Plugging land policy loopholes - Final article: Many shortcomings in land pricing

>>> Lesson 2: Harmonious allocation of differential rent
>>> Article 1: Ending "suspended" planning

Although it has not fulfilled its financial obligations to the State, the investment project to build a residential area north of Huong River, Tan Viet Commune (Thanh Ha) invested by AH Group Joint Stock Company is being sold on the market by many real estate floors at a price of over 20 million VND/m2..Image:NGUYEN MO

Prone to legal risks

The five methods for determining land prices include: surplus; direct comparison; deduction; income and adjustment coefficient. The surplus method is the most widely used because in theory, it is most suitable for determining land use fees for real estate projects with an area of ​​several hectares or more. The principle of this method is that the value of the land plot to be priced is equal to the total revenue from project development minus the total cost of that project.

To determine the total revenue of the project using the surplus method, the professional agency bases on the number of years of project development completion and the expected revenue of those years to calculate the current year. In the case of calculating land use fees for a project with a completion time of 5 years in 2017, the professional agency must determine the average land price around the project area at that time as input data. Then, the land price will be calculated to increase equivalent to the expected increase in the consumer price index (CPI) in those years, usually from 2-3% over the years. The total revenue of the project is equal to the area of ​​each type of land multiplied by the corresponding price.

Looking at the way the project’s total revenue is calculated shows many limitations and inaccuracies. At the beginning of the project, it is difficult to determine the land price around the project accurately. Buyers can pay a few million VND/m2 higher. Sellers can sell a few million VND/m2 cheaper. Therefore, each price survey team will give a different price, leading to legal risks for both the professional agency and the project investor.

The second factor is to determine the total cost of the project, including: investment cost for technical infrastructure construction, advertising and sales costs, and investor profit. This total cost is estimated by the investor based on the technical documents approved by the competent authority. The prices of many material categories are also assumed in the future, the sales cost is also assumed, and the investor profit of 14% of the total cost of technical infrastructure construction is also assumed.

It is worth mentioning that the total cost estimate is not approved by any competent authority, but in the investment policy approval dossier of the competent authority, there is always a sentence: "If the total actual cost upon approval when the project is accepted is lower than the initial estimate, the investor must immediately pay the difference to the state budget. In case the total actual cost is higher than the initial estimate, the investor must bear the difference." In reality, most projects have a total cost after the project is accepted that is always higher than the initial estimate.

It can be seen that with the surplus method, the total development revenue of the project and the total cost of the project are both assumptions, so it is easy to make mistakes. In the past 5 years, the real estate market in Hai Duong has increased rapidly, land prices in most localities have increased by 200-300% compared to 2017. Recently, the Provincial People's Committee has requested relevant departments and branches to recalculate land prices of some real estate projects. The Provincial People's Committee requested to collect some more price samples to make accurate input data. However, this is very difficult when these projects have allocated land and calculated land use fees a few years ago. Meanwhile, land prices have increased sharply in recent times. If the professional agency does not calculate carefully, it is easy for lawsuits to arise between businesses and the government because calculating land prices after allocating land is a violation of the law.

Review pricing methods

Currently, the adjustment coefficient method is rarely applied to large projects because it is stuck with the ceiling value of land plots under 20 billion VND. This method is currently only applied to calculate land use fees for households as a basis for calculating taxes when transferring land use rights. However, at this time, the 2013 Land Law (amended) still has a land price framework regulated by the Government and a land price list issued by the Provincial People's Committee, both of which have a 5-year term. Because the term of the above 2 regulations is too long, not meeting the requirements when commercial and residential land prices fluctuate daily, the application of the adjustment coefficient method is not suitable.

Resolution 18 requires abolishing the land price framework and only applying the land price table. The draft Land Law 2023 (amended) stipulates that the land price table will be issued by the Provincial People's Committee annually instead of every 5 years as before. This is considered the right time to apply the adjustment coefficient method to calculate land use fees. When the real estate market fluctuates, the State uses the coefficient to adjust prices.

Therefore, the draft Land Law 2023 (amended) and related laws need to remove the ceiling of 20 billion VND for the project value for the adjustment coefficient method. At the same time, the Provincial People's Committee assigned the relevant departments and branches to determine the prices of land types to have enough data to issue the province's annual land price list that is close to the market value. The land price list needs to have an adjustment coefficient with a shorter "jump" and more steps so that the government can be flexible in adjusting land prices when the market fluctuates. At that time, the calculation of land prices for projects will be closer to the market, avoiding loss of State assets.

The direct comparison method is also very scientific. With this method, vacant land plots similar in land use purpose, location, profitability, infrastructure conditions, area, shape, legality of land use rights transferred on the market, winning land use rights auctions are compared, determining the price of the land plot to be appraised. Along with that is the human factor, the qualifications of the staff in the land appraisal council must be impartial, objective, all for the development of the province, of the country...

SY THANG