Without fully accounting for costs, it's difficult to attract investors.
The Vietnam Valuation Association stated that it has accessed Government Decree No. 12/2024/ND-CP amending and supplementing Government Decree No. 44/2014/ND-CP regulating land prices and the Draft Government Decree regulating land prices guiding the implementation of the Land Law No. 31/2024/QH15.
The Vietnam Valuation Association recognizes that both Decree No. 12/2024/ND-CP and the draft new Decree contain many appropriate provisions that meet the requirements for resolving practical difficulties.
However, the Vietnam Valuation Association also found that the content of the land valuation method based on the surplus method stipulated in the Decree and the Draft Decree still has shortcomings because it does not accurately and fully calculate the total costs that investors have to bear to implement the project and the profits they will receive upon completion of the investment project. Therefore, this will not only make it difficult to attract investment but also push land prices up to an unreasonably high level.
First, regarding the total investment cost.
Decree 12/2024/ND-CP and the Draft Decree have not fully accounted for all types of costs to form the total cost that investors must incur to implement a project. The regulations only calculate the investment cost in land development and do not include the initial costs that investors must incur to acquire land for the project, namely "land use fees" (unless the investor is exempted from land use fees by the State) and interest on borrowed capital. "This is unreasonable," the Valuation Association stated.
Secondly, regarding profitability.
In the Decree and both options of the Draft Decree: Profit is calculated only on land development costs, not on the total costs (as mentioned above) incurred by the investor (including land use fees + land development costs + business costs). This calculation is incomplete and does not comply with the principle of price formation: the price must cover production and business costs and generate profit (which is also inconsistent with the profit calculation method of the surplus method, which is profit calculated on the asset value). It also negates the principle of "future value of money," meaning that when investors have money to invest in any field, they must expect a profit, even if they deposit money in a bank to earn interest.
Regarding Option 1: The draft has confused the profit that the investor is entitled to with the costs that the investor must incur to implement the project (the draft stipulates: Profit includes capital costs); because profit is the amount of money the investor receives. Capital costs are the amount of money the investor must pay to the "Funding Provider".
The cost of capital is essentially the interest rate that investors pay to lenders on borrowed money. It is the profit of the lender, but a cost for the borrower, and naturally, the investor does not benefit from this financial cost but must pay it, which is included in the cost structure of production and business operations.
Regarding option 2: The investor's profit is calculated only on development costs, not on total costs, which is not an accurate and complete calculation as analyzed above.
From the above shortcomings, the Vietnam Valuation Association recommends that the total cost to calculate profit for investors should be calculated correctly and fully as follows: Total cost (1) = Land use fee cost + Development cost and business cost.
Regarding investor profit, it will be calculated using the formula: Investor profit = Percentage x Total cost (1).
We propose adding the element of "investor's profit".
Previously, the Vietnam Chamber of Commerce and Industry (VCCI) also provided feedback on the draft decree regulating land prices.
According to VCCI, Article 6.3 of the Draft stipulates a formula for determining average annual net income (= average annual income – average annual expenses). Businesses have commented that this regulation is unreasonable because it does not account for the "investor's profit" (it does not allow for the deduction of this factor). The failure to determine the investor's profit will not ensure fairness in the applied methods because, when compared to the formula, the investor will be investing and operating without profit. All surplus from the exploitation of existing structures on the land throughout the entire lease period (one-time payment) will be paid to the State, not including corporate income tax.
Such a regulation is inconsistent with the theory of determining differential land rent; it increases the difference in land prices when applying the income method versus the surplus method (if the same planning information is available). Therefore, we propose that the drafting agency add the element of "investor's profit" to the above formula.
Article 7.3.a of the draft stipulates that the investment costs for determining land prices using the surplus method include: costs of constructing technical infrastructure, social infrastructure, housing, and other construction works; equipment costs; construction investment consulting costs; project management costs; and a number of other cost items as stipulated in the investment capital rate.
According to feedback from businesses, this regulation is restrictive; other costs not listed only apply to cases using investment capital quotas, such as: contingency costs for unforeseen work volume and inflation during project implementation; interest expenses, costs of constructing temporary structures, structures serving construction, insurance, etc. Therefore, VCCI proposes that the drafting agency add these costs.
According to VCCI, Article 7.3.b of the draft stipulates that business expenses are calculated as a percentage of revenue, consistent with the general level in the locality. Businesses have commented that this regulation is unclear and inappropriate.
Specifically, business costs such as advertising, sales, and operating expenses vary greatly across sectors, making it difficult to determine a general average for each locality.
Furthermore, defining the project area based on the "general local conditions" is also inappropriate, especially in cases where projects are located in underdeveloped areas with few large-scale projects, as the general local conditions may not be suitable for that particular project.
Article 7.3.c of the draft stipulates two methods for calculating investor profits. According to feedback from businesses, neither method is reasonable because it does not fully account for the investor's profit from the entire project using the surplus method.
Specifically, the regulations stipulate that profit is calculated only on the construction investment costs. This is only the profit from the real estate development phase (land development investment), not the profit of the entire project.
Such regulations are inconsistent with the principles of price formation, as prices must cover production and business costs and generate profit. This regulation also negates the principle of "the time value of money" (due to opportunity costs, inflation, and risk) and the principle of "the future value of money" (meaning that when investing in any field, one must expect a return, even when depositing money in a bank).
In reality, the cost incurred by the investor (total cost) includes all reasonable expenses the investor must incur to complete the project (until the business is established). The total cost must include land use fees (or the value of the land) – an initial investment cost that the investor must bear to fulfill their financial obligations to the State.
Accordingly, if this type of cost is omitted from the calculation, the investor may be considered to be paying for the land twice: once when it is not included in the deductible costs when determining the land price (according to this regulation), and a second time when they have to pay land use fees (but these are not deductible as a cost).
Therefore, we propose that the drafting agency revise the regulations to calculate profit based on the total costs incurred by the investor to complete the project until the product is sold and revenue is generated. These total costs must include construction investment costs, business operating costs, and land use fees – the initial investment costs that the investor must bear to fulfill their financial obligations to the State.
Article 4.2.d of the draft regulations stipulates the determination of land prices for land allocation and land leasing according to the progress of compensation, support, and resettlement as per Article 257.2.c of the 2024 Land Law.
According to businesses, land valuation should only be applied at the time when land clearance is complete and the land is ready for investment.
In reality, there are cases where land is allocated in very small, fragmented plots, making investment impossible. In such cases, determining the time for land valuation should be avoided. Such regulations would create unnecessary procedures and lead to inconsistent valuation methods for areas where allocations are insufficient for investment or where planned areas do not generate revenue.
Therefore, it is advisable to regulate the method of calculating the surplus based on the total project area according to the detailed construction plan or master plan up to the time of land valuation, allocated proportionally to the area handed over.
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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