Stop the trick of waiving deposits and inflating land prices through auctions

"Stimulating" land prices through auctions

The Hanoi Department of Natural Resources and Environment is coordinating with the police to verify the group of subjects "stimulating" land prices through auctions.

The reason is that the situation of the winning price of land auctions being continuously pushed up will have an impact on the price of land in the suburbs of Hanoi being pushed up, potentially causing instability for the real estate market. An easily seen phenomenon is that after the "hot" auctions, the brokerage team immediately flocks to the neighboring areas, setting up tents to consult and sell land. In addition to the auctioned land, the brokers are willing to introduce to customers many other real estate products around the auctioned land area including residential houses/land, service land, and garden land.

The recent auction of 19 plots of land in Long Khuc area, Tien Yen commune, Hoai Duc district (with 1,100 bidding documents) has "heated up" the market. This auction went through 9 rounds, lasting for 19 hours (from 9:00 a.m. on August 19 to 4:30 a.m. on August 20) and set a new "record" for land prices in the suburbs of Hanoi: The highest winning bid was up to 133.3 million VND/m2 for LK03-12, a corner plot with 3 frontages, wider than 113m2. Compared to the starting price of 7.3 million VND, this plot of land was paid by investors more than 18 times more. There were 2 winning lots with the lowest auction price also up to 91.3 million VND/m2.

After the above auction, according to Lao Dong's investigation, in a small alley on Tien Yen street, although the alley is only 2 meters wide, the house price has been "shouted" up to 60 million VND/m2.

“If you have money, buying land here is good for living or investing. The infrastructure is well planned, close to major roads and especially near Ring Road 4,” said broker Nguyen Tien Dat (39 years old).

Meanwhile, when meeting with households in Tien Yen commune, many people also expressed their dismay at the sky-high real estate prices in their hometown. Not only that, they were also confused because land prices in each place were different and fluctuated continuously. Notably, the lots that won the auction at high prices all waived their deposits, typically in Thanh Oai, only 13 customers paid money, who were the ones who won the auction at 55 million VND/m2. The remaining 55 lots with higher auction prices, including a lot that was paid 105 million VND/m2, waived their deposits.

"Cure" the disease of abandoning the deposit

When canceling the deposit, the auction winner will lose the highest deposit of about 200 million VND. But that is only the surface, because behind the auction are hidden tricks to "stimulate" suburban land. And if successful in "pushing the inventory", speculators will benefit greatly.

Economist, Dr. Dinh The Hien, said that the recent high auction and then deposit cancellation was intentional and calculated; possibly through the auction to create heat in the area where the auction participants own a lot of land.

"Deposit cancellation affects the auction policy, disrupts and distorts the real estate market," he said. To "treat the disease" of deposit cancellation in land auctions, localities need to have a strict and safe plan. The starting price must be suitable for the market. From there, the deposit must also be determined appropriately.

To prevent this situation, Associate Professor Dr. Ngo Tri Long - former Director of the Institute of Price Research of the Ministry of Finance - proposed that there should be separate sanctions for investors who abandon their deposits. It is possible to add damages and compensation costs when abandoning deposits, including the cost of re-organizing the auction, to increase deterrence for this group of investors.