Proposal to add 2 fees to Decree 44 regulating land prices

Recently, the Ho Chi Minh City Real Estate Association (HoREA) has just sent a document requesting the Ministry of Natural Resources and Environment to consider and submit to the Prime Minister to add 2 expenses, including reserve expenses and loan interest expenses, to Clause 3, Article 5d of "Draft Decree No. 44/2014/ND-CP regulating land prices".

Removing obstacles in valuation for real estate projects

According to Mr. Le Hoang Chau, Chairman of HoREA, the Association welcomes the Ministry of Natural Resources and Environment's great efforts to complete the "Draft Decree amending and supplementing a number of articles of Decree No. 44/2014/ND-CP regulating land prices", which if issued soon will remove obstacles in valuation work to calculate land use fees and land rents for hundreds of real estate and commercial housing projects.

Real Estate - Proposal to add 2 fees to Decree 44 regulating land prices — The early issuance of "Draft Decree No. 44/2014/ND-CP regulating land prices" will remove obstacles in valuation work to calculate land use fees and land rents for hundreds of real estate and commercial housing projects.

The early issuance of the Decree amending and supplementing a number of articles of Decree No. 44 regulating land prices, according to the Chairman of HoREA, will contribute to ensuring no loss of state budget revenue, to enable customers and project investors to fulfill their financial obligations to the State.

At the same time, it also ensures the legitimate rights and interests of home buyers (including foreign individuals) who are granted "pink books" and the project investor is allowed to collect the remaining 5% of the contract value, and the late payment of land use fees and land rent is not due to the "fault" of the investor.

However, HoREA found that Clause 3, Article 5d of Decree No. 44, amended and supplemented in Clause 8, Article 1, does not include two items, namely Contingency costs during construction and Loan interest costs.

This is not really reasonable and unbalanced between the calculation of "estimated total development costs of the land plot, land area" in Clause 3, and the calculation of "estimated total development revenue of the land plot, land area" in Clause 2.

According to HoREA, "the surplus method is implemented by taking the total estimated development revenue, minus the total estimated development cost of the land plot, land area, on the basis of the most effective land use (land use coefficient, construction density, maximum number of floors of the building) according to the land use planning, detailed construction planning approved by the competent authority".

And in Clause 2, Article 5d, the section "estimated total development revenue of land plots and land areas" takes into account the factor "fluctuation of transfer prices and rental prices during the project implementation period".

Propose to add 2 more types of costs

However, Clause 3, Article 5d on the part "estimating the total development cost of the land plot or land area" does not take into account the "contingency cost" factor, which is unbalanced and unreasonable.

Because in reality, during the implementation of projects, additional construction investment costs often arise, so establishing a "contingency cost" is very necessary.

Real estate - Proposal to add 2 fees to Decree 44 regulating land prices (Figure 2). — *HoREA proposed that the Ministry of Natural Resources and Environment consider submitting to the Prime Minister, adding 2 more types of costs to Decree No. 44/2014/ND-CP regulating land prices.*

Besides, according to Mr. Le Hoang Chau, "interest expense" is the actual expense of all project investors, including real estate enterprises.

Clause 2, Article 14 of Decree 43/2014/ND-CP and Point c, Clause 2, Article 9 of the Law on Real Estate Business 2023 (effective from January 1, 2025) both stipulate that "Real estate business enterprises through real estate projects must have equity capital of not less than 20% of total investment capital for projects with land use scale of less than 20 hectares, not less than 15% of total investment capital for projects with land use scale of 20 hectares or more and must ensure the ability to mobilize capital to implement investment projects.

In case a real estate business enterprise simultaneously implements many projects, it must have sufficient equity capital allocated to ensure the above ratio of each project to implement all projects".

Therefore, businesses must mobilize other sources of capital, including credit loans, so "interest expense" is an actual expense of all real estate project investors.

However, currently, according to the provisions of Point a, Clause 3, Article 16 of Decree 132/2020/ND-CP: "Total interest expenses deductible when determining taxable income for enterprises with related-party transactions, including total interest expenses after deducting deposit interest and loan interest arising during the period of the taxpayer, deductible when determining taxable income of the enterprise does not exceed 30% of total net profit from business activities during the period, plus interest expenses after deducting deposit interest and loan interest arising during the period, plus depreciation expenses arising during the period of the taxpayer".

Therefore, HoREA proposes that the Ministry of Natural Resources and Environment consider submitting to the Prime Minister, adding two expense items including "contingency expense" and "loan interest expense" to Clause 3, Article 5d of Decree No. 44 amended and supplemented in Clause 8, Article 1 of "Draft Decree amending and supplementing a number of articles of Decree No. 44/2014/ND-CP regulating land prices".

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