|Local authorities are working to ensure that future auctions for land plots will not start off at unsustainable prices, Photo Le Toan |
The controversial withdrawal of Tan Hoang Minh Group from the bidding of land at Thu Thiem New Urban Area just a short time after winning the auction has put the legalities of the process in this country into the limelight.
According to Le Hoang Chau, chairman of Ho Chi Minh City Real Estate Association, the legal corridor for property auctions in Vietnam remains limited and does not keep up with the market flow.
The Law on Property Auction 2016 stipulates that a deposit for bidding must be paid up to 20 per cent of the starting price of that auctioned asset. However, the law does not mention whether an investor must pay an additional deposit and have a payment guarantee from a credit institution if the paid price was many times higher than the starting price. This point can prove the financial capacity and ensure the investor’s obligation to pay the value of the auction winning asset.
Therefore, Chau proposed amending the rules so that the investor only pays the auction price when they have enough cash in their account.
Meanwhile, financial expert Nguyen Thanh Nhan said that the Law on Property Auction should be revised so that participating investors must have guaranteed financial responsibility.
The current law stipulates that auction participants must pay a deposit in advance. A payment is agreed upon by the asset auction organisation and the auctioneer but with a minimum of 5 per cent and maximum of 20 per cent of the property’s starting price.
“These deposits are too low to the benefit which winning investors could earn from the fever they cause. Authorities could consider increasing this deposit to avoid a withdrawal in the future,” said Nhan.
In addition, in the case that the investor took a bidding price many times higher than the starting price, as in the Thu Thiem auction, it is necessary to have an efficient way to prove an investor’s financial capacity. “This ensures the obligation to pay the value of the auction winning asset in accordance with regulations,” Nhan said.
Popping real estate bubble
According to economic expert Vu Dinh Anh, the withdrawal of the winning bid at the Ho Chi Minh City auction in January will affect the psychology of auction organisers and businesses who want to participate in the future.
“People who own assets in this area would keep their land and wait for further increased prices and local authorities also face more challenges when making compensation plans to repossess land funds for developers,” Anh said.
However, Anh confirmed that it is very normal for an investor to drop a deposit. “Investors calculate carefully when they prepare for auctions and this one was no different. The above auction was conducted in an open and transparent manner,” Anh said.
Last year, well before the Thu Thiem land auction was held, spiking land prices were taking place in various locations in Vietnam before the pandemic peak hit in the summer. From October onwards, the price fever increased again. “Therefore, the land fever is not directly related to Tan Hoang Minh winning the auction,” Anh emphasised.
Meanwhile, Hoang Kim Hoai, general director of Phuc Dien Land, said that the increase of prices in the real estate market after the auction results of Thu Thiem land would eventually dip.
“In January, only real estate owners were offering high prices, but very few successful transactions were reported. After this case, I think that housing prices in the Thu Thiem area will soften gradually and return to a more realistic price. Other areas in Ho Chi Minh City also followed that trend and decreased,” Hoai said.
Nguyen Van Dinh, deputy chairman of the Vietnam Real Estate Association, stressed that when the supply increases, the market will automatically regulate the price back to its actual value, regardless of the withdrawal cases. To increase supply, according to Dinh, local authorities must overcome obstacles in project approval.
Other experts expressed surprise at the auction withdrawal. “The land price won hit a peak of over $105,000 per square metre, unprecedented in the history of the Vietnamese market. This is a shock, causing land prices to escalate in many places,” said Dang Hung Vo, former Deputy Minister of Natural Resources and Environment. “These ballooning land prices also make it difficult to appraise property prices for future auctions, not only in Thu Thiem but also in many places across the country.”
Challenges for authorities
According to Huynh Phuoc Nghia, senior consultant at GIBC, the main issues now are how to organise a public, transparent, and appraisal auction in line with the market while managing the risks of market manipulation, while at the same time giving project land-use rights to capable units.
Besides that, the winning price is many times higher than the starting price, which may cause doubt that it does not keep up with the market price. On the contrary, if the winning land price is not high, the city will face various other pressures in terms of land resources. This is both a challenge for the city and a barrier in attracting investment to Thu Thiem.
In addition, the starting price of remaining land lots on the peninsula could now be much higher, which may reduce the attractiveness of Thu Thiem in the eyes of investors participating in the auction.
“Learning from the recent land auction, competent bodies need to have more mechanisms to control the status of investors participating by demonstrating their capacity and ideas for implementing projects. Strict standards of screening the history of businesses, strong sanctions, and enough deterrence to limit negative effects must be carried out more efficiently,” Nghia said.
He added that authorities should have an independent evaluation unit of land auction activities. On the one hand, it can limit the risk of distorting the market, but on the other hand, it can promote transparent auction activities to increase revenue for the government’s budget.