LAND USE RIGHTS AUCTION IN THE CURRENT CONTEXT THROUGH PRACTICAL EXPERINCE IN HANOI
LAND USE RIGHTS AUCTION IN THE CURRENT CONTEXT THROUGH PRACTICAL EXPERINCE IN HANOI
Dr. Tran Thi Minh Thu
National Economics University
Abstract:
Land use rights auctions bring numerous benefits to both land users and the state. The 2024 Law on Land and its subordinate documents have issued several regulations related to land use rights auctions. However, currently, in many localities, especially suburban areas of Hanoi, the winning bid price for land use rights is often much higher than the starting price, and then the winning bidders abandon their deposits.
This situation wastes auction costs and shows signs of speculation to drive up land market prices in the area for illegal profits. Therefore, it is necessary to review the regulations, compare them with the actual situation, and find appropriate adjustment measures.
Keywords: starting price, land use rights auction, the 2024 Law on Land.
I. Overview of Land Use Rights Auctions in the Current Context through Practices in Hanoi
According to the 2013 Constitution, “Land is a special national resource, an important source of national development, managed according to the law. Organizations and individuals are allocated land, leased land, or recognized land use rights by the State.”
To implement land allocation, land lease with land use fee collection, the form of land use rights auctions has been stipulated by the state in the 2003 Law on Land, and continued through the 2013 Law on Land and the 2024 Law on Land.
Practical application in localities has shown many benefits of land use rights auctions, such as helping the State mobilize revenue for the budget, creating capital for infrastructure construction and economic development, ensuring transparency and fairness in land allocation and lease activities, and developing the land use rights market in Vietnam.
In the work of land use rights auctions, determining the starting price is only one stage. However, determining the starting price to ensure compliance with legal regulations while being reasonable for a successful auction is a complex issue.
A starting price that is too high will pose financial difficulties for organizations and individuals participating in the auction. However, a starting price that is too low easily creates price surges and land speculation.
In the first half of 2024, many land plots in suburban Hanoi were successfully auctioned at prices 7, 8 times, even 20 times higher than the starting price. Immediately after the auction, the lands around the auction area were sold at prices equal to the winning bid plus a difference of hundreds of millions of VND, depending on the plot’s location.
Thus, the determination of the starting price can be one of the reasons leading to difficulties in ensuring the land use rights auction achieves its intended purpose.
After the 2024 Law on Land came into effect, some new regulations related to land use rights auctions in general and the determination of the starting price in particular have been implemented.
However, whether these new regulations can address the existing issues in land use rights auctions is a matter that needs further research and practical verification.
I. Legal Basis Related to Land Use Rights Auctions
- Land Use Rights Auctions When the State Allocates or Leases Land
According to Clause 1, Article 125 of the 2024 Law on Land, the State allocates land with a land use fee or leases land with a one-time payment for the entire lease period through land use rights auctions in the following cases:
a) Land use projects from land funds as stipulated in Clause 1, Article 217 on land use for implementing socio-economic development projects through agreements on land use rights acquisition or existing land use rights, except cases not requiring land use rights auctions as prescribed in Articles 124 and 126.
b) Allocating residential land to individuals, except as stipulated in Article 124 of the 2024 Law on Land.
Conditions for Conducting Land Use Rights Auctions
According to Article 125 of the 2024 Law on Land, the conditions for conducting land use rights auctions include:
a) Land has been recovered and compensation, support, and resettlement have been completed, or no compensation, support, and resettlement are required; the project area has connected transport infrastructure.
b) Included in the approved annual land use plan at the district level for the purpose of land use rights auctions, except for land auctions for land stipulated in point e, Clause 1, Article 217 of the 2024 Law on Land.
c) Detailed 1/500 planning has been organized and approved by competent state authorities for housing construction projects.
d) The land use rights auction plan has been approved by the competent authority.
- Basis for Determining Starting Prices in Land Use Rights Auctions
According to Clause 1, Article 160 of the 2024 Law on Land, specific land prices are applied to determine the starting price for land use rights auctions when the State allocates or leases land, except as stipulated in Clause 1, Article 159.
According to Clause 1, Article 159 of the 2024 Law on Land, the land price table is applied for determining the starting price for land use rights auctions when the State allocates or leases land for plots or areas with technical infrastructure investment according to detailed construction planning.
