantee agreement as prescribed by law.
2. Pursuant to the signed guarantee agreement, the guarantor shall issue a commitment letter to the investor for the investor to send a copy to the purchaser upon signing the purchase or lease agreement for the house.
3. Upon execution of the property purchase or lease agreement, which stipulates the investor's financial obligations, the investor submits the agreement to the guarantor to request the issuance of a guarantee letter in favor of the buyer;
4. The guarantor shall, based on the purchase/lease agreement for the house, the guarantee agreement, and the commitment letter to issue a guarantee letter, issue the guarantee letter and send it to the developer to provide to the buyer.

Accordingly, under the new regulations, the process of implementing guarantees for future housing projects has some new points. Circular 49 has added a provision requiring the guarantor to issue a written commitment to issue a guarantee letter to the developer after signing the guarantee agreement, and the developer is responsible for sending a copy of the commitment letter to the investor. In addition, instead of stipulating the bank's responsibility to send guarantee letters to each buyer as per Circular 11, Circular 49 has completely transferred the obligation of delivering guarantee letters to the Developer.

Circular No. 49 takes effect from December 10, 2024.