A fix to costly land-use fees needed for housing market turnaround

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An apartment project lies in limbo in Nha Be District, Ho Chi Minh City as the real estate market has been stagnant for the past few years

Aid programs are not enough to resuscitate a real estate industry suffering from high government land-use fees, executives from Ho Chi Minh City housing firms said at a recent conference.

They lamented bottlenecks brought about by Decree No. 69, enacted in 2009, which requires them to pay fees based on the “market value” of land rather than the sum they actually paid for it.

News website Saigon Times quoted Nguyen Viet Tao, director of real estate firm NVT, as saying that the policy is killing firms, adding that it is like paying for same land area twice due to the high fees.

He doubted that many developers could afford land tax payments after selling their housing products.

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The industry “is not begging for money [from the government], but transparent policies,” Tao said.

The standstill

Developer Nha Binh Dan had delayed a VND57-billion (US$2.71 million) land tax payment for at least three years before its director Le Ngoc Tu announced a halt to the project in Thu Duc District.

The authorities had valued the project at VND8 million per square meter, over two times the paid price, while they offered the firm a very small tax deduction.

Now Tu is ready to return the land meant for the project to the government and will accept “how much ever [money] the government repays.”

In Vietnam, individuals and developers pay for the use and basic control over the land instead of having permanent ownership.

Le Huu Nghia, director of Le Thanh, said the calculation of land fees was unreasonable, causing businesses heavy costs or even losses.

His firm also plans to cancel a 2-hectare housing project with an initial investment of VND100 billion over high fee concerns.

Many firms cannot wait for the land price evaluations, often a long period, to start building and when the fees are made known, it could be costly and cause them troubles.

Nguyen Dinh Tan, director of the HCMC Tax Department, estimated that 67 developers in the city had collectively owed VND1.98 trillion ($94.12 million) worth of debts in land-use tax payments as of 2012 end.

Every firm's dream

A few months ago Nguyen Quoc Hiep, chairman of the Global Petroleum Investment Corp, told Dien Dan Doanh Nghiep (Business Forum) that people were incorrect in blaming the real estate standstill only on developers.

He pointed to the problems with the market-based land use tax, saying the rates keep swelling while housing prices have in fact fallen significantly since a downturn hit the market, which had previously focused on expensive housing.

Hiep said the Finance Ministry board tasked with evaluating prices often has its mind fixed on the profits firms could make – which are around 10-15 percent -- and bases its tax decisions on this.

In fact, the said profit is only “the dream of every firm” given the current situation, he said.

Nguyen Xuan Quang, chairman of Nam Long Investment Corp, said most developers that are still carrying out projects are using lands they were licensed for before the implementation of problematic rules on land fees.

No businesses could afford if they have to start from scratch by paying land use and site clearance fees as well, he added.

He suggested the government focus on addressing prolonged bottlenecks in the calculation of land fees to cheer up the market instead of finding new solutions.

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