Narrowing down the land valuation method based on surplus value.

The regulations are out of touch with reality.

Clause c, point 5, Article 159 of the draft Land Law (amended) stipulates the principle for determining land prices using the surplus method as follows: "The surplus method is applied to the valuation of non- agricultural land parcels and areas that have not yet had technical infrastructure invested in or construction works built according to the detailed construction plan, except for the cases specified in point d of this clause."

It is necessary to determine the residual method to be applied in valuing the land parcel with development potential.

Recently, the draft amendment to Government Decree 44/2014 on land pricing also narrowed the scope similarly to the provisions in the draft Land Law (amended). However, due to numerous objections from the public and experts, the drafting committee of the revised Decree 44/2014 subsequently accepted and revised this content, retaining the current regulations. This means that the surplus method is applied to value land parcels with development potential due to changes in planning or land use conversion, when the total assumed development revenue and total estimated costs can be determined.

In fact, the surplus method is a method of determining land value based on its potential future development use, rather than its current use as in the comparative or income methods. The surplus method reflects the market value of the land being valued, including factors such as: land use purpose; land use term; building density; building height; land use coefficient; and reflects the practical value of cash flows in investment, production, and business. Therefore, according to many businesses, this is also a modern real estate valuation method, in line with international practices, because it can clearly reflect the financial nature of a real estate project, including costs, revenues, and profits.

Chairman of the Ho Chi Minh City Real Estate Association (HoREA), Le Hoang Chau, assessed that the regulation applying the surplus method to determine land prices in the draft amended Land Law is overlooking a very important category: agricultural land. Citing the case of the special economic zone project that Sama Dubai Group (United Arab Emirates - UAE) had previously registered to invest in Phu Yen province with a total investment of up to 250 billion USD, Mr. Le Hoang Chau analyzed: within a land area of ​​up to 300,000 hectares, there is agricultural land; if this type of land is not mentioned, it is impossible to calculate land use fees. No urban development project consists solely of non-agricultural land; it is always mixed-use land.

Therefore, the above regulation is too far removed from reality and leads to the consequence that only small-scale real estate projects and small-sized housing complexes can be developed. Large-scale urban areas cannot be built. Furthermore, once agricultural land has been converted to an urban, industrial, or residential area, it has naturally been approved by the competent authority, thus providing a solid basis for applying the surplus method when calculating land use fees.

"Not to mention that there is currently a classification of land reclaimed from the sea, including cases where the state directly undertakes the work and cases where private individuals do it. So what kind of land is reclaimed from the sea? Is it non-agricultural land or agricultural land with water surface? For example, lagoons used for aquaculture are coastal land with water surface. Calling this non-agricultural land is incorrect; it should be agricultural land," Mr. Chau cited, and proposed applying the surplus method to agricultural land areas as well, possibly aligning it with the current draft amendment to Decree 44: "The surplus method is applied to value land parcels with development potential due to changes in planning or land use conversion when the total assumed development revenue and total estimated costs are determined."

In line with international practice

Mr. Nguyen The Phuong, Vice Chairman of the Vietnam Valuation Association, believes that applying the surplus method to determine the land price of land with development potential is scientifically sound, consistent with international practices, and necessary in determining land prices in Vietnam today. This method is commonly used to value land plots with development potential where there are no transactions for similar plots, making it impossible to apply comparative or other methods. Using the method of calculating residential land prices and then multiplying them by a percentage ratio between residential land prices and other land types in the land price table is not feasible.

Recently, when the Ministry of Natural Resources and Environment was drafting and soliciting opinions on amendments to Decree 44, there were many suggestions, and he was very pleased that the agency had incorporated them and retained the current surplus method. Therefore, the draft Land Law (amended), also drafted by this agency, needs to reconsider the regulations on the surplus method to align with current regulations. Applying the surplus method only to non-agricultural land would be difficult to implement, because for mixed-use land with high value, it would be very difficult to apply other methods.

For example, the comparative method is only applicable to low-rise buildings and cannot be applied to high-rise buildings, multi-functional buildings, or industrial real estate. Meanwhile, the income method is only applicable to agricultural land, most suitable for land used for annual crops… Therefore, the regulations as drafted will cause projects exceeding 200 billion VND to be stalled. Currently, most real estate projects have very large investment capital. Furthermore, this regulation could potentially cause significant losses to the state budget due to the expansion of the scale of land plots subject to the land price adjustment coefficient method…

Mr. Le Hoang Chau further suggested that the Government should consider amending the surplus method, which is a method for determining land prices by subtracting the estimated total development costs of a land parcel or area from the total estimated development revenue according to the land use plan and detailed construction plan approved by competent state agencies, instead of "based on the most efficient land use (land use coefficient, building 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, believes that land valuation is a highly specialized field. Currently, the draft law lacks many valuation methods. Therefore, the law should not specify detailed land valuation methods but only stipulate that they should be implemented according to the Vietnamese valuation standards already issued. These standards should include various valuation methods, each described in detail along with the procedures, processes, and accompanying criteria.

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