Rules far from reality
Point c, Clause 5, Article 159 of the draft Land Law (amended) stipulates the principle of determining land prices according to the surplus method as follows: "The surplus method is applied to determine prices for land plots and non-agricultural land areas that have not been invested in technical infrastructure or have not been invested in construction works according to detailed construction plans, except for the case specified in Point d of this Clause".
It is necessary to determine the surplus method applied to value land plots with development potential.
Recently, the draft amendment to Decree 44/2014 of the Government regulating land prices also narrowed the scope similar to the provisions in the draft Land Law (amended). However, there were many objections from the public as well as experts, so the drafting committee of the draft amended Decree 44/2014 accepted and revised this content and kept it as the current regulations. That is, the surplus method is applied to value land plots with development potential due to planning changes or land use purpose changes when determining the total assumed development revenue and total estimated costs.
In fact, the surplus method is a method of determining land prices based on the potential future use, not based on the current use like the comparison method or the income method. The surplus method reflects the market value of the land to be valued, including the following factors: land use purpose; land use period; construction density; building height; land use coefficient; reflecting the value of cash flow in investment, production, and business with high practicality. Therefore, according to many businesses, this is also a modern real estate valuation method, according to international practice because it can clearly reflect the financial nature of the real estate project including costs, revenue, profits, etc.
Chairman of the Ho Chi Minh City Real Estate Association (HoREA) Le Hoang Chau assessed that the regulation on applying the principle of determining land prices according to the surplus method according to the draft Land Law (amended) is missing a very important subject, which is agricultural land. Citing the story of the special economic zone project that the Sama Dubai Group (United Arab Emirates - UAE) once registered to invest in Phu Yen province with a total investment capital of up to 250 billion USD, Mr. Le Hoang Chau analyzed: in the land area of up to 300,000 hectares, there is agricultural land, if this type is not mentioned, the land use fee cannot be calculated. There is no urban area project that only has non-agricultural land, it is always mixed land.
Therefore, the above regulation is too far from reality and leads to the consequence that only small real estate projects and small and medium-sized housing areas can be developed. Large-scale urban areas cannot be built. In addition, an agricultural land that has been converted into an urban area, industrial park, or residential area has of course been accepted by the competent authority, so it is completely sufficient to apply the surplus method when calculating land use fees.
"Not to mention that there are currently classifications of land reclaimed from the sea, including cases where the state directly does it, and cases where the private sector does it. So what is land reclaimed from the sea? Is it non-agricultural land or agricultural land with water surface? For example, the aquaculture lagoon area is coastal land, coastal land with water surface. If we call this non-agricultural land, it is not correct, it must be agricultural land," Mr. Chau cited and proposed to apply the surplus method to all agricultural land, which can be referred to in order to synchronize with the provisions in the Draft Amendment to Decree 44 currently: "The surplus method is applied to value land plots with development potential due to changes in planning or land use purpose change when the total assumed development revenue and total estimated cost are determined".
In accordance with international practice
Mr. Nguyen The Phuong, Vice President of the Vietnam Valuation Association, said that the application of the surplus method to determine land prices of land types with development potential is scientifically based, consistent with international practices and necessary in determining land prices in our country today. Because this method is commonly applied to determine land prices for land plots and lots with development potential where the market has no transactions for similar land plots and lots to apply the comparison method or other methods. Using the method of calculating residential land prices and then multiplying by the percentage between residential land prices and other types of land in the land price list is not feasible.
Recently, when the Ministry of Natural Resources and Environment drafted and submitted for comments to amend Decree 44, there were many comments and he was very pleased that this agency accepted and retained the surplus method as it is now. Therefore, the draft Land Law (amended) also drafted by this agency needs to review the provisions on the surplus method to be consistent with current regulations. If the surplus method is only applied to non-agricultural land, it will be difficult to implement, because mixed-use land with large values is very difficult to apply according to other methods.
For example, the comparison method can only be applied to low-rise buildings, not to high-rise buildings, multi-functional buildings, or industrial real estate. Meanwhile, the income method is only applied to agricultural land, which is most suitable for land for growing annual crops... Therefore, the regulation as in the draft will cause projects larger than 200 billion VND to be blocked. While currently, most real estate projects have very large investment capital. This regulation is even capable of causing huge losses to the state budget due to expanding the scale of land plots to which the land price adjustment coefficient method is applied...
Mr. Le Hoang Chau further recommended: The Government should consider and amend the surplus method, which is the method of determining land prices by taking the total estimated development revenue minus the total estimated development cost of the land plot or land area according to the land use planning and detailed construction planning approved by competent state agencies, instead of "based on the most effective land use basis (land use coefficient, construction density, maximum number of floors of the building)" as stipulated in the draft.
Professor Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, said that valuation is a specialized field. Currently, the draft law also lacks many valuation methods. Therefore, the law should not specify in detail the land valuation methods but only generally stipulate that they must be implemented according to the promulgated Vietnamese valuation standards. This includes many different valuation methods and each valuation method is described in detail along with the sequence, implementation process and accompanying criteria.
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