Based on feedback from businesses and associations, the Vietnam Chamber of Commerce and Industry (VCCI) has responded to Official Letter No. 5080/BTNMT-QHPTTNĐ from the Ministry of Natural Resources and Environment regarding the request for comments on the Draft Decree amending and supplementing Decree 44/2014/ND-CP dated May 15, 2014 of the Government on land prices and the Draft Circular amending and supplementing a number of articles of Circular No. 36/2014/TT-BTNMT dated June 30, 2014 of the Minister of Natural Resources and Environment detailing the method of land valuation; building and adjusting land price tables; specific land valuation and consulting on land price determination (hereinafter referred to as the Draft).
Land valuation methods
Compared to current regulations, the Draft Decree and Draft Circular have adjusted the land valuation methods, leaving only three methods: the comparative method, the income method, and the land price adjustment coefficient method. This means that the surplus method and the deduction method will no longer be used when valuing land.
Some businesses argue that removing the surplus method from land valuation methods needs careful consideration from several perspectives.
Firstly, it creates difficulties in the land valuation process.
Currently, according to feedback from businesses, if the surplus method is abandoned, in many cases of land valuation, the remaining methods will face some limitations. For example, the surplus method determines land prices based on potential future development uses, rather than based on current uses like the comparative method or the income method.
This type of land with development potential typically lacks comparable or similar properties that have been successfully traded on the market, making it difficult to apply the comparative method (provided there are at least 3 comparable land parcels that have been transferred on the market or won through land use rights auctions).
The comparative method has limitations in terms of comparative data because transaction information is often difficult to reconcile with the property being valued; it requires a lot of clear and accurate transaction information, while in reality, in many cases, the transaction price on paper and the actual transaction price are different.
The land price adjustment coefficient method is implemented by multiplying the land price in the land price table by the land price adjustment coefficient. The land price adjustment coefficient is issued by the Provincial People's Committee through the analysis and comparison of land prices in the land price table with prevailing market prices. Therefore, determining the adjustment coefficient also relies on comparative data, thus encountering the same limitations in terms of input information and data as the comparative method.
Currently, our country's land database does not accurately reflect the reality of the market. Therefore, applying only three valuation methods as in the Draft may create difficulties in implementation due to the aforementioned shortcomings.
On the other hand, the residual method stems from the theoretical basis that the present value of an asset is the remaining value obtained from the estimate of hypothetical development minus all costs incurred to create that development. The essence of this method is to calculate land value in reverse, starting with the proceeds from the sale of completed future developed products and subtracting the necessary development costs invested in creating those products. Land with development potential is valued using this method, which other valuation methods are not suitable for.
Secondly, consistency among regulations regarding real estate valuation.
The residual method is a real estate valuation method applied by professional valuation organizations and is considered one of the valuation methods used when valuing real estate with development potential (undeveloped vacant land or land with existing structures that can be renovated or demolished to build new structures for optimal and efficient use). The residual method is stipulated in Vietnamese Valuation Standard No. 11 issued with Circular 145/2016/TT-BTC.
The draft's removal of the surplus method in land valuation has resulted in inconsistencies in real estate valuation regulations across relevant legal documents.
Thirdly, the objectives of state management.
One of the reasons for removing the surplus method from land valuation methods is that "this is a real estate valuation method used by managers to make investment decisions (ideally, land prices should be determined beforehand), and is not suitable for the task of land valuation serving state land management."
If this method is considered solely for calculating investment efficiency, it means that the land value has been calculated to achieve the best and most efficient use, and this land price is consistent with market principles. Thus, the State uses this valuation method to identify land types with development potential, determining land prices that are consistent with market prices, thereby determining the financial obligations that investors must fulfill to the State.
"Based on the above analysis, businesses suggest that the Drafting Committee consider not removing the surplus method from land valuation methods," VCCI stated.
Determining prevailing market land prices
According to Clause 1, Article 1 of the Draft, "The prevailing market price for land is the price that appears most frequently in transactions already transferred on the market, or in auctions for land use rights of plots with the same intended use in a given area and within a specific period of time."
To determine the "most frequently occurring price range," land appraisers must collect all market transaction prices over a specific period. This process can only be carried out by compiling information from government agencies with relevant data sources, such as land registration offices and tax authorities.
According to feedback, consulting organizations (except for public service units performing their assigned functions and tasks) will have difficulty accessing this information fully.
To facilitate the operations of consulting organizations, VCCI proposes that the Drafting Committee add a provision allowing these organizations access to the aforementioned information sources.
Applying land valuation methods
The regulations in the Draft, as well as Decree 44/2014/ND-CP, do not clearly specify the land valuation method for the following cases: "Non- agricultural land parcels or areas designated as residential land that lack the minimum required information for three land parcels." According to the regulations, this case does not qualify for the comparative method as stipulated in Clause 1, Article 5 (amended), nor does it qualify for the provisions of Clause 8, Article 5c when there is insufficient information for three land parcels with the same land use purpose, as it is not non-agricultural land.
The case of "land parcels or areas with a value exceeding 200 billion VND according to the land price list, falling under the category of land lease with a one-time payment for the entire lease period" does not fall under the cases where the comparative method and the land price adjustment coefficient method are applied as stipulated in Article 5 (amended).
Information for applying land valuation methods.
According to Article 5b of the Draft Decree, information on land prices for applying the comparative method and the land price adjustment coefficient method is information collected from sources such as: land prices already transferred on the market at land registration offices, tax authorities, and commune-level People's Committees; and the winning bid prices for land use rights at organizations conducting land use right auctions.
The information gathered so far seems insufficient to accurately determine land prices. Currently, real estate transactions on the market are characterized by a dual pricing system; the prices recorded in land use rights transfer contracts (information obtained from land registration offices and tax authorities) may not reflect the actual transaction prices.
Therefore, to ensure greater accuracy of information, VCCI suggests that the Drafting Committee expand the sources of information to include: transaction prices on real estate exchanges; and prices collected by appraisers through surveys and investigations.
Tue Minh
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