The Ministry of Natural Resources and Environment proposes 3 methods of land valuation
The Ministry of Natural Resources and Environment said that this agency has just sent an official dispatch to the Ministry of Justice requesting appraisal of the Decree amending and supplementing a number of articles of Decree No. 44/2014/ND-CP on land prices and Decree No. 10/2023/ND-CP on amending and supplementing a number of articles of decrees guiding the implementation of the Land Law.
Notably, in the content of the draft Decree, the Ministry of Natural Resources and Environment (TNMT) proposes to amend and supplement the land valuation method in the direction of specifying three methods of land valuation, including: comparative method, income method; land price adjustment coefficient method.
Thus, compared with Decree No. 44/2014/ND-CP, the draft Decree has reduced 2 methods of land valuation. Specifically, integrating the subtraction method into the comparison method and not using the residual method for land valuation.
To explain this, the MONRE's Report clearly states that the residual method is a method of valuing land by calculating the total assumed development revenue of the property minus the total assumed development costs.
Accordingly, the calculation of total hypothetical development revenue of real estate must be based on: Transfer price, rental price, time of sale, sales rate, trend and volatility of transfer price, future rental price, occupancy rate... and must discount the cash flow to the time of valuation according to the bank's lending interest rate; The calculation of the total hypothetical development cost of real estate, in addition to basing on norms and unit prices promulgated by competent state agencies, also depends on construction time, annual construction rate, provision costs, interest expenses, and investors' profits, taking into account risk factors, advertising and selling expenses, etc.
According to the Ministry of Natural Resources and Environment, the calculation of the above assumptions about total development revenue and total development costs is very complicated, the valuation results are uncertain, inaccurate, with large errors (the same land plot only needs to change one criterion in the hypothetical factors to change the valuation results), easy to take advantage of and pose risks to specific land price appraisers and land price deciders. This is the main cause of problems and delays in specific identification, appraisal and decision in recent years.
On the other hand, in real estate business, land is always available first, is determined before the process of creating real estate, so the assumption to estimate the value of real estate in the future and then determine the land price is not appropriate, making the land price dependent on the investor's real estate business method, not accurately reflecting the market value of the land.
According to the spirit of Resolution 18-NQ/TW, the method of determining land prices must be in accordance with market principles. Therefore, the draft Decree does not apply the surplus method to determine the land price to calculate the financial obligations of land users and to calculate the compensation when the State recovers the land, which is in accordance with the policy of the Party.
The report of MONRE stated that, in order to overcome limitations when not applying the surplus method, the draft Decree has amended and supplemented the content of the comparison method, which guides the valuation of land plots and land areas that have not yet been invested in technical infrastructure on the basis of a combination of subtraction techniques to deduct costs of technical infrastructure investment, and at the same time, add regulations that must be adjusted to accurately determine the land price in order to ensure the accuracy of the annual land price comparison. land valuation.
"The regulation of three land valuation methods (comparison, income, land price adjustment coefficient) has ensured to cover all cases of land valuation serving the state management of land," the MONRE's report stated.
Many opinions worry about the project "clogged" if the surplus method is removed to determine land value
Many opinions are concerned that if the surplus method is removed, it may make it difficult for projects to value land, causing congestion.
Because according to the Real Estate Association of Ho Chi Minh City, over the past time, up to 87% of projects in the city are valued by the surplus method.
“The surplus method is a scientific and internationally recognized method of valuing land. We earnestly suggest that the Ministry of Natural Resources and Environment and the Government still keep the surplus method for land valuation,” suggested Mr. Le Hoang Chau - Chairman of Ho Chi Minh City Real Estate Association.
A representative of the Vietnam Valuation Association said that the surplus method is suitable in valuing land for new development investment projects. Other valuation methods are not eligible. If abandoned, it may make it difficult for projects to value land, causing congestion.
“Each method is suitable for different types. For example, the comparative and income method used to determine the price of land for current use. The residual method is used to determine the price of land for future use. It is not possible to apply the current land price determination method to the future. In the market, not all projects have similar and similar assets to apply the comparison method. If the surplus method is removed, it will be very difficult to determine land prices for development projects," said Nguyen Tien Thoa, Chairman of the Vietnam Valuation Association.
According to reports from localities, the supply of new housing projects in the first 6 months of this year continuously decreased sharply. Most of the reason is due to legal problems, including the land valuation stage. Businesses believe that the Prime Minister's Official Letter on removing obstacles in land valuation is an important basis for the Ministry of Natural Resources and Environment, and localities to review and review the system of relevant legal documents, especially methods of land valuation, to have a synchronous adjustment, best suited to the market.
Based on the opinions of businesses and associations, the Vietnam Confederation of Commerce and Industry (VCCI) also shared the view that the elimination of the surplus method makes land valuation difficult.
VCCI emphasizes that the comparative method is limited in terms of comparative data, because transaction information is often difficult to identify with the real estate to be valued; requires a lot of clear and accurate transaction information, while the actual transaction price on paper and the actual transaction price are often not the same. The land price adjustment coefficient method also has similar limitations, based on comparative data, also has shortcomings in terms of information and input data.
VCCI also believes that the surplus method is one of the methods of real estate appraisal applied by professional valuation organizations, especially when valuing land types with development potential. This means that the land value has been calculated to achieve the best and most efficient use, in line with market principles. The removal of the residual method in the draft may cause inconsistencies in the legal documents related to real estate valuation. For the purpose of state management, retaining the residual method in the land valuation method proposed by VCCI, the removal of the surplus method may cause difficulties in the land valuation process.
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