Thu Thiem land auction ‘scandal” reveals loophole in Viet Nam’s bidding law

Monday, Jan 17, 2022 07:37

A corner of Thu Thiem new urban area. — VNA/VNS Photo Quang

On January 10, Tan Hoang Minh Group’s chairman Do Anh Dung sent a letter to Party General Secretary Nguyen Phu Trong and other top leaders revealing its intention to pull-out of the purchase of a 10,060sq.m land lot in Thu Thiem new urban area which its member company Viet Star Real Estate Investment Co Ltd won the bid at a record price of VND 24.5 trillion (US$1.07 billion) last month.

Dung explained the decision was made to help safeguard the stability of the country’s real estate industry, admitting “such a high bid price could lead to negative consequences for the real estate market”.

The group is also ready to accept all penalties, including surrendering its deposit of more than VND588 billion ($26 million) for its unilateral contract cancellation.

Although many market insiders have said this move is not too surprising and could be predicted in advance, the action of “dropping the stake” still has caused a big market turmoil.

Push the price and then put down the stake

Why is a company ready to lose a big deposit of hundreds of billions of Vietnamese dong after it won a bid?

The winning price hit a peak of VND2.43 billion per m2 in Thu Thiem, 8.3 times higher than the reserve price and the highest ever paid for a square metre of land anywhere in the country.

According to most analysts, such a high price, which is even more than twice the land price in Dong Khoi street in the centre of HCM City, makes no sense and ahead of the development of this city by a decade.

After the Tan Hoang Minh Group’s historic bidding price, land prices in this area and the surrounding land lots skyrocketed.

According to Lao Dong (Labour) newspaper, apartment prices located near the river on Thu Thiem peninsula recorded the highest level of about VND210 million per m2. A survey by a real estate company specialising in Thu Duc City showed land prices at riverside locations around this peninsula range between VND350-400 million per m2. The price has been even inflated by 40 per cent in some areas in a short time.

Some experts believe this auction has created a land fever in this area and other locations, benefiting some investors when the land price soared.

Previously, in a report submitted to the Prime Minister, the HCM City Real Estate Association (HoREA) also raised concerns about the adverse effects of land auctions in Thu Thiem.

HoREA chairman Le Hoang Chau mentioned the land fever in Thu Thiem had caused the market to “stand still” as some investors had stopped sales and hoarding goods, awaiting opportunities to increase prices.

However, he also warned if the land price was too high, going beyond the "law of value, competition, supply and demand", it would become a "double-edged sword" that would both damage consumers and could be detrimental to investors themselves because if the house price was too high and found no buyers, it could increase the amount of inventory.

Market turbulences

The fact that a business auctions too high and then puts down the stake, regardless of the motive, is a bad phenomenon, affecting the healthy development of the market.

Last week, the benchmark VN-Index lost the 1,500-point landmark as many realty stocks were locked in the floor for many sessions following the ‘unstaking scandal’ of Tan Hoang Minh Group, especially property firms owning a large amount of lands in Thu Thiem.

The soaring price of land in Thu Thiem is also seen as potentially putting great pressure on the investments here when the business efficiency problem becomes more challenging because the land cost is too high.

Huynh Phuoc Nghia, a senior consultant at GIBC, said the unstaking decision of Tan Hoang Minh Group poses a challenge for HCM City’s authority to organise a public and transparent auction and appraise land price.

Shared with, Nghia said the difficulty for the city was that if the winning price was too high, the appraisal might be doubted that it did not keep up with the market price, while on the contrary, in case the winning price was not high, the city would face pressure to cause loss of land resources.

In addition, a new price level might be set after the Thu Thiem land auction and this might reduce the attractiveness of this peninsula in the eyes of investors if the bidding price was too high.

Loophole in bidding law

According to Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, the land auction in Thu Thiem has revealed loopholes in Viet Nam’s bidding law which creates opportunities for some organisations and individuals participating in the auction to raise prices unreasonably to create fever on the ground to profit from it.

He suggested the amendment towards the direction that bidders must have guaranteed financial capacity and responsibility.

Many opinions also suggest if the deposit is not 20 per cent but 50 per cent of the property value, it will not be easy for Tan Hoang Minh Group to “run away”.

Speaking to Nguoi Lao Dong (Labourer) newspaper, economist Nguyen Van Thuan proposed to increase the deposit rate from 20 per cent to 40-50 per cent compared to the starting price. Thus, businesses participating in the auction will carefully consider their investment plans before bidding.

According to HoREA, the law should be changed in the direction that investors can only bid for a land lot when they have enough money on the account, or when the total assets are higher than the bid value, or when there is a payment guarantee from a bank.

Architect Ngo Viet Nam Son proposed to increase sanctions when an investor wins an auction but drops the stake and add a regulation that businesses that have dropped the stake several times should be limited from participating in the upcoming auctions. The sanction should be more severe if there is proof that such businesses plan the drop ahead and profiteer from it. — VNS

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