Why are land auctions slow?

Recently, many plots of land in Hai Duong were put up for auction without buyers or after deposits were made, they were abandoned. In many places, a residential area or residential area had to be auctioned many times but still remained unsold. This situation has left many consequences, affecting the budget, balance, and allocation of public investment capital, directly affecting basic construction investment and socio-economic development plans of localities.

There are many reasons for this situation. For a long time, the real estate market has not developed healthily, and land prices have increased rapidly. The government has strengthened management of land auction activities. Along with that, banks have tightened lending for real estate purchases, and lending interest rates have increased.

Along with the above underlying cause, one of the direct causes leading to the sluggish land auction situation is that the starting price is not suitable for the current market price. In 2020-2021, land auctions in Hai Duong were very active. In many auction locations, customers bid 2-3 times higher than the starting price, leading to a virtual fever. After winning the auction at a high price, some customers could not transfer it to others, so they did not pay the land use fee and had to cancel the auction results. The lots put up for auction recently are mainly lots whose auction results were canceled in the planning locations of residential areas that were auctioned between the end of 2020 and the first half of 2022. When re-auctioning, due to the sluggish real estate market, there were almost no new transactions, so the winning bid of customers who had paid the full land use fee before was the basis for the state management agency to determine the starting price for the next auction. This led to a high starting price for re-auction (at a feverish time), while currently real estate transactions are still "frozen". Therefore, there are no or very few transactions.

Previously, the regulations on determining the deposit amount to participate in the auction were not specifically defined. Therefore, in each auction, localities determined the deposit rate at a low level, so many people registered to participate in the auction. The provisions of the law do not clearly stipulate how to handle the cancellation of the auction result when the auction winner does not pay the land use fee. This leads to the auction winner having a mentality of being complacent, not paying the land use fee to wait to resell to someone else. It was not until April 22, 2022, that the Provincial People's Committee issued Decision No. 04 regulating the auction of land use rights to allocate land with land use fee collection or land lease in Hai Duong, the deposit level is set at a relatively high level of 20% and clearly stipulates that if the auction winner does not pay the full land use fee on time, the auction result will be canceled (except in cases where there is a legitimate reason). The strict auction organization process, high deposit requirements and weak market liquidity have limited brokers from entering the auction to wait for short-term sale to profit from the difference.

To make land auctions more exciting in the coming time, state management agencies need to consider and establish a new starting price for land auctions in Hai Duong that is suitable to the actual situation and financial capacity of the people.