The Crowd Mentality at Land Auctions: Defying Market Trends

Land prices far exceed the market average

On August 10, the auction of 68 land plots in Ngo Ba, Thanh Than village, Thanh Cao commune, Thanh Oai district, Hanoi, set a new record for land prices. The auction attracted approximately 1,600 participants.

The highest winning bid for a plot of land measuring nearly 65 square meters was 100.5 million VND per square meter, exceeding the starting price of 88 million VND. The average winning bids for the remaining plots ranged from 63 to 80 million VND per square meter, representing a five to 6.4-fold increase compared to the starting prices.

According to Dr. Nguyen Van Dinh, Vice President of the Vietnam Real Estate Association, the presence of 1,600 participants for just a few dozen land plots reflects the scarcity of supply in the market, an issue that has been highlighted for many years.

“The supply of real estate to the market is currently very limited, consisting only of ongoing projects or the resale of existing projects. There has been no new supply in the past 2-3 years, while demand, particularly from investors, remains high,” said Dr. Dinh.

Additionally, under the 2023 Law on Real Estate Business, land subdivision and sale will not be permitted in special cities (Hanoi and Ho Chi Minh City) and cities of grade 1, 2, and 3. This makes auctioned land plots a rare commodity in the market, further driving up demand,” he added.

However, Dr. Dinh also noted that the land auction prices in Thanh Oai were higher than the market average, which could be attributed to investor expectations or even price manipulation. He emphasized the importance of post-auction monitoring and supervision to ensure transparency and detect any violations that may arise.

Going against the market trend

While the land auction in Thanh Oai set record-high prices and attracted a large number of investors, the latest market reports indicate a slow recovery in the real estate sector.

According to Savills Vietnam’s report for the second quarter of 2024, transactions in the villa/townhouse segment decreased by 40% quarter-on-quarter, despite a 5% year-on-year increase, reaching 111 units. The quarterly absorption rate stood at only 18%.

“The villa/townhouse segment in projects has not shown signs of recovery, and while prices are high, liquidity is not favorable,” said Do Thi Thu Hang, Senior Director of Advisory and Research at Savills Hanoi. “Meanwhile, neighboring markets continue to offer new supply at competitive prices, attracting more buyers.”

In reality, the majority of the demand for land comes from investors. Some experts believe that investors have overly high expectations for the development and price appreciation in this segment, as evidenced by the auction in Thanh Oai.

A leader of a long-established real estate exchange in Hanoi attributed the high expectations for land price increases to a “herd mentality” during land auctions. He pointed out that it took more than 20 years for land prices in Tay Ho district to reach 120-200 million VND per square meter, following significant infrastructure and transportation development. A similar process is expected to unfold in Thanh Oai.

More recently, in Hoai Duc district, where several transportation projects have been implemented, land prices in some areas have increased from 50-60 million VND per square meter to 90-120 million VND per square meter. In contrast, Thanh Oai, which currently lacks convenient transportation options and has no immediate business advantages, is experiencing land prices that are disproportionately high compared to the market average,” the real estate exchange leader commented.