Matching land prices to market values

To perfect the mechanism for determining land prices, Resolution 18-NQ/TW 2022 stipulates the elimination of the fixed land price framework and the adoption of a mechanism and methodology for determining land prices based on market principles, defining the functions, tasks, and responsibilities of the authorities responsible for determining land prices.

A dual land price mechanism

The Land Law of 1993 was passed thirty years ago to make the transfer of land use rights easier. The real estate market officially formed. This market, which includes the market for land use rights, hasn't been steady, transparent, or sustainable, and it's fraught with danger.

This is due to the dual land price mechanism that exists in the Vietnamese real estate market, claims Dr. Nguyen Van Dinh, Chairman of the Vietnam Association of Real Estate Brokers (VARS). The market price and the price determined by the government diverge greatly. The fundamental reason for budget losses, complaints in the land sector, and potential for bad corruption and land speculation is that the regulated land prices are substantially lower than the actual market transaction values.

Nearly 70% of citizen complaints, according to figures from the inspectorate, are about land-related issues. The long-standing land price system does not fairly account for compensation for individuals when the state reclaims land below market value or for the genuine value of land assets.

In addition, numerous projects have been put on hold until land assessment for the calculation of land usage fees is done as a result of a number of land-related anomalies. Additionally, the land price structure opens a door for investors to declare "dual prices," whereby people frequently report transaction values that are far lower than the actual market value in order to pay less in taxes.

Land usage fees make up the majority, or around 80%, of the five current sources of revenue from real estate and land, while the other four streams each contribute 20%, according to information from the State Budget Portal. Without relying on state resources or taking on any debt, accurate land-related fee collection would bring in a sizable amount of money for municipal growth and improvements.

Although many localities have added adjustment factors to land prices to bring them closer to market value, these adjustment factors are still calculated based on subjective variables and occasionally do not precisely reflect market value.

Real estate transactions through an exchange

According to real estate experts, data on the historical actual transaction values of real estate or other sales transactions is required for comparison and verification in order to estimate land prices that are close to the market value and comparable with the value they bring. As a result, it is essential to mandate real estate transfers occur through an exchange, demand bank payments, and carefully scrutinize the sales contracts.

All transactional data will be transparent, public, and listed. According to the Ministry of Finance's proposal, 100% of real estate transactions may be handled by banks through the exchange, preventing double pricing and income loss for the government. Based on the principles outlined in the Draft Land Law 2022, which has the approval of Ministry of Construction officials, this would be the foundation for giving the most precise price information.

The market will develop in a more secure, healthy, and long-lasting way when there is a trustworthy database assuring that land prices are near to the market benchmark and balanced among the three parties: the state, citizens, and enterprises. A functioning market will maintain a balance between supply and demand, provide citizens with assets at their actual value, limit  the loss of natural resources from the land, and minimize risks for the participating officials.

Additionally, mandating real estate transactions to go via an exchange will give the state a tool to manage data on the real estate market, allowing for the timely implementation of regulations to control the real estate market's healthy and stable development.