- Basis, Principles, and Methods of Determining Land Prices
According to the 2024 Law on Land, Article 158 regulates the principles, basis, and methods of land valuation. These provisions are applied to determine specific land prices and develop the land price table.
– Principles of Land Valuation Include:
a) Land valuation methods based on market principles;
b) Compliance with proper methods, procedures, and land valuation processes;
c) Ensuring honesty, objectivity, publicity, and transparency;
d) Ensuring independence among the organization providing land valuation consultancy, the Land Price Table Appraisal Council, the Specific Land Price Appraisal Council, and the competent authority or person deciding on land prices;
e) Ensuring a balance of interests between the State, land users, and investors.
– Basis for Land Valuation Includes:
a) Land use purpose subject to valuation;
b) Land use term. For agricultural land allocated by the State to households or individuals within the agricultural land allocation limit, or agricultural land within the land transfer limit, the land use term is not considered;
c) Input information for land valuation according to land valuation methods;
d) Other factors affecting land prices;
e) Relevant legal provisions at the time of land valuation.
– Input Information for Land Valuation Includes:
a) Land prices recorded in the national land database and national price database;
b) Land prices recorded in land use rights transfer contracts; winning land use rights auction prices after fulfilling financial obligations;
c) Land prices collected through surveys and investigations in cases where there is no land price information as specified in points a and b;
d) Information on revenue, costs, and income from land use.
The input land price information is formed within 24 months from the time of land valuation. The use of collected information prioritizes the most recent information available at the time of land valuation.
– Methods of Land Valuation Include:
a) Comparison Method: This method adjusts the prices of land parcels with the same land use purpose and similar influencing factors on land prices that have been transferred on the market or won in land use rights auctions, where the winning bidder has fulfilled financial obligations. It analyzes and compares the factors affecting land prices after excluding the value of assets attached to the land (if any) to determine the price of the land parcel to be valued;
b) Income Method:This method calculates the average annual net income per unit area of land divided by the average savings deposit interest rate for Vietnamese Dong with a 12-month term at commercial banks where the State holds over 50% of charter capital or total voting shares in the province for the three consecutive years up to the nearest quarter with available data before the land valuation;
c) Residual Method: This method calculates the estimated total development revenue minus the estimated total development costs of the land parcel or land area based on the most efficient land use (land use coefficient, construction density, maximum building height) according to approved land use planning and detailed construction planning;
d) Land Price Adjustment Coefficient Method:This method multiplies the land price in the land price table by the land price adjustment coefficient. The land price adjustment coefficient is determined by comparing the land price in the land price table with the market land price.
– Cases and Conditions for Applying Land Valuation Methods Include:
a) The Comparison Methodis applied for valuation in cases with at least three land parcels with the same land use purpose and similar influencing factors on land prices that have been transferred on the market or won in land use rights auctions where the winning bidder has fulfilled financial obligations according to the auction decision;
b) The Income Method is applied for valuation in cases of agricultural land, non-agricultural land other than residential land, where the land parcel or area to be valued does not meet the conditions to apply the comparison method but the income and expenses from land use can be determined according to the land use purpose being valued;
c) The Residual Methodis applied for valuation in cases of land parcels or areas for investment projects that do not meet the conditions to apply the comparison or income methods but where the total development revenue and total development costs of the project can be estimated;
d) The Land Price Adjustment Coefficient Methodis applied for specific valuation to calculate compensation when the State recovers land in cases of recovering multiple contiguous land parcels with the same use purpose that have been priced in the land price table but do not meet the conditions to apply the comparison method.
In cases where the above land valuation methods are applied to determine specific land prices and result in a price lower than the land price in the land price table, the land price in the land price table is used.
The choice of land valuation method is proposed by the land valuation organization and decided by the Specific Land Price Appraisal Council.
Decree No. 102/2024/ND-CP “Detailing the Implementation of Certain Provisions of the Law on Land” further specifies the determination of starting prices for land use rights auctions. Accordingly, the unit assigned to organize the land use rights auction is responsible for preparing the documentation of the land parcels or areas for auction.
The documentation includes: information on land use planning, land use plan, and detailed construction planning related to the auctioned land parcel approved by the competent state authority; extract of the cadastral map or the cadastral survey map of the land parcel or cadastral survey extract of the auctioned land parcel if there is no cadastral map. The land management function agency organizes the determination of the starting price according to legal regulations.
