Based on the opinions of enterprises and associations, the Vietnam Federation of Commerce and Industry (VCCI) has responded in writing to Official Dispatch No. 5080/BTNMT-QHPTTND of the Ministry of Natural Resources and Environment regarding the request for comments on the Draft Decree amending and supplementing Decree 44/2014/ND-CP dated May 15, 2014 of the Government regulating land prices and the Draft Circular amending and supplementing a number of articles of Circular No. 36/2014/TT-BTNMT dated June 30, 2014 of the Minister of Natural Resources and Environment detailing land valuation methods; developing and adjusting land price lists; specific land valuation and consulting on land valuation (hereinafter referred to as the Draft).
Land valuation method
Compared to current regulations, the Draft Decree and Draft Circular have adjusted the land valuation methods, accordingly there are only three methods: comparison method, income method and land price adjustment coefficient method when conducting land valuation. This means that when valuing land, the surplus method and the deduction method will no longer be used.
Some businesses believe that eliminating the surplus method from land valuation methods should be considered at some point.
Firstly, it causes difficulties in the process of land valuation.
Currently, according to the reflection of enterprises, if the surplus method is abandoned, in many cases of land valuation, the remaining methods will encounter some limitations such as the surplus method is a method of determining land price based on the purpose of use with potential for future development, not based on the current purpose of use like the comparison method and the income method.
This type of land with development potential commonly has no similar or similar assets that have been successfully traded on the market to apply the comparison method (with the condition that there are at least 03 comparable land plots that have been transferred on the market or won the auction for land use rights).
The comparison method has limitations in terms of comparative data because transaction information is often difficult to match with the real estate to be valued; it is necessary to have a lot of clear and accurate transaction information while in reality, in many cases, the transaction price on paper and the actual transaction price are different.
The land price adjustment coefficient method is implemented by multiplying the land price in the land price table by the land price adjustment coefficient. The land price adjustment coefficient is issued by the Provincial People's Committee through analyzing and comparing the land price in the land price table with the common land price in the market. Thus, the determination of the adjustment coefficient is also based on comparative data, so it also has shortcomings in terms of information and input data like the comparison method.
Currently, our country's land database does not truly reflect the reality of the market. Therefore, applying only 3 valuation methods as in the Draft may cause difficulties in the implementation process due to the above shortcomings.
On the other hand, the residual method is based on the theoretical basis that the present value of the property is the residual value obtained from the estimate of the assumed development minus all costs incurred to create that development. The essence of this method is to calculate the land price in a backward way, that is, starting from the sale amount of the completed development products in the future minus the necessary development costs to invest in creating that product. Land with development potential is valued by this method, which other valuation methods are not eligible to apply.
Second, consistency between regulations on real estate valuation.
The surplus method is a real estate valuation method applied by professional valuation organizations and is considered one of the valuation methods applied when valuing real estate with development potential (undeveloped vacant land or land with constructions on the land that can be renovated or demolished to build new constructions on the land for the best and most effective use). The surplus method has been stipulated in Vietnam Valuation Standard No. 11 issued with Circular 145/2016/TT-BTC.
The case of the Draft removing the surplus method in land valuation causes the regulations on real estate valuation to be inconsistent among related legal documents.
Third, state management goals.
One of the reasons for removing the surplus method from the land valuation method is that "this is a real estate valuation method that serves managers to calculate to decide on investment (land price should be available in advance), not suitable for the task of land valuation to serve state management of land".
If this method is considered to be used only to calculate investment efficiency, it means that the land value has been calculated to achieve the best and most effective use, and this land price is consistent with market principles. Thus, the State uses this valuation method to determine the types of land with development potential to determine the land price consistent with the market price, thereby determining the financial obligations that investors must fulfill to the State.
"From the above analysis, businesses suggest that the Drafting Committee consider not removing the surplus method in land valuation methods," said VCCI.
Determine common land prices on the market
According to the provisions of Clause 1, Article 1 of the Draft, "Common land price on the market is the price that appears most frequently in transactions transferred on the market, winning auctions for land use rights of land plots with the same purpose of use in an area and within a certain period of time".
To determine the “most frequent price”, the land valuer must collect all transaction prices on the market in a certain period of time. This activity can only be synthesized from state agencies with information sources such as land registration offices and tax authorities.
According to feedback, consulting organizations (except for public service units performing assigned functions and tasks) will find it difficult to fully access this source of information.
To facilitate the operations of consulting organizations, VCCI recommends that the Drafting Committee add regulations allowing these organizations to access the above information sources.
Applying land valuation methods
The provisions in the Draft as well as Decree 44/2014/ND-CP do not clearly stipulate the method of land valuation for the following cases: "Plots of land, non-agricultural land is residential land without sufficient minimum information of 3 plots of land". This case, according to the regulations, does not meet the conditions for applying the comparison method as prescribed in Clause 1, Article 5 (amended), nor is it a case of applying the provisions in Clause 8, Article 5c when there is not sufficient minimum information of 03 plots of land with the same land use purpose because the land is not non-agricultural.
In the case of "a land plot or land area with a value calculated according to the land price list of over 200 billion VND, the land lease must be paid in one lump sum for the entire lease term". This case does not fall under the cases of applying the comparison method and the land price adjustment coefficient method stipulated in Article 5 (amended).
Information for applying land valuation methods
According to the provisions of Article 5b of the Draft Decree, information on land prices to apply the comparison method and the land price adjustment coefficient method is information within a period of no more than 24 months from the time of land valuation and before, collected from sources such as: Land prices transferred on the market at land registration offices, tax authorities, People's Committees at the commune level; Winning prices of land use rights auctions at organizations conducting land use rights auctions.
The information collected above seems to be insufficient to accurately determine information about land prices. Currently, real estate transactions on the market are in a state of two prices, the prices stated in the land use rights transfer contract (information obtained by the land registration office and tax authorities) may not be the actual transaction price.
Therefore, to ensure more accurate information, VCCI recommends that the Drafting Committee expand information sources such as: transaction prices on real estate trading floors; prices collected by valuers through investigation and survey.
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