In Part 1 of the article, the author mentioned the participation of different parties in a real estate M&A transaction and transaction options aimed at stake/share of the company. This section presents the author’s opinion on trading options covering real estate assets or real estate projects.
1. M&A transactions through transfer of real estate projects.
Transfer of real estate project means that an investor transfers part or all of the real estate project to another investor for further investment in the business, and satisfies the conditions stipulated by law. means
In order to carry out M&A of a real estate project through a real estate project transfer, the real estate project, the transferor and the transferee must meet the following statutory conditions:
Conditions for real estate projects to be transferred:
- After the transfer of the project, the purpose and content of the project must not be changed. Ensuring the interests of clients and stakeholders in the transfer of projects.
- Transferred projects are 1:500 scale detailed plans or approved general planning plans that have already been approved by the competent state agency.
- Compensation and ground clearance for a transferred project or part of a project has been completed.
- To transfer the entire infrastructure construction project, the construction of the technical infrastructure work must be completed in line with the approved project schedule.
- The project is free of land use rights disputes and is not restricted from competent state agencies’ judgment enforcement or administrative decision enforcement.
- Not subject to project cancellation or land reclamation based on decisions of competent state agencies. In the event of any violation during the implementation of the project, the investor must complete the execution of the sanctions decision.
Note: The terms of the project transfer for investment in the form of Public Private Partnership (PPP) are stipulated in Article 43 of Decree No. 63/2018/ND-CP.
Investor transfer real estate project and the conditions under which the investor acquires (Article 49 of the Real Estate Business Law)
Investors transferring real estate projects
- Possess a land use right certificate for all or part of the transferred project.
- Meet the financial obligations related to the project land.
Investor acquiring a real estate project
- Be a real estate business operator.
- have sufficient financial capacity;
- We ensure project schedules and content, and commit to further investment in construction and business in accordance with legal regulations.
If the above conditions are met, the parties to the business transfer transaction must go through procedures for permission to transfer the real estate business. Accordingly, the power to authorize the transfer of real estate projects is stipulated as follows: (Article 50 of the Real Estate Business Law, Article 75, Paragraph 2, Point b of the Investment Law):
- For real estate projects approved by investors or granted investment registration certificates in accordance with the Investment Law, the powers and procedures for transferring all or part of such projects shall comply with the Investment Law. .
- For real estate projects other than those approved by the investor in accordance with the Investment Law or for which an investment registration certificate has been granted, the authority to authorize the transfer shall be specified as follows:
- For a project decided by the provincial-level People’s Committee to invest, the provincial-level People’s Committee shall make a decision to approve the transfer of all or part of the real estate project.
- The Prime Minister shall decide to approve the transfer of all or part of the real estate project for which the Prime Minister decides to invest.
A project transfer contract can only be concluded after obtaining the approval of the transfer by the above-mentioned competent state agency on a case-by-case basis. The basic process of real estate project transfer is as follows:
step 1: The transferor shall submit an application for approval of the transfer to the competent authority.
Step 2: The competent authority must collect comments and evaluate the terms of the transfer.
Step 3: Issue a decision authorizing the transfer.
Step 4: The transferor and transferee shall enter into a transfer contract, perform the transfer contract, and work to complete the transfer and handover of the project.
The main content of the contract for the transfer of real estate projects must comply with Article 53 of the Real Estate Business Law.
Note: In conducting an M&A transaction for a real estate project, the real estate project may fall under any of the following: On a case-by-case basis, the parties to the transaction should consider choosing an appropriate transaction plan and terms.
- Real estate projects already have land, but no investment projects.
- The investment project has been approved but the land has not been cleared
- Investment projects have been approved and land cleared, but infrastructure construction has not yet taken place.
- The project infrastructure construction is being carried out according to the project schedule and the foundation is completed.
- The project is under construction but not yet completed.
- Construction is complete.
2. M&A by purchasing property that is real estate.Examples: land, factories, buildings, hotels, etc.
Such M&A shall be conducted through a real estate purchase and sale agreement.
Execution of a real estate transfer contract may be subject to notarization procedures (where notarization is required by law) and registration or transfer of property title with the competent authorities.
After the transfer of real estate is completed, the parties to the transaction must do the following to further commercialize the real estate: Re-entering agreements with related parties (partners, customers, employees, etc.), granting new licenses, amending licenses, dissolution of affiliates.
Compared to other transaction methods, M&A by purchasing properties has the following specific advantages and disadvantages.
- Focus on interests and property holdings.
- Eliminate potential risks that buyers may not be explicitly aware of.
- Avoids issues related to shareholders/members compared to buying capital/shares.
- The property to be transferred must have a certificate or be eligible for transfer according to regulations.
- Administrative procedures are complex, cumbersome and troublesome.
- Ownership may be restricted, especially in transactions involving foreign investors.