Insurance firms are prohibited from "encroaching" on real estate

DNHN - According to the Chairman of the Economic Committee, this new draft bill removes limitations permitting insurance companies to employ idle cash for real estate activity.

The Law on Insurance Business (Amended) was debated in the hall during the third session of the 15th National Assembly. According to the draft, insurance and reinsurance companies, as well as divisions of non-life insurance and reinsurance companies, are not permitted to conduct real estate transactions.

Exclusions include: purchasing real estate for use as a business headquarters, working location, or warehouse facility directly serving professional activities; leasing unused business premises under ownership or use; and holding real estate due to the disposal of bonds secured by real estate, as well as the deduction of receivables with real estate within three years of holding.

During the debate session, however, several delegates said that enabling businesses and insurance company branches to lease extra real estate would be a relatively simple way to get around the rule. If it is prohibited, as proposed in the legislation, it is required to establish standards for the use of real estate to minimize the potential of firms bypassing the law.

Mr Vu Hong Thanh, Chairman of the Economic Committee, said in this respect that the draft legislation currently directs the Government to define the principles, including the rate at which insurance firms use real estate to prevent circumvention.

The National Assembly Standing Committee also said that the Insurance Business Law of 2000 permits insurers to do real estate transactions. However, under the requirements of the Real Estate Business Law of 2014, companies and people engaged in real estate business must form businesses or cooperatives. That is, this Law prohibits companies and individuals from directly doing real estate business and instead requires them to create real estate commercial firms.

As a result, the Chairman of the Economic Committee said that the new draft legislation has deleted the provision permitting insurance firms to utilize idle money for real estate business to guarantee consistency between the law on insurance and the real estate industry.

In response to the above material, the Real Estate Association (HoREA) said that it is correct not to allow insurance firms to conduct real estate transactions, but that real estate investment should be permitted.

Because the Politburo's Resolution No. 39-NQ/TW dated January 15, 2019 "On enhancing the efficiency of administration, exploitation, use, and promotion of the economy's resources" established the aim. By 2035, the money mobilized for the economy by insurance businesses will account for 20-30% of total long-term investment capital. By 2045, insurance companies' capital mobilized for the economy will account for 30 per cent - 50 per cent of total long-term investment capital and decide on tasks and solutions "Improving legislative rules on the insurance sector," encouraging insurance firms to invest back into the economy.

"Therefore, points a and b, clause 3, Article 150 "Draft Law on Insurance Business (Amended)" prescribing that insurance firms "are not permitted to participate in real estate" are inconsistent with government policy," HoREA stressed Politburo Resolution 39-NQ/TW.

HoREA recognizes that to harmonize, insurers must be able to utilize idle cash from professional reserves to make financial investments and invest capital in a variety of areas, including real estate (but are not allowed to conduct real estate business).

"Insurance money is also a large source of socialized capital that has to be used; correctly used, it will contribute an additional source of investment capital, adding to sharing and lowering strain on credit institutions," the representative from the HoREA voiced their opinions.

Furthermore, HoREA considers that enabling insurers to utilize idle cash from professional reserves for financial and capital investment in the real estate industry still assures compliance with legislation that prohibits insurance firms from using idle capital for real estate activity.

The reason for this is because Clause 5, Article 13 of the Law on Real Estate Business 2014 states that a real estate business project's investor may not permit a party to engage in investment cooperation, joint venture, association, business collaboration, or business cooperation. Because insurance enterprises are not permitted to directly trade in real estate, but only invest capital and receive profit sharing (or bear the responsibility of capital contribution) under the investment capital contribution contract, a capital contribution is required to sign real estate sales, transfer, and lease-purchase contracts.

In terms of the amount of capital that insurers may invest in the real estate sector, HoREA determined that the regulation, which states that insurers may use their idle capital to make financial investments and contribute capital to the real estate sector at a maximum rate of 10% for non-life insurers and 20% for life insurers in Article 62 of Decree 73/2016/ND-CP, is appropriate and must be implemented. the idea that insurance companies are exclusively accountable for their investing operations in terms of safety, efficiency, and liquidity.

PV