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Tuesday, May 24, 2022

Money and land seen from Thu Thiem land auctions

By V.Dung

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Experts say that the State should improve the legal framework on the auction of land use rights but should not interfere greatly in the auction process.

Experts agree that the auction of land use rights is a wise policy to increase the effectiveness of the use of public assets, contributing to stabilizing the real estate market and fostering the country’s socioeconomic development.

This view was shared at a seminar themed “Auction of land use rights – legal reality and solutions,” jointly held by Phap Luat newspaper, the Green Economics Institute and the University of Economics and Law on April 20.

Experts, however, pointed out that the auction of land use rights relates to not only the Law on Asset Auction but also other laws. Despite detailed guidelines, unreasonable and overlapping regulations remain in place, so they should be amended.

Pros and cons of Thu Thiem land auctions

A majority of experts said that the unprecedented winning bids in the auctions of four land lots in the Thu Thiem New Urban Area, late last year, should be used as a case study to assess the pros and cons of land auctions. They said that the unthinkably high winning bids were like an earthquake in the Vietnamese property market as land lots measuring over one hectare in total in the Thu Thiem New Urban Area were auctioned at over US$1 billion, or more than VND2.4 billion per square meter, setting two records: the highest total winning auction price and the highest winning unit price.

According to Dr. Vu Dinh Anh, the results of the land auctions have sparked multiple controversies. Some people believed that the State benefited greatly as the revenue from the auction of a land lot in the Thu Thiem New Urban Area was equal to 6.6% of the total State budget revenue in HCMC or over one-third of the city’s retained local budget revenue.

Some others doubted the financial capacity of the auction winners, including not only the firm winning the land auction with a record price but also the three other winning firms. Those preferring conspiracy theories alleged interference by current owners of nearby land lots in Thu Thiem and by banks which have provided or will offer loans for real estate projects in the area.

The strategy is to inflate land prices in Vietnam, firstly in large cities where each square meter of land costs billions of Vietnam dong or each square meter of construction costs hundreds of millions of Vietnam dong. But, this will turn the real estate market into not just a bubble but a super bubble.

Having got involved in this playing field in line with the market mechanism, the State and enterprises must accept the reality of money and land to understand the gains and losses of the Thu Thiem land auctions.

It is easy to calculate the State budget’s losses if thousands of land lots, including multiple land lots in prime sites, are put up for auction, instead of being allocated with a fee which is normally low.

However, if all four winners of the auctions of land lots in Thu Thiem cancel their bids, the land lots will be put up for other auctions, while the State can collect over VND1 trillion in non-refundable deposits from the bid winners. Thus, the first and biggest gain is that the State will not lose its money but will conversely earn money, even a lot of money.

Furthermore, the huge gap between the starting and winning prices for the four land lots was a convincing explanation for a series of land violations in no-bid land allocations. The attraction of the sharing of huge amounts thanks to the transfer of land use rights and the sale of State-owned houses in association with the transfer of land use rights have made irregularities occur naturally.

If land had been handed over to projects through transparent and competitive auction, government officials would not have been implicated in so many violation cases. This can be seen as the second gain.

In addition, the auctions were conducted in a public and competitive manner in which enterprises continuously set higher prices, indicating that the market mechanism was applied in the property market, which has featured the favoritism for many years. The winning prices for land lots in Thu Thiem were surprisingly high but reflect the market mechanism.

The cancelation of land auction winning bids is not new. Therefore, deposits as participation guarantees in land auctions should be raised to 20%-30% of the starting prices.

“In a word, land auctions must ensure the principles of transparency and healthy competition are applied in all the transfers of land involving the land use fee collection and without exceptions. Land auctions must ensure the rights and benefits of three sides: the State (seller), enterprises/residents (buyers) and the market/society while land auction policies, regulations, processes, procedures and the quality of the relevant human resources should be improved,” Dr. Anh added.

Regulations on auctions needed

According to experts, the State should improve the legal framework on the auction of land use rights but should not interfere greatly in auctions. Land auctions have their own rules, playing fields and participants, so regulations on these factors should be consistent to prevent disputes.

Associate Professor Dr. Doan Thi Phuong Diep from the University of Economics and Law, the Vietnam National University-HCMC, said land should be held for land lots which are not involved in irregularities. Land lots should be sold in a transparent manner and in line with the Law on Investment. However, investors have found it hard to have a general view about land auctions due to separate legal documents.

Typically, there is no regulation on the assessment of the financial capacity of investors before investment projects are approved, while this is the first requirement for investors that are chosen through auctions of land use rights. The regulations on deposits and the deposit payment time and methods are different in different provinces as well.

Especially, in the auctions of land use rights, in addition to the winning prices and the revenue, the architecture and opportunities to attract international investors to Vietnam should be considered a top priority. In the Thu Thiem New Urban Area in HCMC’s Thu Duc City, elite properties should be prioritized.

According to Trang Bui, CEO of Cushman & Wakefield Vietnam, the State, in addition to assessing the financial capacity to develop projects of investors taking part in the auctions of land lots in the Thu Thiem New Urban Area, should consider if their project development capacities can contribute to developing the architectural landscape of this new urban area and the economy in the future.

Phan Duc Hieu, Deputy Head of the Central Institute for Economic Management, agreed that the auction winning prices are not everything. It does not mean that all land lots priced highly are important. How the land lots are used and feature the city’s architecture is more important.

The legal framework should be improved while appropriate land use right auctioning tools should be sought to increase the values of auctions. The feasibility of projects must be weighed carefully. In addition, the State should not intervene greatly in the initial stage of auctions and should pay more attention to post-auction inspections, Hieu noted.

According to Associate Professor Dr. Nguyen Quang Tuyen from the Hanoi Law University, enterprises participating in the auctions of land lots in the Thu Thiem New Urban Area did not violate the law, so land auctions should not be tightened. However, the laws relating to the auction of land use rights, such as the Civil, Land, Investment and Asset Auction Laws, should be amended.

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