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Lessons learnt from the Thu Thiem land auction case

A suitable auction form for each type of property and more stringent sanctions are needed to prevent auction winners from walking away without buying as happened recently in the Thu Thiem New Urban Area, experts said.

A corner of Thu Thiem New Urban Area. A suitable auction form for each type of property and more stringent sanctions are needed to prevent auction winners from walking away without buying as happened recently in Thu Thiem. — Photo

The HCM City Real Estate Association (HoREA) said in a report to Prime Minister Pham Minh Chinh that the direct verbal auction had led to a bidding war, especially between the final two bidders, which pushed up prices.

The winning bid was 8.3 times the reserve price, and much higher than existing land prices in the area and even on Dong Khoi, Nguyen Hue and Le Loi streets in the city downtown, it said.

If the auction had been through sealed bids and the bidders’ capacity, especially financial, had been evaluated, the results would have been different, it said.

HoREA chairman Le Hoang Chau said the public has asked why bidders are ready to lose deposits of hundreds of billions of dong after they win an auction, and if they do it merely to burnish their brands. 

The fact that a business offers too high a price and then rejects the purchase, regardless of the motive, affects the healthy development of the market, the association said.

Fortunately, the Government and city administration have discovered and inspected otherwise it might have causes incalculable damage, it said.

But the auction managed to created a land fever in this area and elsewhere, benefiting some investors, it said, pointing out that for instance a housing project in Thu Duc City is selling townhouses at up to VND350 million (US$15,376) per square metre. 

“Speculation” in the market is pushing up land, house and apartment prices, it said. 

Needing to amend law soon

Chau said the Law on Property Auction still has loopholes that need to be quickly filled.

There is no regulation requiring bidders to prove their financial capability or furnish plans for a plot of land after winning an auction, he said.

To ensure the feasibility and success of future auctions in the Thu Thiem New Urban Area, the city needs to switch to sealed bids, he said.

“In the long term, it is necessary to supplement and amend the Law on Property Auction and related action regulations to ensure consistency of auction activities.

“At the same time, there should be specific regulations for bidders to meet and evaluation of projects that investors plan on a land if they win an auction."

Concurring, Assoc Prof Dr Nguyen Trong Hoai of the University of Economics of HCM City said the Law on Property Auction does not distinguish between auctions of small and large assets or between that of lands or properties on lands, and should be amended.

He also suggested mandating that bidders must have sufficient financial capacity and have their proposed projects appraised.

HoREA as well as other experts called for severe sanctions on auction winners who do not go ahead and buy.

The association also suggested that the Government should enhance oversight of auction service centres to prevent corruption and collusion between bidders and centre officials.

Source: Vietnam News

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