Recently, a commune in a poor district of Thanh Hoa province put 8 land plots up for auction. Though the road to the commune is very narrow. to everyone’s surprise, hundreds of individuals registered to attend the auction and paid deposit money.

Among the bidders, there were locals who lived with parents and wanted to have a house to settle down to married life. However, they failed at the auction because they could not compete with investors and speculators in the same commune and from other localities, who bid the prices 2-3 times higher than starting prices.

The land plots, after being sold, were offered for re-sale after the auction finished, but at prices VND50-70 million higher. Failing to buy land at the auction, people rushed to seek to purchase land in neighboring areas and were surprised when hearing that the average land prices in the localities had climbed to new levels.

The fact that the average local land prices have become twice as much expensive after land auctions was not a surprise. 

Soon after the four land plots in Thu Thiem area in HCM City were sold at auctions at VND2.4 billion per sq m, newspapers immediately reported that Thu Thiem land was the most expensive in the world, even higher than in the US and Hong Kong.

Though the bid winners gave up the deals later, land prices in Thu Thiem have increased and stayed high since then.

Abnormal actions have also been found at auctions in Quoc Oai and Hoai Duc districts in Hanoi.

In Hoai Duc, while the starting price was just VND7.3 million per sq m, the attendees at the auctions offered a bid price of VND133 million per sq m, or 18 times higher than the starting price. Though people anticipated that the bid prices would be much higher than the starting price, they did not imagine that the land plots would be so expensive.

The land plots in Duong Noi area which were sold at just VND70-80 million per sq m, are now offered at prices 2-3 times higher. While the new prices are too high for most people, they are reasonable compared with prices of VND100-130 million per sq m at land auctions in Hoai Duc.

Analysts say speculators have a lot of tricks to inflate land prices. They register to attend land auctions and then offer high bid prices, which push market prices up, because land prices at auctions are considered a benchmark to define market prices.

Headaches

The sky-high bidding prices at auctions have had an impact on all real estate market segments and have led to an increase in land speculation, thus cornering the real estate market. 

The speculators can make big money overnight, because they can push market prices up overnight. Analysts war that the surfing investment poses high risks for end buyers.

Land price inflation will not only lead to a real estate bubble and cause losses to the national economy, but also prevent people from accessing housing products.

A report showed that from 1990 to now land prices in Hanoi and HCM City increased by 400 times, while the average income rose by 40 times. As such, the gap between housing prices and people’s payment capability has widened.

In principle, when local authorities sell land at high prices, the local budget revenue increases. However, once land prices become too high, localities find it difficult to attract investors. If so, no development projects will developed in the localities, which means a lack of revenue and jobs for locals.

For investors, expenditures on land account for a large proportion of total investment capital. So, if the land prices in some localities are too high, they won’t think of developing projects there.

Analysts said to ‘clear’ the real estate market, measures need to be applied. One of the solutions is raising the required deposit money. Currently, bidders have to pay a deposit equal to 20 percent of starting prices. As the deposit is small, speculators are willing to accept the loss of deposit.

Nam Khanh