Land auctions and concerns about the "virtual price" wave

It is forecasted that the housing market will receive positive adjustments when the Land Law, Housing Law and Real Estate Business Law are applied early from August 1. The market effect records the continued trend of moving to suburban areas; in which, land plots are gradually becoming an attractive segment for buyers. However, there has been a sudden increase in prices at the recent land auction in Hanoi. This has raised public concerns about the wave of "virtual prices". Hand-to-hand transactions of auctioned land plots have further pushed up land prices. Experts recommend that it is necessary to prevent investors from inflating prices, causing disruption to the real estate market.

The recovery of land plots is clearly shown through land auctions that attract a large number of participants. Since the beginning of the year, there have been continuous successful auctions, bringing in large budget revenues, and there have even been plots of land successfully auctioned at values ​​many times higher than the starting price.

Typically, last weekend, in Thanh Oai (Hanoi), an auction of 68 plots of land took place in Ngo Ba area, Thanh Than village, Thanh Cao commune, Thanh Oai district with nearly 2,000 participants. As a result, the winning bid price fluctuated around 63-80 million VND/m2, the highest lot had a price of up to 100.5 million VND/m2.

Thus, compared to the starting price of 8.6 - 12.5 million VND/m2, the winning price is 5-8 times higher. This price was immediately used by many brokers and investors in Hanoi as information for comparison and to increase the selling price. Experts warn that this situation can cause Hanoi real estate prices to increase "virtually" and is very dangerous.

Meanwhile, data from Batdongsan.com.vn shows that the most common selling price in Thanh Cao commune in the second quarter of 2024 was only VND27 million/m2. In the past 5 years, the highest selling price recorded in Thanh Cao commune was VND48 million/m2 and appeared during the peak land fever in the first quarter of 2022.

In fact, the optimistic developments in the land market since the beginning of the year show that investors' confidence in this segment is returning. However, investors still need to be alert because the State has begun to tighten, aiming to limit the subdivision and sale of land through new laws.

Mr. Nguyen Van Dinh - Chairman of the Vietnam Real Estate Brokers Association commented that in the first half of 2024, the land segment in the suburban districts of Hanoi is bustling again. However, land transactions have increased in temperature but are not really bustling, some areas are "really hot" but there are also areas showing signs of "price inflation". When the land market is bustling, land auctions become a new speculative market instead of creating new supply for people with housing needs. Therefore, investors and people with real housing needs need to be careful.

According to Ms. Do Thi Thu Hang, Senior Director, Consulting and Research Department - Savills Hanoi, the housing market in general and in Hanoi in particular is expected to enter a "new cycle" because the Land Law, Housing Law and Real Estate Business Law officially took effect early from August 1. When the law takes effect early, many long-standing problems of the market will be resolved; the impacts will take place faster.

For example, the problem of limited supply in many localities will also be improved. When supply is limited, people's choices are reduced, leading to unstable prices and an upward trend. Therefore, solving the problem of limited supply will have a positive impact on the general market.

However, even though the laws take effect soon, it will still take time to resolve the problem of limited supply because projects are still waiting for guidance documents, Ms. Hang analyzed.

Experts commented that the prices of housing segments are at a high level, greatly affecting investment decisions and market liquidity. When the guiding documents are gradually fully issued, prices are expected to become stable, and people's interests are more guaranteed, for example, the conditions and regulations for the sale of future products.

Or, previously unapproved projects will have a basis for resolution; at the same time, many other issues can be resolved, including land use fee calculation, land lease, and social housing development...

In addition, the law being passed early will also provide early support to the market, positively impacting the psychology of buyers and investors, helping them to be more confident in their decisions and business and development plans in the near future.

Typically, the Law on Real Estate Business stipulates that investors are only allowed to collect deposits of no more than 5% of the value of the property. In addition, deposits are only allowed to be collected in cases where the house or construction work has met all the conditions for putting it into business according to the provisions of the law.

This helps protect buyers from the risk of capital appropriation before completing the necessary legal procedures; creating conditions for buyers to have more time to prepare finances. At the same time, this regulation helps create more confidence in transactions for the market.

In the future, when the real estate market recovers, land prices will have the opportunity to increase, but only at a moderate level. Unlike previous cycles, in this new cycle, there will no longer be a phenomenon of "virtual fever" of land or a real estate "bubble" - Ms. Hang commented.

In Hanoi, in the coming time, the land fund, projects and supply in the center are limited, so there will be a trend of moving to the suburbs. This trend continues to be strong, affecting both the apartment and villa and townhouse segments.

For apartments, the majority of demand comes from the middle-income group. The affordability of this group is products under 3 billion VND. However, in the Hanoi market, there are not many options for this price range. Therefore, many buyers have considered projects located in the suburbs such as Nam Tu Liem, Ha Dong and Gia Lam, which provide up to 93% of the supply of this segment.

By the end of 2024, the villa and townhouse segment will have 13 projects providing a total of 2,951 units, most of which are located in Dong Anh district – accounting for 34% of the total future supply. Ha Dong district follows with 19% and Hoai Duc district with 16%.

Mr. Nguyen Van Duc - a real estate investor in Hanoi said that the land auction with results many times higher than in Thanh Oai district recently surprised many people. The optimistic development of the land market since the beginning of the year has brought investors confidence in this segment.

However, it is possible that the psychology of the newly-enacted real estate laws is that they are expected to tighten land supply, causing investors to rush to "hold on to their goods" and wait for prices to increase. This also contributes to the "virtual" price increase - Mr. Duc commented.

Assessing the trend of moving to the suburbs of Hanoi, experts said that the city is investing in developing infrastructure around the belt, radiating to the center to reduce the load on the inner city, and spreading the population to the outskirts. Currently, there are new urban areas in areas far from the center with synchronous and quality utilities invested in with an increasing number of transactions, making people more open to moving to these areas.

However, experts warn that when the land market is active, land auctions can become a new speculative market. Instead of creating new supply for those in need of housing, there will be a situation of buying and reselling auction winning lots. This could be a "trick" to create a new price level and then cancel the deposit to benefit from the price increase in neighboring areas.