VietNamNet Bridge – A draft decree on land prices could drive investment rates much higher, businesses fear.

Under the draft decree, now open for public opinion, the highest land price level tfor the Red River Delta and the eastern part of the southern region would be VND162 million per square meter.

The current price of land in urban areas is a minimum of VND1.5 million per square meter an a maximum of VND67.5 million per square meter.

The decree, drafted by the Ministry of Natural Resources and the Environment (MONRE), will be submitted to the government for approval.

The new land prices would be double the current prices in Hanoi and HCM City, and 2.4 times higher than current prices in other localities.

The official land price frame is released annually by the government, while the land price levels are set up annually by local authorities.

The land prices defined by local authorities could be higher than land prices stipulated by the government, but must not be higher than 20 percent.

In principle, the land price levels set by state management agencies have to be in accordance with market prices. However, the official land prices are always lower than market prices.

A businessman in Hanoi said the sharp increase in the land price has caused a shock to the business community as investors would have to pay higher compensation rates to local residents for site clearance.

“Businesspeople are hesitating to invest now as they face difficulties on all sides. And the sharp land price increase will give them one more reason to give up projects,” he said.

Meanwhile, urbanites have been warned that they would find it more difficult to buy houses once the land prices escalate.

“The land price increase would lead to higher apartment prices,” a real estate broker in Cau Giay District said.

“The land prices in Hanoi and HCM City, which have always been sky-high, will be even higher in the future,” he said. “This will make houses and apartments farther out of reach for workers”.

Real estate developers, who are opposed to the hike, said that current low demand in the market could worsen.

However, the ministry’s land price adjustment is supported by economists, who said that official land prices must be set based on market prices.

Professor Dang Hung Vo, former Deputy Minister of MONRE, said the ceiling land prices should be raised.

“If the gap between the market price and the government-set price is too big, the state will be at a disadvantage because the tax collections from land-use right fees will be low,” Vo said.

Kim Chi