Can a developer of a tourist apartment project raise capital from customers through loan agreements?

The 2023 Law on Real Estate Business does not directly stipulate that a developer of a tourist apartment project is prohibited from borrowing money from customers. However, when a loan is structured closely in connection with the right to purchase a specific real estate product, the boundary between “borrowing capital” and “collecting advance payments from customers” becomes an issue that requires careful consideration. This article analyzes the factors that should be taken into account when an enterprise chooses capital raising through loan agreements in this case.

1. Raising Capital to Implement a Real Estate Project Is Not a Prohibited Act

The 2023 Law on Real Estate Business sets out financial capacity requirements for enterprises conducting real estate business through projects. In particular, enterprises must ensure the required ratio of equity capital and their ability to mobilize capital to implement investment projects. Accordingly, in principle, the mobilization of lawful sources of capital by an enterprise to implement a real estate project is not prohibited by law.

Decree No. 96/2024/ND-CP guiding the 2023 Law on Real Estate Business further specifies the control of funding sources of real estate enterprises, including outstanding loans at credit institutions and outstanding corporate bond debt. However, these provisions do not mean that the 2023 Law on Real Estate Business establishes an absolute prohibition on all loans received by real estate enterprises from organizations or individuals.

Therefore, if considering only the name “Loan Agreement”, it cannot be concluded that the developer’s receipt of a loan from an individual is automatically an unlawful act of capital raising. The more important issue is to examine the nature, purpose, and mechanism of the loan throughout the overall transaction structure.

2. When Does a “Loan” Begin to Bear the Characteristics of a Payment for Real Estate?

An independent asset lending relationship does not, in principle, become a real estate purchase and sale transaction merely because the lender simultaneously has a demand to purchase a product from the borrower. However, the legal risks may change significantly if the loan is structured as an inseparable part of the real estate purchase transaction.

More notably, if, after a certain period of time, the product is still not eligible for the execution of a Sale and Purchase Agreement while the registrant continues to have a demand to purchase, the parties intend to extend the loan term and continue using the entire loan amount to pay for the apartment when the Sale and Purchase Agreement is executed.

This structure raises the question: if, at the time the money is received, the person transferring the money has already been identified as the registrant purchasing a specific apartment, and the parties have agreed in advance that such amount will be converted into payment of the purchase price, can such amount still be considered to have the full economic independence of a loan, or has it already performed a function similar to an advance payment collected from a customer?

3. The Name of the Contract Is Not the Sole Factor Determining the Nature of the Transaction

Civil law respects the parties’ freedom and voluntary commitment and agreement. A real estate enterprise may also lawfully enter into asset lending relationships. Therefore, not every Loan Agreement between a developer and a potential customer should be equated with a deposit or real estate purchase and sale transaction.

However, when assessing risks, it is necessary to consider the transaction as a whole and examine indicators such as: whether the lender is simultaneously the registrant purchasing the product; whether the loan is linked to a specific product; whether the rights and obligations to repay the loan depend on the purchase and sale transaction; whether the loan is automatically converted into payment of the purchase price; and whether the receipt of money is organized simultaneously as a sales policy or a method of raising funds from a group of potential customers.

In the event that, if the customer does not execute the Sale and Purchase Agreement, the developer is entitled to sell the apartment to a third party, and the repayment of the loan may be linked to the time when the developer sells such apartment; while the developer also intends to deduct certain expenses before making the repayment. These factors indicate that the rights and obligations arising from the loan are closely connected to the outcome of the apartment purchase transaction.

4. The Boundary Between “Borrowed Capital of the Enterprise” and “Payments Collected from Customers”

The 2023 Law on Real Estate Business does not prohibit real estate enterprises from borrowing capital from organizations or individuals. However, an enterprise’s right to raise capital does not mean that it may use an agreement named a “loan agreement” as a means of receiving advance payments from persons wishing to purchase real estate while the product has not yet satisfied the legal conditions for conducting business.

Therefore, the legal boundary should not be determined solely by the name of the document. A genuinely independent loan, with a borrowing purpose, term, repayment obligation, and implementation mechanism that do not depend on whether the lender purchases the real estate or not, differs in substance from an amount of money that, from the outset, has been linked to the right to purchase a specified product and is intended to be automatically converted into payment of the purchase price.

For condotels, the fact that the product is not residential property does not mean that the developer is free to receive money from customers before the time permitted by law. The 2023 Law on Real Estate Business regulates the business of construction works and floor areas of construction works, including products serving tourism and accommodation purposes.

Therefore, where a developer chooses to raise capital in the form of loans from persons who have registered to purchase condotels, the issue of concern is not merely whether the contract is named a “Loan Agreement”. The competent authority or dispute resolution body may need to examine the entire transaction structure to determine the true nature of the cash flow.

The name of a contract is not the sole factor determining the legal nature of a transaction. When a loan is structured in connection with a specified real estate product, the lender is simultaneously the purchaser registrant, and the loan amount is agreed from the outset to be converted into payment of the purchase price; the boundary between “borrowed capital of the enterprise” and “advance payment collected from customers” becomes particularly blurred.

Therefore, for the capital raising through loan agreements model in the business of condotels, a prudent approach is to assess the transaction based on its economic substance, actual purpose, and the relationship among the relevant agreements, rather than relying solely on the form or name of each individual contract.

Should you require specialized legal assistance, please contact:

Legal Expert: Vu Ha Van

• – Email: info@bizlawyer.vn
• – Tel.: 086.885.1900

Sincerely.