Not calculating enough costs, difficult to attract investors
The Vietnam Valuation Association said that this unit has accessed Decree No. 12/2024/ND-CP of the Government amending and supplementing Decree No. 44/2014/ND-CP of the Government regulating land prices and the Draft Decree of the Government regulating land prices guiding the implementation of the Land Law No. 31/2024/QH15.
The Vietnam Valuation Association finds that both Decree No. 12/2024/ND-CP and the new Draft Decree have many suitable contents, meeting the requirements to remove difficulties in practice.
However, in addition, the Vietnam Valuation Association also found that the content of the land valuation method according to the surplus method stipulated in the Decree and the Draft Decree still has shortcomings due to not correctly and fully calculating the total costs that investors must spend to implement the project and the profits they receive when completing the investment project. Therefore, it will lead to the consequence of not only making it difficult to attract investment but also causing land prices to be pushed up to an unreasonably high level.
First, about total investment costs.
Decree 12/2024/ND-CP and the Draft Decree did not include all types of costs to form the total cost that investors must spend to implement the project. The regulation only calculates the investment cost in land development without calculating the initial cost that investors must spend to have land to implement the project, which is "land use fee" (unless the investor implementing the project is exempted from land use fee by the State, then it is not calculated) and loan interest. "This is unreasonable", the Valuation Association stated its opinion.
Second, about profit.
In the Decree and both options of the Draft Decree: Profit is only calculated on land development costs, not on the total costs (as mentioned above) that the investor spends (including land use fees + land development costs + business costs) is an underestimation, not following the price formation principle: Price must cover production and business costs and have profit (also not in accordance with the profit calculation method of the surplus method, which is profit calculated on asset value) and denies the principle of "Future value of money", that is, when an investor has money to invest in any field, he must expect to have expected profits, including depositing money in the bank to earn interest.
For option 1: The draft confuses the profit that the investor receives and the cost that the investor must spend to implement the project (The draft stipulates: Profit includes capital cost); because profit is the amount of money that the investor receives. Capital cost is the amount of money that the investor must pay to the "Capital provider".
The cost of capital is essentially the interest rate on the money that the investor borrows and must pay to the lender. It is the profit of the lender, but it is the cost of the borrower and of course the investor does not enjoy this financial cost but must pay it, and is included in the structure of production and business costs.
For option 2: The investor's profit is only calculated on development costs, not on total costs, which is not calculated correctly and fully as analyzed above.
From the above shortcomings, the Vietnam Valuation Association recommends that the total cost to calculate profits for investors should be calculated correctly and fully, including the following costs: Total cost (1) = Land use fee + Development cost and business cost.
Investor's profit will be calculated by the formula: Investor's profit = Percentage x Total cost (1).
Proposal to add the element "investor's profit"
Previously, the Vietnam Federation of Commerce and Industry (VCCI) also commented on the Draft Decree regulating land prices.
According to VCCI, Article 6.3 of the Draft stipulates the formula for determining average annual net income (= average annual income - average annual cost). According to the reflection of enterprises, this regulation is unreasonable because it does not take into account the factor of "investor's profit" (this factor is not allowed to be deducted). Not determining the investor's profit will not ensure fairness in the applied methods because when compared with the formula, the investor will invest and exploit without profit. The entire surplus from exploiting the current status of the construction on the land during the entire land lease period (one-time payment) of the land plot will be paid to the State, not including corporate income tax.
Such a provision is inconsistent with the theory of determining land rent differentials; it increases the difference in land price of the plot when applying the income method with the surplus method (if there is the same planning information). Therefore, it is recommended that the drafting agency add the factor "investor's profit" to the above formula.
Article 7.3.a of the draft stipulates that construction investment costs to determine land prices using the surplus method include: costs of construction of technical infrastructure, social infrastructure, housing construction, other construction works; equipment costs; construction investment consulting costs; project management costs and a number of other cost items as prescribed in the investment capital rate.
According to the reflection of enterprises, this regulation is closed, other costs not listed are only applicable to the case of using investment capital, such as: contingency costs for arising work volume and price inflation factors during project implementation; loan interest costs, construction costs of temporary works, works serving construction, insurance... Therefore, VCCI proposed that the drafting agency supplement the above costs.
Also according to VCCI, Article 7.3.b of the draft stipulates that business expenses are calculated as a percentage of revenue in accordance with the general level in the locality. According to businesses, this provision is unclear and inappropriate.
Specifically, business costs such as advertising, sales, and operating costs vary greatly in each field, so it is difficult to determine a common level locally.
Furthermore, zoning the "local common ground" is also not suitable, especially in the case of projects located in undeveloped localities without many large projects, the local common ground may not be suitable for that project.
Article 7.3.c of the draft stipulates how to calculate investors' profits according to two options. According to businesses' feedback, the above two calculation methods are not reasonable because they do not fully calculate the profits of the entire project according to the surplus method for investors.
Specifically, the regulation stipulates that profits are only calculated on construction investment costs. This is only the profit of the real estate development stage (land development investment), not the profit of the entire project.
Such a regulation is inconsistent with the principle of price formation, because prices must cover production and business costs and generate profits. This regulation also denies the principle of “time value of money” (due to opportunity costs, inflation, and risks) and the principle of “future value of money” (ie when investing in any field, one must expect expected profits, including bank deposits).
In fact, the cost that the investor spends (total cost) is all the reasonable costs that the investor must spend to complete the project (until the enterprise is established). The total cost must include land use fees (or land value) - the initial investment cost that the investor must spend to fulfill financial obligations to the State.
Accordingly, if this type of cost is not calculated, it can be considered that the investor has to pay land fees twice: once when it is not included in the excluded costs when determining land prices (according to this regulation), and twice when it has to pay land use fees (but not deducted as a type of cost).
Therefore, it is recommended that the drafting agency amend the regulation in the direction that profits are calculated based on the total costs that investors must spend to complete the project until the product is sold to generate revenue. That total cost must include construction investment costs, business costs and land use fees - the initial investment costs that investors must spend to fulfill their financial obligations to the State.
Article 4.2.d of the draft stipulates on determining land prices for land allocation and land lease according to the compensation, support and resettlement progress according to Article 257.2.c of the 2024 Land Law.
According to businesses, the time to determine land prices should only be applied at the time the land is cleared and handed over for investment.
In fact, there are cases where land allocation is too small and cannot be invested, so the time for land valuation should not be determined. If such regulations are made, unnecessary procedures will arise, and a non-synchronous pricing method must be chosen with many areas of land allocated that are not enough to invest or on the planned area that does not generate revenue.
Therefore, it should be regulated that the surplus method is calculated on the total project area according to the detailed construction plan or the master plan up to the time of land valuation, allocated according to the area ratio for the handed over area.
TM
Source: https://www.nguoiduatin.vn/du-thao-nghi-dinh-ve-gia-dat-bo-quen-nhieu-chi-phi-cua-doanh-nghiep-a662784.html
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