At the scientific seminar "Appropriate Land Valuation to Facilitate Projects" organized by Investment Newspaper on July 27, 2023, experts and real estate businesses stated that: If the right methods are used, projects will proceed smoothly; otherwise, it will be a major obstacle slowing down the flow of social resources and hindering economic development.
A view of the workshop.
The Prime Minister has issued Official Dispatch No. 634/CĐ-TTg to the Minister of Natural Resources and Environment and the chairmen of the People's Committees of provinces and centrally-administered cities, requesting them to urgently resolve difficulties and obstacles in land valuation.
The directive requires that, before July 31, 2023, the Ministry of Natural Resources and Environment must submit to the Government for consideration and promulgation a Decree amending and supplementing Decree No. 44/2014/ND-CP dated May 15, 2014, regulating land prices; and simultaneously amend and supplement Circular No. 36/2014/TT-BTNMT dated June 30, 2014, on detailed regulations on land valuation methods, construction and adjustment of land price tables, specific land valuation, and land price determination consultancy.
Currently, the Ministry of Natural Resources and Environment is seeking feedback from relevant ministries, agencies, and organizations on draft amendments to Decree 44 and Circular 36. There are many differing opinions regarding the proposed amendments to the current land valuation methods, with the removal of the "surplus" method being the most debated.
The recommendation to abandon the surplus method, as proposed by the drafting agency in the draft law, could have a significant impact and revert land valuation to the pre-2007 era, exacerbating the already difficult task. Dr. Tran Xuan Luong, a real estate specialist at the National Economics University, stated: “The foreseeable consequence is that many segments of the real estate market will not be valued appropriately, leading to market congestion at a time when Vietnam has a huge demand for project development.”
“The surplus method of land valuation is scientific and internationally recognized. This method has been developed by countries around the world into international valuation standards or national valuation standards, combining approaches from the market, costs, and income, and is widely applied in the practical valuation of land and assets in various countries. This method should be retained because it is reasonable, preventing revenue losses for the state budget and supporting businesses in implementing projects more quickly,” affirmed Dr. Tran Xuan Luong.
However, Dr. Luong further noted that all land valuation methods, if they are to be calculated accurately, still need to depend on market data, and this is a fundamental issue that needs to be addressed if we want to avoid future decrees and guiding circulars having to be revised again, adding or removing valuation methods to suit the purpose.
“The surplus method is a scientific method that cannot be abandoned, and the basis for proposing its removal still needs further consideration. On the other hand, for projects (multiple land parcels – multiple products; with development potential according to land use planning and construction planning; real estate business; large land area), only this method can accurately determine land prices,” analyzed lawyer Tran Duc Phuong of the Ho Chi Minh City Bar Association. According to Mr. Phuong: “The Ministry of Natural Resources and Environment needs to emphasize in drafting the revised Decree that it should continue to retain two methods: the “surplus method” and the “deduction method,” while also adding more detailed and comprehensive regulations to facilitate implementation in practice.”
According to Ms. Nguyen Thi Dieu Hong from the Legal Department of VCCI, the surplus method determines land prices based on potential future development uses, not current uses like the comparative or income methods. Currently, Vietnam's land database does not accurately reflect market realities. Therefore, applying only the three valuation methods as proposed in the draft could create difficulties in implementation.
According to Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association, the surplus method is applied to 87.5% of real estate projects in Ho Chi Minh City. This has been the primary land valuation method for over eight years, since Decree 44 came into effect. The reason stems from the practical difficulty in applying other methods.
Mr. Nguyen Chi Thanh, Permanent Vice Chairman of the Vietnam Association of Real Estate Brokers (VARS), said that businesses often apply the surplus method because it calculates the effectiveness of project implementation. If there is no visible effectiveness, no investor will undertake the project. This is also the method used in many countries around the world, because other methods do not address practical issues.
“We are amending the Land Law to align with market valuation, with prices fluctuating up and down. However, the three current methods all determine prices that only go up, never down, because new projects must always have prices equal to or higher than the projects being compared. This constantly drives up land prices, affecting people's ability to own homes. We propose that land valuation should be based on market prices, with upward and downward movements, so that people are the ones who determine the price of real estate products. If valuation is done in a way that maximizes revenue and keeps prices consistently high, then a change in mindset is needed,” Mr. Thanh suggested.
From the perspective of state management agencies, Mr. Dao Trung Chinh, Director of the Department of Land Resource Planning and Development (Ministry of Natural Resources and Environment), shared that when using the surplus method, if not strictly controlled, the subjective will of the appraiser, the assessor, and local leaders will greatly affect the valuation results. Not to mention, it also depends on the rate of increase in real estate prices, while we lack a monitoring agency and complete information.
Mr. Chinh also stated that the Department will continue to listen to feedback from the market and compile it to present to the leaders of the Ministry of Natural Resources and Environment and the Government to ensure it aligns with market developments.
Thanh Bui
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