Ministry pushes for freer land pricing system

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The Dai Kim Village in Hanoi. The official land prices in the city are much lower than market prices. Photo: Reuters

The Ministry of Finance has recommended that the government give each city and province more autonomy in deciding land prices, freeing them from an old system that is out of sync with market changes.

Vietnam now allows provincial authorities to set land valuations every year, which are mainly used for tax purposes and site clearance compensation. The valuations, however, have to be based on a price frame introduced by the central government and are not allowed to exceed the frame's maximum limit by 20 percent.

Critics say the system is flawed, with property prices in reality always staying much higher than the official valuations. The large gap has also caused huge tax losses, according to the Finance Ministry. The collection of taxes and fees relating to land use and transactions contributes 11.2 percent of the total state budget, or VND67 trillion (US$3.19 billion) last year.

The ministry said that after the price frame is jettisoned, the government would come up with a methodology for local administrations to determine land prices that would keep in step with the market.

Dang Hung Vo, a former deputy natural resources and environment minister, said: "The proposal is quite rational. This should have been done long ago."

Land prices regulated by provinces based on the frame are only equal to 10 percent of the market prices in downtown Hanoi and Ho Chi Minh City, and some 50-60 percent in other large urban areas, he said.

Pham Dinh Cuong, head of the Ministry of Finance's State Property Management Bureau, said the gaps between regulated and market land prices had also prompted an increase in land issue complaints from local citizens who are relocated due to construction projects.

Cuong said land price evaluations are announced by provincial authorities in January and often increase every year, so local people, whose land is reclaimed, often delay handing over the land in the hope of receiving more compensation. This causes major difficulties in site clearance and has delayed a lot of construction projects for years, he said.

"Although the regulated land prices for compensation have been adjusted many times, they are still much lower than the prices in the market, which have sharply increased over the past years. Thus, it is difficult to carry out site clearance," said Vu Tuan Duong, vice general director of construction firm Licogi.

He said site clearance for one of his company's projects in Hanoi is still uncompleted almost ten years after it began.

Pham Si Liem, vice chairman of the Vietnam Construction Federation, said prices on the market are often hundreds of times higher than those regulated for compensation. "I know of one commune that took back some 2,000 square meters from local people, but paid them a total of VND2 million ($95). It is unacceptable."

"We should flexibly regulate the prices for each area at different times. Now, land price lists are issued once a year, while prices in the market see frequent fluctuation," he said. "The best way is to remove the land price frame, and the prices should be adjusted whenever the market prices changes."

Liem said the government's land price frame has had no effect on the property market, because local people do not care about it. In land transactions, people negotiate prices that rise far above the regulated frame.

The highest regulated price is VND81 million ($3,857) per square meter of land in central Hanoi, while the market prices could reach VND1 billion, he said.

Shortcomings

Liem said if the proposal is approved, site clearance works could be accelerated due to higher compensation prices.

However, Duong of Licogi said the change would increase the site clearance costs, raising the prices of housing products. Thus, poor people would find it harder to own a house.

He also said it would be unfair to start charging poor people more in tax fees on land they have been living on for years or generations, because the official price rose suddenly and exponentially.

Cuong of the State Property Management Bureau said it is difficult for localities to regulate prices, as land price assessment agencies have no experience with market mechanisms, and have demonstrated limited capacity.

The Ministry of Finance said the total revenue from land use fees, land rentals, non-agricultural land taxes and land transfer taxes average out at over VND81.6 trillion a year. In the case that land prices rise by 20 percent, the figure could surge to above VND98.6 trillion per year.

"It is not right to think that the more taxes the better. More collection is not good if the money is not used effectively," said Liem. "In fact, reasonable collection is best."

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