Businesses "spin" because of land prices
In the investment stage, the biggest unknown for real estate businesses is determining land prices. Accordingly, not being able to determine land prices makes it impossible for projects to calculate land use fees to submit to the budget, and it is not possible to agree on a plan to collect land use fees once or annually. This makes the project's legal status continue to be unfinished, even though the investor has transacted real estate sales with thousands of customers.
Mr. Pham Duc Toan - CEO of EZ Property Real Estate Investment and Development Joint Stock Company - said that before 2022, with a 10ha project, the business paid about 100 billion VND in taxes, but at present the price has increased to about 350 billion VND, even 500 billion VND. Local authorities base the price on data from transactions at the time when the market was "hot".
Up to now, although there are not many transactions, land prices are still high. Therefore, businesses are in a situation where they do not dare to receive land or find ways to delay the land allocation because after 90 days of land allocation, taxes must be calculated, if not paid, interest is charged at 0.03%/day.
Many other local real estate projects are also facing similar situations. Accordingly, the Phu Thuan Residential Area project (commercial name is Lotus Residence) in Phu Thuan Ward, District 7, Ho Chi Minh City is suffering because of waiting for land use fees. After receiving the transfer and completing the procedures according to regulations such as approving the 1/500 planning, recognizing the investor, appraising the basic design... since 2015, but up to now, the project investor, Anh Tuan Investment Joint Stock Company, has not been able to continue implementation because it has not paid the land use fees.
According to Mr. Duong Tuan Tu - General Director of Anh Tuan Company, at the time of land allocation, Ho Chi Minh City had not yet determined the land use fee, so the investor had no basis to pay according to regulations. After that, the enterprise submitted documents many times to relevant departments and branches with the hope of fulfilling financial obligations for the project, but for the past 7 years, it has not been resolved.
Applying new regulations on land price determination, still many confusions
Lawyer Pham Thanh Tuan - Real Estate Legal Expert said that on June 27, 2024, the Government issued Decree 71/2024/ND-CP regulating land prices to specify the contents of the Land Law 2024. The Land Law 2024 stipulates that the use of prices in land price tables will become more popular. However, it is expected that the current land price table will still be applied until the end of 2025.
In addition, the valuation or valuation of real estate according to the newly issued regulations has not had any "breakthrough" changes. Specific methods for determining land prices are still based on previous regulations (abolishing land valuation by the deduction method).
Accordingly, the determination of land prices is still greatly influenced by the subjective judgment of the person performing the valuation; the judgment depends a lot on the location, purpose, advantages, time... of the valuation to give qualitative adjustment factors, based on the percentage (%) of the value of the comparable property to give the absolute adjusted value.
Lawyer Pham Thanh Tuan said that the assessment and perception of competent authorities when determining land prices and post-audit units (such as inspectors, auditors or investigation agencies) can be different when compared and contrasted, easily leading to the conclusion of loss in determining land prices.
Mr. Nguyen Quoc Hiep - Chairman of the Vietnam Association of Construction Contractors, Chairman of the Board of Directors of Global Real Estate Investment Joint Stock Company (GP.Invest) - commented that Decree 71 was issued in the context of Decree 12 of the Government on land valuation still having many shortcomings and not meeting the requirements of the market. However, in reality, the application of Decree 71 in localities is still limited and confusing.
According to the 2024 Land Law, the provincial People's Committee shall develop and submit to the People's Council of the same level for decision on land valuation. However, currently, very few units provide land valuation consultancy due to concerns and fear of making mistakes. In such a context, the safe solution for the valuation party is to determine the land price higher to avoid being accused of budget loss. This is a potential danger for the real estate market. Because when land prices increase, compensation and land use fees also increase.
Land use costs include compensation and land use conversion costs. For land use costs, banks can usually lend about 60%. In cases where compensation must be paid by oneself and land use costs increase, 60% of bank loans can only partially solve the problem, while the remaining 40% must be paid by the enterprise. However, the compensation cost according to the new regulations is also pushed up close to the market price. Therefore, the compensation cost will be very large, causing difficulties for enterprises.
In addition, high land prices also cause real estate prices to increase sharply, which reduces people's purchasing power. In case the project sells slowly and cannot recover capital, businesses must borrow from banks for a long time and spend a lot of money. This is the risk that real estate businesses have to face.
Mr. Nguyen Quoc Hiep said that local state management agencies need to provide a reasonable price framework and have a suitable roadmap so that the process of land prices approaching market prices does not cause "shock" to people and businesses.
