Developers want land use fees changed as arrears mount

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A worker clears a road along a row of uncompleted villas in Hanoi. Vietnam's real estate developers have urged the government to cut land use fees. Photo: Reuters

Just when it seemed that things could not get any worse for real estate developers, many of them say they can no longer afford to pay the large sums they owe in land use fees.

They have been complaining for several years now about a rule that requires them to pay land use fees equal to the market value of the property they buy.

The rule, which took effect in 2009, has dug deep into the pockets of real estate companies that were previously paying land use fees of between 20 and 30 percent only.

Now that the real estate market has hit a downturn and there is no recovery in sight, property developers are speaking out even louder against the rule, urging the government to change the rule and offer them some respite.

Statistics unveiled earlier this month show that some 100 real estate companies in Ho Chi Minh City still owed trillions of dong in land use fees. Many of them said they'd had to wait for a long time for the authorities to evaluate land prices, and when the fee was announced, it was too much to bear.

Industry insiders say the high fees will result in high property prices, making it difficult for developers to attract buyers.

Le Hoang Chau, chairman of the HCMC Real Estate Association, said home prices in Vietnam have passed those in regional countries by a large margin. A medium-sized apartment costs between US$12,000 and $15,500 in Malaysia and Indonesia, but in HCMC a similar one would cost at least VND600 million, or $28,500.

Chau said the main reasons behind the inflated price include complicated licensing procedures, expensive loans and high land taxes and fees.

After the government required developers to pay land use fees in accordance with their market value, property prices went up further, he said.

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Developers were in effect having to pay twice for land use rights first when they compensate relocated residents and second when they pay market-based land use fees, Chau said.

Individuals and developers in Vietnam do not have ownership of land. Instead they are granted land use rights, which give them basic control over the land.

Nguyen Van Duc, deputy general director of HCMC-based Dat Lanh Real Estate Company, said his company invested in a residential project that covered a land area of 10,000 square meters in District 12 with an estimated cost of VND17 million per sq.m., aiming for a profit margin of VND3 million per sq.m.

But tax agencies imposed land fees of VND15 million per sq.m., which meant Dat Lanh had to incur huge losses, Duc said.

He said the government may have tried to increase state budget revenues by asking developers to pay high land use fees, but a policy that hurts businesses is bound to fail in the long run. Tax revenues will fall if businesses cannot operate and close down, he explained.

"So it's necessary to revise the regulations so that companies can continue to make profit and expand their business and pay taxes," Duc said. "If land use rights are obtained through allocations from the state, the government can charge a fee equal to the full value of the land. But if developers buy the land from residents, they should be asked for land use fees of 10 to 20 percent, not more."

Nguyen Canh Ha, director of An Thien Ly, agreed that it was unreasonable to ask real estate companies to pay land use fees equal to the land value unless they are given sites to build their projects on without having to spend a large amount of money on land compensation and site clearance.

Ha said the costs of licensing, site clearance and building should account for up to 80 percent of home prices and land use fees should not exceed 10 percent, leaving a margin of 10 percent for developers.

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