Massive abandonment of land auction deposits in Hanoi's suburbs: Failure to stop this will distort the market.

Massive abandonment of deposits after bidding high land prices: Experts cite the Tan Hoang Minh case as a "lesson".

The market has recently been shocked by the winning bid prices in land auctions in the outskirts of Hanoi . In Hoai Duc district, the winning bid prices for land ranged from over 90 to 133 million VND/m2. In Thanh Oai district, the winning bid prices for land ranged from 51 to 100 million VND/m2, many times higher than the starting price.

However, immediately after the auction, most of the winning bidders resold their lots for a markup of 400 million to 600 million VND per lot. At its peak, many lots were resold for over 800 million VND more than the winning bid price. However, just a few days later, the markup dropped to around 100-200 million VND.

Moreover, following these auctions, land prices in the surrounding area immediately surged by 5-10 million VND/m2. Even brokers were hesitant to buy at that time, fearing they would resell for a profit, believing the land prices were too high compared to the surrounding infrastructure.

Notably, there has been a surge in abandoned deposits. For example, in the auction of 68 land plots in Ngo Ba area, Thanh Than village, Thanh Cao commune (Thanh Oai district, Hanoi), 55 plots had their deposits abandoned, including one that was won at 100.5 million VND/m2. Of the 13 plots for which full payment was made, the highest price was only slightly over 55 million VND/m2.

Speaking with a reporter from Dan Tri newspaper, Mr. Dinh Minh Tuan, Director of Batdongsan.com.vn in the Southern region, said that the issue with auctions in Hanoi lies in the fact that the initial price set for buyers to place deposits is too low. For example, the average price at which some properties were successfully auctioned is 30 million VND/m2, but the starting price is only 7 million VND/m2. This shows that the entry price is too easily set.

Furthermore, the limited supply of products on the market leads those who have placed deposits to want to buy and resell. Meanwhile, allowing resale within a short period also creates certain limitations, affecting the overall market.

Dr. Dinh The Hien, an economic expert, stated that those who genuinely want to buy will usually put in the effort and time to thoroughly research land prices and the real estate market in the area. The act of putting down a deposit demonstrates their strong desire to purchase.

However, currently, some land auctions in Hanoi are experiencing a phenomenon of mass deposit forfeiture. According to Mr. Hien, the question needs to be asked whether those participating truly want to buy the land or are undermining the State's sound policies?

55 plots of land at the auction of 68 plots in Thanh Oai on August 10th had their deposits forfeited (Photo: Duong Tam).

"Land auctions demonstrate openness and transparency. This is a correct policy and consistent with a market economy. The state puts land up for auction hoping to sell it at a price that is appropriate to the market. The target audience is those with a genuine need for housing or long-term investment, not those engaging in speculation to inflate prices," Mr. Hien said.

According to Mr. Hien, recent land auctions in the outskirts of Hanoi have shown unusual signs. The fact that those who won high bids then abandoned their deposits en masse also bears responsibility for disrupting the real estate market. He cited the "lesson" from the Tan Hoang Minh land auction, where similarly, bidders offered exorbitant prices and then abandoned their deposits. This created a ripple effect, leading to a massive surge in real estate prices in Thu Thiem.

"Therefore, I believe that the recent high bids followed by forfeiture of deposits were intentional and calculated, not simply a case of underpaying. It's possible they used the auction to create hype in the area where they own a significant amount of land," Mr. Hien said.

If left unchecked, the problem of deposit forfeiture could continue.

Regarding the consequences of high-priced auctions followed by forfeiture of deposits, Dr. Dinh The Hien argues that, firstly, it negatively impacts the State's auction policies. Secondly, such auctions become tools for disruption and distortion in the local real estate market. This, in turn, negatively affects the overall economy and the real estate market. Meanwhile, the State is striving to stabilize the real estate market to promote economic development.

According to Mr. Hien, if there is no decisive action to prevent the practice of bidding high prices and then abandoning the deposit, the situation could continue at other auctions.

Mr. Dinh Minh Tuan added that after the auctions that caused a stir in the market, not only investors but also ordinary people will think about the 100-130 million VND/m2 mark for land located 25-30km from the center of Hanoi. This mark is also the benchmark for land prices in this radius to increase abnormally, regardless of the business or usage value. Furthermore, subsequent auctions in other areas will likely have even higher prices.

Abnormal bidding practices can lead to numerous negative consequences for homebuyers, investment businesses, and even destabilize the entire market.

Specifically, people with a genuine need to buy a house will find it very difficult to do so during this period, as sellers will maintain a mindset of raising prices above market value. Those with money will rush to buy land hoping to make a profit. In addition, those without a genuine need for housing will focus their money on real estate instead of other economic activities. Those who need a house don't have enough money to buy one, while those with money hoard it in land.

The next consequence is that domestic and foreign businesses investing in large projects will face greater difficulties in land acquisition, and their capital costs may even increase many times over.

Furthermore, a domino effect could occur across the entire market and other segments. For example, apartment projects in central Hanoi could see sharp price increases, possibly reaching 100 million VND/m2, amidst land scarcity, high demand, and rising land prices; land-based projects could also increase by 300-400 million VND/m2… These fluctuations will cause instability in the real estate market in the short term.

Experts believe that if the practice of bidding high prices and then abandoning the deposit is not prevented, it could recur (Photo: Duong Tam).

This expert emphasized that without corrective measures, the general price level will increase. Because after the auction, people will no longer remember how many people forfeited their deposits. They will only remember the final result and the final price. This will imprint on people's minds how many times the price in this area has increased, thus inevitably affecting the overall market.

Sanctions are needed.

Regarding preventative measures, Dr. Dinh The Hien suggested that auctions in localities need to be conducted with strict and secure plans. Furthermore, the land valuation process to determine the starting price should involve an appraisal company that is responsible for its assessment. The starting price must be in line with market value. Consequently, the deposit required to participate in the auction must be commensurate with the value.

Specifically, measures should be taken to prohibit or for a certain period of time those who have previously forfeited their bids from participating in the auction. Before the auction, the organizing committee must screen applications, similar to other bidding processes. Furthermore, each locality can also propose additional plans and regulations tailored to its specific needs to ensure efficiency for both the State and the people.

According to Mr. Dinh Minh Tuan, the solution is to raise the input price and limit participation for speculative trading. At the same time, regulatory agencies should establish penalties, such as fines 2-3 times the deposit amount, to ensure participants fulfill their obligations.

Offering a solution, Mr. Le Dinh Chung - a member of the Market Research Task Force of the Vietnam Association of Real Estate Brokers (VARS) - suggested that measures should be taken to set a higher starting price than currently. In addition, instead of the current regulation of a 20% deposit on the starting price, it should be increased to around 30-50%. This would deter those intending to participate in land auctions with ulterior motives.

Furthermore, according to him, investors could be required to transfer a security deposit to the organizing committee's account. If the investor wins the auction, the security deposit will be held by the organizing committee for payment; if there is a shortfall, additional funds will be paid.

Source: https://dantri.com.vn/bat-dong-san/o-at-bo-coc-dau-gia-dat-vung-ven-ha-noi-khong-ngan-chan-se-meo-thi-truong-20240918131201640.htm