- Procedures for Land Use Rights Auctions for the Purpose of Land Allocation or Lease
According to Article 229 of the 2024 Law on Land, the preparation for organizing the land use rights auction is conducted as follows:
a) The unit currently managing the land fund develops a plan for the land use rights auction and submits it to the competent authority for approval;
b) The unit assigned to organize the land use rights auction is responsible for preparing the documentation for the auctioned land parcel or area, and sending it to the land management authority to present to the competent People’s Committee for a decision on the land use rights auction;
c) The land management authority organizes the determination of the starting price of the auctioned land parcel or area, and submits it to the competent People’s Committee for approval;
d) Based on the proposal of the land management authority, the competent People’s Committee decides on the land use rights auction;
e) The unit assigned to organize the land use rights auction is responsible for organizing the selection and signing of a contract with the unit or organization conducting the land use rights auction.
The unit or organization conducting the land use rights auction is responsible for carrying out the auction in accordance with the legal provisions on asset auctions.
III. Current Status of Land Use Rights Auctions through Practical Experience in Hanoi
In the first half of 2024, many suburban areas of Hanoi, especially districts with high urbanization rates such as Thanh Oai, Me Linh, Hoai Duc, Thach That, and Dong Anh, saw a significant increase in investors seeking to purchase land.
These suburban districts successfully organized many land use rights auctions with winning bid prices 18 to 20 times higher than the starting prices.
According to reports from localities organizing land use rights auctions, all auction sessions were conducted in accordance with the law, openly, transparently, and absolutely safely (Mai Van, 2024).
For example, on July 28, Dan Phuong district organized an auction of 85 land lots with over 1,250 application files, a competition ratio of 14.7 files per lot, and the highest winning bid reached 99.2 million VND/m², more than twice the starting price.
On August 10, Thanh Oai district organized an auction of 68 land lots in Thanh Than village, Thanh Cao commune, with starting prices ranging from 8.6 to 12.5 million VND/m², and the highest winning bid reached 100.5 million VND/m², nearly nine times the starting price.
On August 19-20, Hoai Duc district held what was considered the longest land auction in Hanoi’s history, lasting nearly 20 hours, from 8 am on August 19 to early morning on August 20. The auction ended in the 9th round, with lot LK03-12 (a corner lot with three facades) covering more than 113 m², fetching 133.3 million VND/m² (equivalent to over 15 billion VND). The starting price was 7.3 million VND/m², making the winning bid more than 18 times the starting price.
When the winning bid price for land use rights increases, the land prices in the area also rise. For example, over the past year, land prices in Tien Yen commune have increased by about 48%. Additionally, land in neighboring communes is being listed for sale from 22 to 62 million VND/m², depending on location and transport connectivity.
In the first half of 2024, land in districts such as Dong Anh, Gia Lam, Thach That, and Quoc Oai (Hanoi) saw search demand increase by 48% to 104%, and land prices in Hanoi’s suburban districts increased by 4% to 24% compared to the second half of 2023 (Bao Ngoc, 2024).
The excessively high winning bid prices compared to the starting prices can cause several issues for the local land market. Many experts believe that the winning bidders are speculators aiming to drive up prices, causing the surrounding land prices to rise, thus preventing the real estate market from developing normally and healthily. As a result, when land prices are driven up, genuine homebuyers may find it unaffordable (Minh Hanh, 2024).
In practice, the situation of abandoning deposits has occurred frequently. For instance, in the auction of 68 land parcels in Ngo Ba area, Thanh Than village, Thanh Cao commune (Thanh Oai) on August 10, 2024, about 4,600 application files were submitted with nearly 1,600 participants.
At the end of the auction, the corner lot fetched the highest winning bid exceeding 100 million VND/m², seven to eight times the starting price. Regular lots had winning bids from 63 to 80 million VND/m², five to six times the starting price. However, by September 16, despite the payment deadline having passed, only 13 lots with winning bids from 51.6 to over 55 million VND/m² had been fully paid for.
The remaining 55 lots with winning bids starting from 80 million VND/m², including the highest bid of 100.5 million VND/m², had not been paid for on time. Thus, most winning bids were abandoned. Although speculation is one cause, setting low starting prices also creates an opportunity for many participants to drive up the auction prices.
Another consequence of excessively high winning bid prices is the difficulty in state management and regulation of the real estate market. Constructing land price tables based on these winning bid prices can lead to a rapid and unsustainable increase in market property prices.
