Bad land management decisions can lead to big losses: minister

Finance Minister Ho Duc Phoc

During a panel discussion on institutional reform and amendment of land policies – an important solution for socio-economic recovery within the framework of the Vietnam Socio-economic Forum 2022 held on September 18 – many questions related to land pricing were discussed.

Phoc pointed out that Resolution 18 is the benchmark in the planning and construction of the revised land law.

He highlighted three issues related to land financing. First, there are significant gaps in land use change that the current land law cannot address.

“It causes big losses, differential ground rents and from there, gaps are created. Therefore, we have to control land use goals very strictly,” Phoc said.

He agreed with the view that when land used for rental purposes no longer has demand, the state should take the land back and auction it off for more efficient purposes.

“In the case of privatized enterprises, non-state investors look for attractive land and after privatization they change the land use and use the land for commercial and accommodation purposes. This leads to differential land rent and loss public sector for the benefit of other sectors,” said Phoc.

“A single administrative decision can result in the loss of VND100 billion or VND1 trillion,” he added, stressing that there should be a mechanism to close this gap.

Regarding land prices, Phoc said there are currently five land price determination methods, but they are not consistent and accurate, which creates loopholes.

For example, when changing land use, in most cases the residual method is used. But the method is imprecise because the value of income and investment costs is simply assumed. When you make assumptions, it will lead to legal risks for companies and government officials.

For example, a multi-storey building is calculated with the price of 30 million VND per square meter, but the inspectors say that the price is not correct and must be 35 million VND.

However, once the assumption principle is applied, everyone has the right to use a number when collecting data. Or in standard cost, it does not always exist. And estimates are also assumptions. As such, land costs are not correct, resulting in incorrect land prices.

Therefore, violation of the regulations is always subject to criminal penalties. Meanwhile, if the officials act badly and do not follow the regulations but do not cause losses, they will not be subject to criminal penalties.

Therefore, Phoc said, it is necessary to check land pricing methods to find reasonable methods. A sales comparison approach is one of them.

Digitize to avoid difficulties with administrative procedures

Natural Resources and Environment Minister Tran Hong Ha said there is a need for planning reform to prove state responsibilities and powers in this special resource; and ensuring equity, equality in access to land, and showing that people can participate in this process.

When it comes to land pricing, Ha said there is still a gap between theory and practice. If land valuation can be implemented in a public, transparent and fair manner, relations between all parties involved will improve.

“We need to move from issuing administrative orders to enforcing market rules, using economic tools in combination with administrative procedures. If this can be done, we can fix existing problems, such as speculation, price manipulation and inefficient land use,” Ha said.

With a land database, land resources will be monitored, giving the public fair and equitable access to land information.

“With the data system, we can carry out administrative reform to create favorable conditions for people and businesses rather than causing them difficulties with complicated administrative procedures.”

In the same vein, Le Hoang Chau, chairman of the HCM City Real Estate Association, proposed adding to the amended land law a regulation allowing companies to continue to negotiate with land users for commercial housing projects. The regulation is now in the bill, although it is also in Resolution 18.

Thu Hang – Tran Thuong