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Real Estate

The Capital’s Land Auction: Concerns Over a Wave of “Speculative Pricing”

14 August, 2024

An auction of 51 land lots in Lien Mac commune, Me Linh district, Hanoi, on June 28. (Photo: VNA)

The housing market is expected to receive positive adjustments with the early application of the Land Law, Housing Law, and Real Estate Business Law from August 1.

The market trend shows a continued shift to suburban areas, with land plots becoming an attractive segment for buyers. However, there has been a sudden surge in land auction prices in Hanoi, raising concerns about a wave of “artificial prices.”

Resale transactions of successfully bid land lots further push up land prices. Experts advise against investors inflating prices and causing turmoil in the real estate market.

The recovery of the land plot segment is evident through land auctions, which have attracted a large number of participants. Successful auctions have brought significant budget revenues, with some land lots auctioned at prices several times higher than the starting price.

For example, an auction of 68 land lots in Thanh Oai, Hanoi, attracted nearly 2,000 participants, with winning bids ranging from 63 to 80 million VND per square meter, and the highest lot reaching 100.5 million VND per square meter.

Compared to the starting price of 8.6-12.5 million VND per square meter, the winning bid was 5-8 times higher. Many brokers and investors in Hanoi have used this information to compare and increase selling prices. Experts warn that this could lead to “artificial” increases in Hanoi’s real estate prices, which is dangerous.

On the other hand, data from Batdongsan.com.vn shows that the most common listing price in Thanh Cao commune in the second quarter was only 27 million VND per square meter. In the past five years, the highest listing price ever recorded in Thanh Cao was 48 million VND per square meter, which occurred during the land fever peak in the first quarter of 2022.

The optimistic developments in the land plot market since the beginning of the year reflect the returning confidence of investors in this segment. However, investors need to remain cautious as the state has started to tighten controls and aim to limit land subdivision sales through new laws.

(Illustrative image. Source: VNA)

Mr. Nguyen Van Dinh, Chairman of the Vietnam Real Estate Brokers Association, stated that in the first half of this year, the land plot segment in Hanoi’s outlying districts has become vibrant again. However, while land transactions have increased, they are not yet bustling, with some areas showing signs of “price manipulation.”

When the land plot market is vibrant, land auctions can become a new speculative market instead of providing more supply for those in need of housing. Therefore, investors and homebuyers should be cautious.

According to Ms. Do Thi Thu Hang, Senior Director of Advisory and Research, Savills Hanoi, the housing market in general and in Hanoi, in particular, is expected to enter a “new cycle” with the early enforcement of the Land Law, Housing Law, and Real Estate Business Law from August 1. With the early enforcement of these laws, many long-standing issues in the market will be resolved, and the impacts will be faster.

For example, the limited supply issue in many localities will be improved. When supply is limited, the choices for people decrease, leading to unstable and rising prices. Therefore, addressing the limited supply issue will positively impact the overall market.

However, even though the laws are enforced early, it will still take time to resolve the supply limitations as projects are awaiting guiding documents, Ms. Hang analyzed.

Experts point out that the prices of housing segments are currently high, significantly affecting investment decisions and market liquidity. Once the guiding documents are issued, prices are expected to stabilize, and people’s interests will be better protected, such as conditions and regulations for selling off-plan products.

Additionally, issues with previously unapproved projects can be resolved, and other matters can be addressed, including land use fees, land lease, and social housing development.

Moreover, the early passage of the laws will provide early support to the market, positively impacting the psychology of buyers and investors, giving them more confidence in their decisions and business plans in the coming time.

Notably, the Real Estate Business Law stipulates that developers can only collect a deposit of up to 5% of the real estate value and only in the case of houses and constructions that meet the conditions for business operations as prescribed by law.

(Illustrative image. Source: VNA)

This helps protect buyers from the risk of capital occupation before completing the necessary legal procedures and gives them more time to prepare financially. Simultaneously, this regulation contributes to building confidence in real estate transactions.

In the future, when the real estate market recovers, land prices will have the opportunity to increase but only moderately. Unlike previous cycles, this new cycle will not witness “artificial fever” in land plots or a “real estate bubble,” commented Ms. Hang.

In Hanoi, the limited land fund, projects, and supply in the center will lead to a trend of shifting to suburban areas. This trend will continue to impact both the apartment and villa segments.

For apartments, the majority of demand comes from the middle-income group, who can afford products below 3 billion VND. However, there are not many options in Hanoi within this price range. Therefore, many buyers consider projects in suburban areas like Nam Tu Liem, Ha Dong, and Gia Lam, which provide 93% of the supply in this segment.

By the end of this year, the villa and townhouse segment will have 13 projects providing a total of 2,951 units, mostly in Dong Anh district, accounting for 34% of future supply. Ha Dong district follows with 19%, and Hoai Duc district with 16%.

Mr. Nguyen Van Duc, a real estate investor in Hanoi, stated that the land auction results in Thanh Oai, with prices several times higher than the starting price, surprised many people. The optimistic developments in the land plot market since the beginning of the year have boosted investors’ confidence in this segment.

However, it is possible that the psychology of the recently enforced real estate-related laws, which are expected to tighten land supply, has prompted investors to rush to “stockpile” in anticipation of future price increases. This also contributes to “artificial” price hikes, commented Mr. Duc.

Assessing the trend of shifting to suburban areas in Hanoi, experts state that the city is investing in developing belt infrastructure to reduce pressure on the inner city and relocate people to peripheral areas. Currently, new urban areas in peripheral areas with synchronous and quality utilities have been attracting an increasing number of transactions, making people more open to moving to these areas.

Nevertheless, experts caution that when the land plot market is vibrant, land auctions can become a new speculative market. Instead of providing more supply for those in need of housing, there may be a situation of reselling successfully bid land lots. This could be a “trick” to create a new price level and then forfeit the deposit to benefit from subsequent price increases in neighboring areas.

Thu Hang