VietNamNet Bridge – The Ministry of Natural Resources and Environment’s doubling of the ceiling price of land in urban areas in a submission to the government has proved controversial. Former Deputy Minister Professor Dang Hung Vo gave his thoughts on the issue.

Professor Dang Hung Vo argues that a misunderstanding of the 2013 Land Law is the reason for confusion

People’s committees in Ho Chi Minh City and Hanoi have decided to double their ceiling for the prices of land in urban areas. Many concerns have been raised by industry professionals and the public alike, as this increase will have a knock-on effect on real estate prices, which are already high in Vietnam. Many people suggested the government should keep the price unchanged.

However, I’m not convinced by these arguments. They reveal a careless understanding of the regulations of Land Law 2013 and the real rule of the real estate market, except for one issue assuming that investors who are permitted by the government to have a debt on land use would have to pay more.

I believe the following two points support my point of view.

Firstly, according to the Article 114 of the Land Law 2013, the increasing price of land imposed by the state would not affect the investment environment of real estate markets in Vietnam.

Item 2, Article 114 (Land price tables and specific land prices) of the 2013 Land Law  stipulated that: Land price tables shall be used as a basis for the following cases: (1) Calculation of land use levy when the state recognises land use rights of households and individuals for land areas within land use quotas, or permits change of land use purpose from agricultural land or non-agricultural land which is non-residential land to residential land for land areas within land allocation quotas applied to households and individuals, (2) Calculation of land use tax. (3) Calculation of charges and fees in land management and use, (4) Calculation of fines for administrative violations in the field of land, (5) Calculation of indemnification paid to the state for damage caused in land management and use, (6) Valuation of land use rights paid to the people who voluntarily return land to the State in case the returned land is allocated with land use levy, recognized of land use rights with land use levy, or leased land with full one-off rental payment for the entire lease period by the state.

Item 4 of Article 114 stipulated that: Specific land price shall be used as a basis for the following cases: (1) Calculation of land use levy when the State recognises land use rights of households and individuals for land areas in excess of land use quotas, or permits change of land use purpose from agricultural land or non-agricultural land which is non-residential land to residential land for land areas in excess of land allocation quotas applied to households and individuals; and determination of land rental for agricultural land areas in excess of land allocation quotas or quotas for receipt of transferred agricultural land use rights of households and individuals, (2) Calculation of land use levy when the State allocates land with land use levy not through auction of land use rights, recognises land use rights, or permits change of land use purpose for organizations that shall pay land use levy. (3) Calculation of land rental when the state leases land not through auction of land use rights. (4) Valuation of land use rights upon equitisation of state enterprises that are allocated land with land use levy, leased land with one-off rental payment; and calculation of land rental in case equitised state enterprises are leased land by the state with annual rental payment. (5) Calculation of compensation amount upon land recovery by the state.

From this we suppose that, the land price of real estate projects in which investors have to submit to the government were formed under following types: (1) Land prices which were chosen under auctions by the provincial authorities and (2) Specific assignment of land price when an investor is selected without competitive tendering.

Land auctions are regulated in the law on auction. Specific land price is implemented under the Item 3, Article 144 as followed: (1). The provincial- level land administration agency shall assist the provincial-level people’s committee in the determination of specific land prices. During the implementation, the provincial-level land administration agency may hire organisations having consultancy functions for advising on the determination of specific land prices. (2) Based on the consultation on land price, the provincial-level land administration agency shall submit the specific land price to the council for land price appraisal for consideration before submitting it to the people’s council of the same level for decision. (3) Provincial-level people’s committees shall decide on specific land prices.

In conclusion, all of the items in Article 114 of Land Law 2013 said that state land price is not related to the land use fees, land use lease fees which investors have to submit to the state and also not related to the compensation regulations for people whose land was reposed by the state.

2. According to the market’s rule, the more suitable to the market state’s land price the stronger the real estate market.

A healthy real estate market is the one which is ensured the minimum gap of land price regulated by state and the real market.

This means that in a healthy real estate market, the gap of land price between state and real market would be zero or at the minimum level.

Secondly, according to the rule of value, the weakness of the market always connected closely to the gap of the land price.

Meanwhile according to the rule of demand and supply, the land price has been impacted mainly from the relation between supply and demand, but not from, or at the least level, from the state’s interference.

According to the competitive rule, if the state land price impacts the market seriously, there would not be any competition among investors and the real estate price would experience no further reductions.

All of the above issues were the main basis for the formation of Article 114 of Land Law 2013 which minimises the state’s land price to have least impact on real estate prices in the market.

In the current situation, the price of real estate in the market has been depending mostly on the supply and the liquidity of correlating demand.

From 2005 (the year in which the new land price framework of provincial authorities was issued accordingly to the Land Law 2003), to 2015 (the year in which the new land price framework of provincial authorities was issued accordingly to the Land Law 2013), the state’s land price framework still remains unchanged with the ceiling of urban land prices (at VND67.5million ($3,200) per square metre) however the price land quotation in two special cities has been increased year by year, to a recent high of VND86 million ($4,000) per square metre.

Meanwhile in the real market, the land price was reduced by 30 per cent in 2011 and 50 per cent in 2013

The price of some golden land sites in Hanoi and Ho Chi Minh City was reported as high as VND1 billion ($47,600) per square metre in 2008, but have fallen to half that at the moment.

Therefore the fact was that the price imposed by the state has increased when the price in the real market declined. These prove that the worries about the state’s land price increases in urban areas were unreasonable and caused by overly conservative views from many people, even experts.

I think that the state land price needs to be increased more rapidly in order to match the real price in the market.

This is actually the best way for reducing land prices in the market. Accepting reality is the only way to make things better.

Last but not least, some investors who have been in debt due to land use right fees and land use lease fees under the time of the Land Law 2003 are also worried that they would have to pay more. This worry is justified as the debt must be paid at the time due, and that means obeying the calculations set out in the new Land Law 2013. However, in general, we should not worry about some weak investors that could stall steps to restructure the whole real estate market.

VIR