Additionally, high land prices will significantly affect compensation and site clearance work for both public and private investment projects.
IV. Recommendations
It is evident that the current land use rights auction process is facing many issues, and the state has not effectively managed or controlled them. The high winning bid prices compared to the starting prices, followed by abandonment of deposits, result in losses for the state, expensive auction organization costs, and distortions in the local land use rights market.
One of the reasons is the low determination of starting auction prices, coupled with the regulation that the deposit amount does not exceed 20% of the auctioned product’s value (calculated based on the starting price), leading to low deposit amounts that do not deter participants from abandoning them. However, if the starting price is set too high, it will also create difficulties for auction participants and drive up market land prices in the area. Therefore, determining a starting price for land use rights auctions that closely reflects the market price is essential.
The current regulation on determining starting prices involves applying specific land prices, except for cases where the starting price for land use rights auctions is determined when the State allocates or leases land for plots or areas with technical infrastructure investment according to detailed construction planning, where the land price table is applied. Thus, specific land prices and the land price table must be determined to closely match the market price.
There are many reasons why land prices may be inaccurate, including the appraiser’s competence, the collected information for land valuation not accurately reflecting the market price at the valuation time, and the possibility of deliberately underestimating prices to create opportunities for bidders.
Therefore, the competence of appraisers and valuation units must be strictly controlled. These units need to ensure credibility and experience, and must be objective without any personal interests related to the land auction. The state should issue regulations on the competence of valuation agencies and penalties in cases where the starting price assessment is more than 50% different from the market price at the valuation time.
To collect land price information for determining specific land prices and the land price table, the current regulation according to the 2024 Law on Land and Article 19 of Decree 71/2024/ND-CP stipulates “within 24 months from the survey time.” However, this period is too broad and only suitable when the market has no transactions.
Therefore, for accurate information, it is necessary to supplement the regulation so that localities need to base on their characteristics to divide value zones and specify the time frame for collecting land price information, and divide areas for land price information reference. The starting price should be based on provincial regulations, and the provincial land price management board is responsible for approving and controlling the pricing process by auction boards in localities within the province.
Additionally, the post-auction payment period should be shortened to 15 days instead of the current 90 days to prevent speculators from exploiting this time to drive up market prices after the auction to resell or abandon the deposit if they cannot achieve quick gains.
There should be severe penalties for those who frequently abandon deposits, such as banning them from participating in auctions for 3 to 5 years and imposing additional fines for repeated deposit abandonments. Publicly disclosing individuals who have abandoned deposits would prevent them from participating in land auctions in other localities.
V. Conclusion
Land is a precious national resource. Land transactions between the state and organizations or individuals help ensure the allocation of resources for society and generate revenue for the budget, thus harmonizing the benefits for market participants.
Land use rights auctions are civilized and fair activities. However, to enhance their effectiveness, it is necessary to address the emerging issues in determining starting prices. Determining starting prices for land use rights auctions and building a land price table close to market prices is also a crucial task to ensure the transparency and healthy development of the land use rights market.
References
- Bao Ngoc, (2024), “Experts warn of the risk of exploiting land auctions to drive up market prices,” https://tuoitre.vn/chuyen-gia-canh-bao-nguy-co-loi-dung-dau-gia-dat-de-day-gia-thi-truong-20240820112836414.htm
- The 2013 Constitution
- Hong Khanh (2024), “Land auctions in Thanh Oai, Hanoi soar to over 100 million VND/m², immediately listed with a half-billion difference,” https://vietnamnet.vn/dat-thanh-oai-ha-noi-dau-gia-tang-soc-len-hon-100-trieu-m2-trung-rao-ban-chenh-ngay-nua-ty-2310599.html
- The 2024 Law on Land
- Mai Van (2024), “Sky-high land auction prices in suburban Hanoi: Joy or worry?” https://kinhtedothi.vn/dat-dau-gia-ngoai-thanh-ha-noi-cao-ngat-nguong-mung-hay-lo.html
- Minh Hanh (2024), “Investigation and verification of land auctions in suburban Hanoi,” https://laodong.vn/ban-doc/dieu-tra-xac-minh-dat-dau-gia-tai-ngoai-thanh-ha-noi-1382751.ldo
- Decree 71/2024/ND-CP dated June 27, 2024, “Regulating land prices”
- Decree 102/2024/ND-CP dated July 30, 2024, “Detailing the implementation of certain provisions of the Law on Land”
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