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Businesses that bid sky-high prices and then withdraw: what happens next?

All four investors who won the bid at Thu Thiem auction in HCM City have ‘quit the game’, accepting their loss of deposit money.
Thu Thiem land auction, December 2021

Businesses that bid sky-high prices and then withdraw: what happens next?Some analysts think this was a scenario designed by investors to push land prices up.

Conclusions about odd land auction

A 12-page report by Nguyen Hong Nga and Gian Thi Le Na from the University of Economics and Law, a member school of the HCM City National University, released in March 2022 posed questions about the auction of the four land plots in Thu Thiem.

The 3-12 land plot with the area of 10,059 sq m with the starting price of VND2.942 trillion was bid at VND24.5 trillion, or VND2.4 billion per sq m, which was 8.3 times higher than the starting price. The winner was Ngoi Sao Viet, a subsidiary of Tan Hoang Minh Group.

Experts pointed out that this was a record high price of land, which was never seen before in the real estate market.

Similarly, the 3-5 land plot was sold at VND3.82 trillion, or 6.6 times higher than the starting price. The winner was Dream Public JSC.

The 3-8 land plot with the area of 8,500 sq m was sold at VND4 trillion, or four times higher than the starting price. The winner was Sheen Mega.

The 3-9 land plot with the area of over 5,000 sq m was sold to Binh Minh Trade Co Ltd at VND5.026 trillion, or 6.9 times higher than the starting price.

As such, winning prices of the land plots were 4-8.3 times higher than the starting prices. Meanwhile, the highest winning prices in Can Tho City were 53 percent higher than starting prices. The figures were 24 percent in Dong Thap, 50 percent in Dak Nong and 85.68 percent in Son La.

In Hong Kong, winning prices are mostly higher by 30-50 percent than the starting prices and in China, the figure is 45 percent.

Why were the bidding prices at Thu Thiem so high? The researchers describe their points of view.

First, there was a ‘scenario’ drawn up by bidders before the auction.

Second, the enterprises attending the auction deliberately bid high prices for Thu Thiem land to create a new land price level in the region. This would allow them to sell their land plots nearby at higher prices.

Third, the valuation capacity of the Property Auction Service Center under the HCM City Department of Justice still could not meet the requirements and it set starting prices at too low levels compared with the potential of the land plots.

Fourth, enterprises think they may lose the deposit money, but will gain fame in return. The high bidding prices may send a message to the stock market that the enterprises are doing business well, which will help increase real estate securities prices.

This happened in reality: some real estate securities increased to ceiling levels just two weeks after the auction. 

Fifth, there is a high possibility of collusion and interest groups in the land auction.

Sixth, the Property Auction Service Center was ‘immovable’ when seeing the abnormally high bids. 

Seventh, the selection of investors attending the auction was not implemented well. An enterprise with capital of VND100 billion also attended the auction of the land plots worth trillions of dong. Some other enterprises were established just several months before the auction.

Don’t put a label on businesses

Truong Minh Huy Vu, director of the Information Technology Park under the HCM City National University, said that it is necessary to apply the ‘presumption of innocence’ principle when looking at the case.

He noted that all the procedures of the auction were followed strictly by local authorities and bidders. The policy and the method to implement the policy was right, so the auction was legal. 

However, he said it is necessary to find any loopholes and problems in the implementation process.

For example, it’s necessary to think about why the required deposit money needs to be so high, and how investors’ capacity is assessed. The majority of enterprises attending the auction were newly established.

Prior to that, at a workshop on developing the real estate market organized by the Party Central Committee’s Economic Commission and HCM City National University, Nguyen Manh Khoi from the Ministry of Construction cited the Thu Thiem land auction area as an example.

He said that with the winning prices, a house in Thu Thiem would be priced at VND68-78 billion. Who would buy houses at such a sky-high level?

Tran Chung

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