Analysts say no auction has caused as much drama as the one for the 3-12 land plot.

At a meeting with the press after the auction, Chair and CEO of Tan Hoang Minh Group Do Anh Dung said the winning price of VND24.5 trillion was not too high.

“I could see benefits for Tan Hoang Minh, HCM City and our country if we had the land plot, so I vowed to own the land plot at any cost,” Dung said.

He said more land plots ‘more precious than gold’ have fallen into foreign businesses’ hands.

“Why don’t Vietnamese businesses compete with them (foreign businesses) in their home country? Why does land, the nation’s valuable natural resource, bring profits to foreigners?” he said.

“By accepting to buy the land at VND2.4 billion per sq m in Thu Thiem, I wanted to put an end to the purchase and sale of public land at abnormally low prices,” he said.

“I spent the amount of money so as to have transparency. I can feel secure to develop projects on that land, and there is no need to follow complicated procedures and worry about inspections. So, I can say that I bought the land at a reasonable price, and did not overvalue it,” he said.

However, Dung sent a letter to the country’s leaders, ministries and HCM City authorities days ago with a ‘sincere apology’ and saying that he broke the contract on the land purchase.

“After winning the auction at such a high price, we heard different opinions from the public and found that such a high price may lead to serious consequences.

Chair of Tan Hoang Minh Group Do Anh Dung (right)

Particularly, after we heard the comment of Minister of Finance at the National Assembly extraordinary session, we thought about this and understood that the high price will affect the real estate market in particular and the national economy in general,” he wrote in the letter.

How serious are the consequences?

The decision by Tan Hoang Minh to give back the land plot is not a surprise to many people.

Prior to that, Minister of Finance Ho Duc Phoc said at the National Assembly session that VND2.45 billion per sq m is ‘abnormal’ and it may ‘disturb’ the market.

His comment then faced opposition from some experts, who said the auction was organized in a transparent way which prevented wrongdoing. They also said the State will benefit from the sale at high prices, and that the principles of the market economy were respected.

When the minister noted ‘disturbance’, he may have been referring to the impact that unprecedentedly high land prices may have on the HCM City and national economy.

The consequences are visible.

The prices of land in Thu Thiem new urban area and neighboring districts escalated immediately after the auction. The value of property of many landlords surged by many times. Land prices have also been pushed up in other cities/provinces.

High land prices will also affect the mortgage of land at banks for loans. In general, banks define mortgaged properties 30 percent lower than the market price, and provide loans equal to 70 percent of the prices they define.

With the same land plot to mortgage, the loans one can take out will be much higher than previously. For example, when mortgaging a land plot assessed at VND3 trillion in the past, one could borrow VND1.47 trillion. But now, as the land plot is valued at VND24.5 trillion, one could borrow VND12 trillion, or eight times higher.

Of course, banks consider many other things, including the borrowers’ financial capability, not only the market value of land, to decide whether and how much to lend. However, once the land prices are pushed up, the value of the loans also increase, and investments in land will increase, thus raising land prices further.

So, will high land prices distort the market? Everyone rushes to invest in land as they are encouraged by sharp price increases. If so, cash flow is driven to the real estate market rather than production and business, and jobs are not generated. Overly high land prices threaten social security, lead to higher infrastructure costs, goods and service price escalation, and weaker competitiveness.

Some economists have warned that sky-high land prices may cause the market to freeze and HCM City won’t be able to attract investment to the city, which had a minus growth rate of 25 percent in Q3 2021.

How will the local authorities explain the sky-high VND2.45 billion per sq m price, if local people in Thu Thiem before received modest amounts of money, equal to ‘three bowls’ of pho’ for every sq m of land, as compensation for site clearance?

The ‘disturbance’ is about the consequences to society and economic development, not about a transparent and public auction process that the State needs to protect. 

Tu Giang

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