Canceling purchase of most expensive land lot will distort market

Tan Hoang Minh, which successfully bid last month to buy a land lot in HCMC’s Thu Thiem Peninsular at VND24.5 trillion ($1.08 billion), said in a January 1 letter to sent to Vietnamese leaders including Party Chief Nguyen Phu Trong that the company will not purchase the 10,060-square-meter lot.

Canceling the purchase would mean the company forfeiting its deposit of VND588.4 billion (almost $26 million).

Company chairman Do Anh Dung explained the cancellation, saying such a high price tag could lead to “negative consequences” for the real estate market.

Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, told VnExpress: “The result of land auction in Thu Thiem with the price of VND2.43 billion per square meter, more than double that of land in Dong Khoi (a downtown area with the most expensive land price in the country) is absurd.”

Thu Thiem New Urban Area in the namesake peninsula is a 657 hectares (1,623 acres) megaproject to develop the city into an international financial hub, located on its namesake peninsula in the south-east of HCMC.

A veteran cadastral and land expert in HCMC who did not want to be named said it was not surprising that Tan Hoang Minh was pulling out because the winning land price of VND2.43 billion per square meter at the action was ahead of the city’s development by a decade and unprecedented in the history of the Vietnamese market.

It was a shock, causing land prices to escalate in many places, even kicking off a land fever, he said.

He noted that it was not uncommon for auction winners to forfeit their deposits worth 20 percent of the total value, but in the Thu Thiem case, it makes auctions a “double-edged sword” that distorts the real estate market at many levels.

First, abandoning deposits after inflating land prices to the highest level makes it difficult to appraise the properties’ prices for next auctions not only in the Thu Thiem area but also in many places across the country.

Second, the practice of making record bids and then forfeiting the deposit without strong punishments can create a loophole for profiteering from land auctions.

Huynh Phuoc Nghia, a senior consultant with Global Integration Business Consultants (GIBC), said Tan Hoang Minh’s cancellation poses a challenge for HCMC in organizing effective and transparent auctions, appraising prices in line with the market situation, managing the risks of market manipulation, and giving land-use rights to truly capable developers.

The difficulty facing the city is that if the winning price is many times higher than the starting price, the appraisal may be doubted because it does not match the market price. On the contrary, in case the winning land price is not high, the city may lose its land resource at subpar prices.

This is a challenge facing the city and a barrier in attracting investment to Thu Thiem, Nghia said.

After the Thu Thiem land auction, the starting price of remaining land lots in peninsula in the near future will be higher than the auction on Dec. 10, 2021, to avoid the risk of properties being undervalued. The new starting prices may reduce the land lots’ attractiveness because investors will assume that they are too high.

Nghia said state agencies need to come up with more mechanisms to manage the status of investors participating in auctions. The investors should have demonstrated capacity and ideas for implementing real estate projects. Strict standards should be set in tracing the history of businesses and strong deterrent measures applied soon, he added

HCMC should have an independent evaluation board for land auctions to limit the risk of market distortions, and promote transparent auction activities to increase budget revenues, he said.

Former Deputy Minister Vo said the Thu Thiem land auction may have exposed a loophole in the bidding law and highlighted the need to amend it. The law should clearly define, among other things, who has the right to participate in auctions in terms of specific financial potential and legal capital.

“In general, the law must be revised to ensure transparency and specificity so that it does not create disadvantages for the State and the market,” Vo said.

According to the Law on Property Auction, canceling auctioned asset purchase contracts with agreements between the parties will lead to the cancellation of the auction results. After the cancellation, if the parties are found to be at fault, they will have to compensate as per regulations.

Under the law, the land-use rights for the land lot 3-12 won by Tan Hoang Minh in the recent auction will return to its original status if the firm cancels the purchase, which means it reverts to the HCMC Land Fund Center.

The second highest bidder, Capital One Financial Company, will not be considered the alternative winner.