What are assets/property to be formed in the future? Requirements for mortgage of assets/property to be formed in the future?

Assets/property to be formed in the future is an intriguing and significant topic when discussing about wealth accumulation. This concept refers to the values and assets that we expect to emerge and accumulate in the future, often based on our current decisions and activities. On the other hand, mortgaging assets/property to be formed in the future is a method of using anticipated future assets to secure loans or financial support. In this article, we will explore the above concept and examine specific examples of assets/property to be formed in the future, as well as the requirements for mortgage of assets/property to be formed in the future.

What are assets/property to be formed in the future?

The term “assets/property to be formed in the future” has been mentioned in Decree No. 165/1999/ND-CP on secured transactions, specifically defining it as “movables, real estate formed after the signing of the secured transaction and will be under the ownership of the securing party such as profits, interest, assets formed from loans, construction projects, and other assets that the securing party has the right to receive.” As of today, this term is defined in the Civil Code 2015.

Accordingly, “assets/property to be formed in the future” differs from existing assets in two factors:

• Assets that have not yet been formed;
• Assets that have been formed but the owner establishes ownership rights after the transaction is established.

Note: Assets/property to be formed in the future do not include land use rights. This is because land use rights are only formed when a specific land parcel is granted a land use rights certificate. After the land use rights certificate is granted, this right is transferred from the previous owner to the new one. This is considered an exception to the concept of assets/property to be formed in the future.

Based on the physical nature of assets, they can be classified into tangible and intangible assets/property to be formed in the future.

• Intangible assets/property to be formed in the future are assets that cannot be perceived through physical senses and are intangible in nature. Examples include rights, intellectual property products, and so on.
• Tangible assets/property to be formed in the future are assets that are physically evident and can be touched or held by humans. Examples include houses, vessels formed in the future, and so on.

Based on the state of the asset, assets/property to be formed in the future can be classified into movable asset or immovable asset.

Based on the procedures of the competent state authorities, it can be classified into assets that require ownership registration and assets that do not require ownership registration.

What are the requirements for mortgage of assets/property to be formed in the future?

Assets/property to be formed in the future also hold values similar to existing assets and are considered assets used to secure obligations, including in the form of mortgage. Mortgaging assets involves one party using their owned assets to secure their civil obligations to another party without transferring ownership of such asset to the mortgagee.

In transactions secured by assets/property to be formed in the future, if the mortgagor fails to fulfill the committed obligations, the mortgagee will be entitled to realise the property used as collateral to fulfill the obligations. Settlement of collateral, which is assets/property to be formed in the future, is carried out according to the agreement reached by the parties involved.

For special types of assets such as real estate (“RE“), the requirements for mortgage of future-formed RE are regulated by the Law on Housing 2014. Note that mortgaging investment projects for residential construction and mortgaging residential properties formed in the future must be carried out in accordance with the provisions of the Law on Housing 2014. Specifically, the requirements for mortgaging investment projects for residential construction and mortgaging residential properties formed in the future are as follows:

• In the case where the investor mortgages a part or the entire investment project for residential construction, they must have project documentation, approved technical designs for the project, and possess a Certificate or Decision on land allocation or land lease issued by the competent state authority.
• In the case where the investor mortgages residential properties formed in the future within a project, in addition to the requirements mentioned above, the mortgaged residential property must have completed the foundation construction in accordance with the construction laws and regulations. Furthermore, the property must not be part of the project or the entire project that the investor has already mortgaged according to the regulations previously stated.
• In the case where organisations or individuals mortgage residential properties, they must possess valid land use rights certificates in accordance with land laws and regulations. If applicable, they must also have a construction permit if it falls under the category requiring such a permit.

In the case where the mortgagor of a residential property formed in the future purchases a house from the investor within a residential construction project, they must have a purchase agreement signed with the investor. Additionally, they must provide a document transferring the purchase agreement if they are the recipient of such a transfer, proof of payment for the house according to the agreed-upon schedule in the purchase agreement, and must not be involved in any complaints, disputes, or legal issues related to the purchase agreement or the transfer of this purchase agreement.

For the purchase of commercial residential properties formed in the future, the following conditions must be met:

• In the case of signing a contract for the purchase, lease, or lease-purchase of residential properties formed in the future with an upfront payment from the buyer, lessee, or lease-purchaser (according to the contract for the purchase, lease, or lease-purchase of residential properties formed in the future), they must comply with the requirements and forms of purchasing, leasing, or lease-purchasing residential properties formed in the future as stipulated by real estate business laws and regulations.
• The investor must submit documents to the Department of Construction, including proof that the residential properties are eligible for sale or lease-purchase. In cases where the investment project or the mortgaged residential properties intended for sale or lease have been encumbered, the investor must also provide documents demonstrating the resolution of these encumbrances or a unified agreement between the buyer, lessee, and mortgagee confirming the absence of encumbrances and confirming the eligibility for purchase or lease. In cases where there are no encumbrances on the project or the residential properties intended for sale or lease, the investor must explicitly state their commitment to responsibility in the documents submitted to the Department of Construction.
• Within a period of 15 days from the date of receiving the application documents from the investor, the Department of Construction must review the documents. If the documents are complete according to the regulations at this stage, the Department of Construction must issue a written notification to the investor stating that the residential properties meet the requirements for sale or lease. If the documents are incomplete according to the regulations, the Department of Construction must provide a written explanation specifying the reasons.

In the event that the investor has submitted the documents within the specified timeframe as per the regulations outlined here, and the Department of Construction has not issued a notification within the designated period, but the residential properties are deemed eligible for sale or lease, the investor is authorised to enter into a purchase or lease agreement for the future-formed residential properties. However, the investor must bear responsibility for the sale or lease of these residential properties. The Department of Construction, in turn, is responsible for issuing the notification or confirming the absence of such notification regarding the eligibility for sale or lease upon receiving the application documents from the investor.

• In the event that the Department of Construction has issued a notification confirming the eligibility for sale or lease of the residential properties, but the investor chooses not to sell or lease the properties and instead mortgages them, the sale or lease of these residential properties after the mortgage can only be executed when the requirements are met and upon receiving written notification from the Department of Construction, as per the regulations outlined here.

Above is an overview of assets/property to be formed in the future and requirements for mortgage of assets/property to be formed in the future that Phuoc & Partners shares with readers. If you have any difficulties related to the legal field, please contact us. Phuoc & Partners is a law firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Danang. Phuoc & Partners is also rated as one of the leading consulting firms specialising in business law in Vietnam that has leading practice areas in the legal market such as Labour and Employment, Taxation, Merger and Acquisition, Litigation. We are confident in providing customers with optimal and effective service.