VN needs appropriate deposit level for property auctions to prevent market distortion
The draft amended Law on Property Auction proposed to increase the deposit from 10 per cent of reserve price to 20 per cent in the auction of land which aimed to be used in investment projects.
An appropriate deposit level for property auctions is critical to prevent price inflation and speculation, experts have said.
Statistics showed that more than 200,000 auctions were organised from July 2017 to the end of 2022, which helped raise nearly VNĐ110 billion (US$4.5 billion) in differences between reserve prices and the winning bids, contributing significantly to efficient public asset management and use.
However, the General Department of Taxation said that many localities reported high abandonment rates of auction deposits, notably the case in Thủ Thiêm New Urban Area in HCM City, which is related to Tân Hoàng Minh Group.
To cope with this situation, the draft amended Law on Property Auction proposes to increase the deposit from 10 per cent of the reserve price to 20 per cent in the auction of land aimed at investment projects.
Increasing the deposit level was necessary to prevent collusion to inflate or suppress prices and the abandonment of deposits to gain illegal profits. However, the increase should be appropriate; if not, it would create a barrier for people and businesses participating in the auctions.
Nguyễn Hải Nam, a member of the National Assembly Economic Committee, said that there should be different levels for different products.
Assets with large impacts, such as land, should have higher deposit levels, from 20 – 30 per cent to prevent deposit abandonment after already pushing up prices too high, sending the wrong signal to the market and distorting it.
Nam said that in the case of the Thủ Thiêm land auction, the winning bid was up to VNĐ1 billion per sq.m, but the bidder could easily abandon the bid due to modest deposits, which significantly affected the market. In this instance, the land price was inflated dozens of times, resulting in a higher level of surrounding land price, risk of bubbles, and market collapses.
In some other cases, the prices were depressed for purposes that others did not want to buy the properties, and they would win the bids at very low prices.
Trần Văn Lâm, permanent member of the NA Finance – Budget Committee, said the deposits should be set at appropriate levels to prevent abandonments.
Lâm said that the maximum level of 20 per cent seemed not to be high enough.
In addition, it was also necessary to have a regulation on the maximum winning bid to prevent the inflation of prices, Lâm said.
There should be a sanction for the winning bidders if they abandoned their deposit, which would be around 20 per cent of the winning bid, to prevent price inflation for bad purposes, he said.
The draft law was expected to be discussed at the National Assembly for the first time at the sixth meeting scheduled in October. — VNS
