Risk of ‘virtual price traps’ from suburban land auctions

Land auction area in Hoài Đức District, Hà Nội. — Photo vov.vn

Compiled by Yến Vi

HÀ NỘI — The land market is facing great risks from unsustainable land fevers with auctions in suburban districts of Hà Nội becoming ‘hotter’ than ever.

All land auctions over the past month were sold out and prices in the following sessions continuously broke the records of the previous sessions.

More than 500 customers participated, registering 1,100 sets of documents at the auction of 19 land lots in Lòng Khúc area, Tiền Yên Commune, Hoài Đức District, Hà Nội.

This auction was tense, exciting and tiring for both the organiser and the auctioneer. After nine rounds of auctions, the highest winning price was VNĐ133.3 million (US$5,500)/m2, the lowest price was VNĐ91.3 million/m2.

Many economic experts commented that the recent land auctions in the suburbs of Hà Nội attracted the attention of so many investors, partly because some suburban districts were about to be upgraded to districts. That will mean additional investment in social infrastructure.

There has also been a marked shortage of land supply recently as it has been a while Hà Nội hosted any land auctions.

Along with that, the pressure to increase prices from the apartment and inner-city land segments has made suburban areas the choice of many investors.

However, in reality, at auctions in Thanh Oai and Hoài Đức districts, winning bids were recorded to be twice to three times higher than the common land price range in the surrounding area, which many experts consider unusual.

The Sức khỏe & Đời sống (Health & Life) newspaper quoted Dr. Trần Xuân Lượng, deputy director of the Việt Nam Institute for Real Estate Market Research and Evaluation, as saying that land auctions were becoming an issue, as land prices were often pushed up much higher than their actual value.

There were many reasons for this situation, with many tricks behind the auctions, he said.

“One of those tricks is the strategy of speculators from other places. These groups participate in auctions with the goal of pushing up prices, then quickly reselling them at a large difference. They do not intend to develop on the land, but only wait for opportunities to make short-term profits, causing market fluctuations and making it difficult for those with real needs,” said Lượng.

Đinh Minh Tuấn, Director of the Southern region of Batdongsan.com.vn, was concerned that with high land auction results like the recent auctions in Hoài Đức, Thanh Oai districts and suburban districts of Hà Nội, the cost of site clearance for new projects might become more expensive.

In addition, with the winning auction price being many times higher than the average, it might lead to people owning land in the surrounding area having the mentality of pushing up the selling price of their land, he said.

With the ‘fever’ from the sudden high prices, it might become a bubble of land speculation, when many people rush to buy land in the hope of making a profit from the continued increase in land prices, he added.

“The fact that many people rush into real estate in the hope of making a profit can cause the cash flow to stagnate in land, instead of being circulated in other economic activities,” said Tuấn.

Experts said that uncontrolled land auctions could distort the market and cause many consequences for the economy and society.

The heat in the situation not only affected the healthy development of the real estate market, but also put the biggest risk on investors with legitimate needs to buy houses to live in, said experts.

Dr. Trần Xuân Lượng commented that when land prices were pushed up unreasonably, the real estate market could easily fall into a speculative bubble.

Land values ​​were inflated far beyond their actual value, creating the risk of the price bubble bursting when the market adjusted, he said. At this time, all risks from the “virtual price trap” would be borne by investors.

Investors needed to be extremely careful before spending money to buy land at this time and must research carefully to avoid falling into the trap, he added.

The real estate market in Hà Nội, with its dense population and supply not meeting demand, easily attracts speculators in auctions. Therefore, it was possible that in many land auctions, there were investors colluding to push up prices to increase the value of neighbouring land for profit, he said.

In the context of the increasingly scarce real estate market in the city centre, suburban areas with abundant land funds and development potential were becoming new targets for investors, he said.

The recent continuous surge in land prices in the suburbs of Hà Nội required caution from investors.

Investors should consider carefully before participating in land auctions in suburban areas, especially those with unusually high prices, said Lượng.

PM requests to rectify land auctions

In response, the Prime Minister issued a telegram on Wednesday directing relevant agencies to promptly rectify the work of auctioning land use rights.

In particular, the Prime Minister requested the Minister of Natural Resources and Environment to preside over and coordinate with the Minister of Justice, Minister of Finance, Minister of Construction and the Chairmen of the People’s Committees of provinces and cities to urgently review and inspect the organisation of land use rights auctions in cases showing signs of abnormality.

The Prime Minister requested the Chairmen of the People’s Committees of centrally-run provinces and cities to direct functional agencies and units to review the organisation of land use rights auctions in their localities to ensure compliance with the law, publicity and transparency.

At the same time, he directed them to promptly detect and strictly handle violations of legal regulations in land use rights auctions and prevent acts of taking advantage of land use rights auctions for profit and disrupting the market.

Strictly implementing this direction, Chairman of the Hà Nội People’s Committee Trần Sỹ Thanh signed an official dispatch on Thursday requesting relevant departments, branches and units to inspect, detect and handle violations of the law related to unusually high land use rights auction results in the capital.

The Hà Nội Department of Natural Resources and Environment must preside over the synthesis of implementation results, draft documents of the city people’s committee reporting results and recommendations, proposals to the Ministry of Natural Resources and Environment before August 28.

Specifically, the Hà Nội Department of Natural Resources and Environment will preside over and coordinate with the departments and branches of justice, finance, inspectorate, police to inspect all land auctions in Thanh Oai and Hoài Đức districts in the recent past and promptly detect and resolutely handle violations of the law (if any) and report to the city people’s committee before August 25.

At the same time, the Hà Nội Department of Natural Resources and Environment will preside over and coordinate with the departments and branches of justice, finance, inspection, police to review the process, procedures, regulations on land use right auctions of districts, towns. Report to the city people’s committee to direct the implementation of measures to ensure the organisation of land use right auctions strictly according to legal regulations, to be completed before August 27.

In addition, the city also requires the people’s committees of districts, towns and cities to review all land use right auctions in the area to organise implementation in accordance with legal regulations and report to the city people’s committee on difficulties and problems beyond their authority. — VNS