The committee has released a report reviewing legal documents on land-use right auctions, mentioning the Thu Thiem land auction.

The auction of 3-5, 3-8, 3-9 and 3-12 land plots at Thu Thiem was the most valuable ever land plots with the total winning price of VND37.346 trillion, or 7.09 times higher than the starting prices.

If the winning businesses do not fulfill their financial obligations, they will lose their deposit money and the money will be paid to the state budget.

However, according to the National Assembly’s Economics Committee, the regulation may lead to winning companies accepting to lose deposit money and not fulfill their financial obligations. If so, the auction results will be abrogated.

Ngoi Sao Viet Real Estate Investment Co Ltd and Binh Minh Trading and Investment Development Co Ltd have terminated contracts on purchasing the 3-9 and 3-12 land plots, accepting the loss of deposit money. 

The HCM City People’s Committee has released a decision on abrogating the auction results of the two land plots.

Meanwhile, there has been no information about two other companies – Dream Public and Sheen Mega JSC - that won auctions.

The report pointed out that even if winning companies pay money for the land plots they won with the auction results or break the commitments, there are still concerning problems.

If the former occurs, the land prices in Thu Thiem in particular and in HCM City in general will be pushed up, negatively impacting the real estate market.

If the winning prices at Thu Thiem land auction are used as reference to determine land prices in the area, a new price level will be established, much higher than the old one.

This will benefit projects in which land has been allocated and investors have paid land-use rights money, but will cause disadvantages to projects in which investors still have not paid land-use right money, and to projects in the future.

The high winning prices, which are much higher than the starting prices, will affect investors and lead to price increases of real estate. If the prices are too high, housing products will not sell well.

The high land prices would lead to higher input costs and house prices. Realtors won’t be able to develop affordable real estate projects, but will have to develop high-end projects for high-income earners.

“The housing prices will increase, putting more difficulties for people, especially low- and mid-income earners,” the report says.

Land price increases will also make it more difficult and costlier to recover land and compensate people for site clearance if the State needs land for national defense, social security and socio-economic development.

Manipulation of market 

If winning companies break their commitments and unilaterally terminate land purchase contracts, complicated problems will arise which affects the whole society. This could be a manipulative trick played by enterprises which inflate land prices in Thu Thiem so as to be able to sell their other projects in HCM City and neighboring areas at high prices.

The trick could also help auction-winning companies to polish their business image, which would create favorable conditions for them to issue bonds, increase their share prices, increase the value of capital contributions to joint ventures, and facilitate their debt and project trading.

If auction-winning companies unilaterally terminate purchase contracts, this will help ease ‘artificial land fever’ and force the land prices down to the real value of the land. However, this will also cause problems as local authorities will have to organize the auction again.

The National Assembly’s Economics Committee cited the reasons for the problem: the regulations are unclear and unspecified about the requirements on stockholder equity, banks’ guarantee commitments, proof of transparency and feasibility in capital mobilization, and the feasibility of business projects to be developed on auctioned land.

The time from the day of auction to the deadline for winning companies to pay money is too long (180 days in the case of Thu Thiem). This can be exploited by businesses to ‘inflate’ real estate prices, increase their stock prices, restructure their debts, and sell inventories. 

Luong Bang