Renewing the mindset of land valuation

Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association, was interviewed by Business Forum Magazine about this issue.

What are the new features of the three proposed land valuation methods?

The present land legislation specifies five techniques of land valuation: direct comparison, deduction, income, surplus, and land price adjustment coefficient. The surplus approach is often used in real estate projects, commercial and urban housing, to establish particular land values for calculating land usage fees and land rent. The conclusions of land appraisal using this approach, however, are not dependable.

For example, if only one firm conducts the appraisal using two different land value methodologies for the same real estate project, the findings will differ by around 17%. Similarly, if two different businesses use the same land value approach for the same real estate project, the results will differ by around 17%.

The group supports the MoNRE's proposed changes to the three land value methods: direct comparison, income, and surplus. Based on this, more procedures to avoid collusion and manipulation of land values during the valuation process can be devised.

However, the group feels that financial restrictions for land and land prices should be included in the Draft Land Law (as modified). First and foremost, it is critical to follow Party Central Committee Resolution No. 18/2022, which highlights the need to modernize the method for establishing land prices by abolishing price ranges and implementing market-based principles for land valuation.

Furthermore, the principles of independence must be established and strengthened between project investors, valuation enterprises, dissenting experts, and the Departments of Finance, Natural Resources and Environment, the Land Valuation Appraisal Council, and the authorized agency or individual responsible for determining land prices.

Land valuation has remained a challenging issue, causing many projects to stagnate. What solutions do you propose to overcome these obstacles?

Currently, there is an urgent and long-term necessity to standardize the computation of land usage fees and land rent in commercial, urban, and real estate projects due to concerns about legal accountability and legal hazards in land valuation and appraisal operations.

In actuality, the present Land Law of 2013 rules and accompanying documentation contain several flaws that must be addressed. As a result, the provisions in Articles 154, 156, 157, and 158 of the Draft Land Law (amended) must be refined to guarantee practicality and compatibility with practical demands.

Furthermore, rather than fragmenting the valuation and appraisal tasks as currently specified in the Land Law of 2013, it is preferable to assign this responsibility to a suitable state agency, preferably the Department of Finance, to oversee the entire land valuation and appraisal process, as stipulated in the Land Law of 2003.

Assigning this responsibility to a state agency such as the Department of Finance (or the Department of Natural Resources and Environment, with the Department of Finance being the most appropriate) is consistent with Resolution No. 18-NQ/TW, which calls for defining the functions, tasks, and responsibilities of the agency in charge of determining land prices.

Do you have any ideas for land valuation work, in addition to the recently updated land valuation methods?

The People's Committee of Ho Chi Minh City filed a proposal to the Government in early 2022 to trial the use of a land price adjustment coefficient approach. Instead of hiring a valuation consulting firm as is currently required, this proposal proposes issuing a land price adjustment coefficient to calculate land use fees for all commercial housing projects without distinguishing the value above or below 30 billion VND according to the Land Price Table.

Accordingly, the state can determine the land use fees, land rent within a period not exceeding 6 months from the date of issuing decisions on land allocation, land lease, land use purpose conversion, and land allocation/lease adjustments (similar to the provision that land valuation certificates are valid for no more than 6 months).

The association recognizes that the application of the land price adjustment coefficient method proposed by the People's Committee of Ho Chi Minh City will formalize the calculation of land use fees and land rent for real estate and commercial housing projects, ensuring transparency, and allowing both the state and businesses to estimate the amount of land use fees and land rent to be paid to the state budget, addressing the current issue of hidden variables in land use fees and land rent.

Moreover, this method also ensures sufficient, accurate, and timely collection for the state budget while safeguarding the interests of project investors.

By exercising the authority to decide on the land price adjustment coefficient annually or when there are market fluctuations and tailoring it to each type of real estate, commercial housing, and urban projects, the state can play a leading role in the market instead of following it. Therefore, the association recommends piloting the application of the coefficient K to decipher the "hidden variables" in land use fees.

Thank you!