NV companies pull out of land auction deals and hurt the market

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An aerial view of the Thu Thiem New Urban Area in Ho Chi Minh City, Vietnam with lots 3-9 and 3-12. VIETNAMNET

Vietnam’s Ministry of Construction has called for a comprehensive review and potential revision of current land auction regulations. The ministry said there must be stricter requirements, both legal and financial, for companies to participate in land auctions in the future.

A recent report from the ministry said there have been numerous incidents in which significantly higher winning bids in one area have led to much higher property prices locally and in surrounding areas. They have contributed to the rising cost of housing and increased barriers to entry for developers of affordable housing developments, making it harder for low-income households to afford housing.

There have been much higher asking price reports for properties in the Thu Thiem New Urban Area in Ho Chi Minh City, likely following last December’s record high supply from property developer Tan Hoang Minh.

Earlier in January, Tan Hoang Minh said he would not go ahead with his purchase of a 10,060 sqm land in Thu Thiem at 2.45 billion dong ($108,000) per sqm, the highest price for a land auction in Vietnam.

After Tan Hoang Minh, Binh Minh Investment and Commercial Trading LLC withdrew from a bid it won for lot 3-9 at over 1 billion dong per sqm in Thu Thiem. Binh Minh won the auction in the same auction session as Tan Hoang Minh won the lot 3-12.

Binh Minh and Tan Hoang Minh were two of the four winners of the Dec. 10, 2021 auction. The damage to the country’s real estate market has been profound, according to industry experts and policymakers.

In response to the debacle, Prime Minister Pham Minh Chinh ordered the ministry to work with local governments to complete an overhaul of current land auction activities. The ministry has been tasked with investigating cases where winning bids are significantly higher than the starting price or the average price in the region.

An initial review of land auction activity did not raise too many red flags, with the majority of localities across the country reporting winning bids within acceptable price ranges. For example, average winning bids over asking price were 53% higher in Can Tho, 24% in Dong Thap, 50% in Dak Nong, 34.4% in Tuyen Quang, 17% in Phu Yen and just 20 % in Lai Chau. Moreover, no irregularity was noted in the said localities.

There have been cases where companies have deliberately withdrawn from land deals, willing to give up deposits after successfully securing a higher price range for properties in an area. Often the same companies own many properties in the same area and benefit enormously from the higher price, allowing them to absorb the loss of deposits.

In some cases, winners said they could not come up with cost-effective solutions to develop the land due to the huge cost. Meanwhile, an abnormally high auction price is said to have helped incite social unrest and grievances from the population who had to move to clear the land.

The ministry has requested assistance from the Ministry of Public Security and the Ministry of Finance to help investigate cases of irregularities to prevent land speculation, abuse and exploitation of the financial system.

VIET NAM NEWS/ASIA NEWS NETWORK

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