“The Art of Inflated Land Bidding: A Dubious Practice of ‘Baiting’ and Market Manipulation”

Unusually High Auction Prices May Be a Gimmick of the “Price Drivers”

A recent land auction in Thanh Oai on August 10th, involving 68 land lots, witnessed a highest bid of over 100 million VND per square meter, a significant jump from the starting price of 88 million VND per square meter. The lowest winning bid was 51.6 million VND per square meter. Compared to the average asking price in Thanh Oai of 27 million VND per square meter, this auction resulted in prices that were remarkably high, more than 2.3 to 3.7 times the actual market value.

Not only in Thanh Oai, but also in Hoai Duc, a similar scenario unfolded on August 19th. A “through-the-night” auction for 19 land lots in the Lòng Khúc area of Tiền Yên ward attracted over 1,500 registration dossiers and more than 500 participants. The auction concluded at 4:30 am on August 20th, with the highest bid reaching 133.3 million VND per square meter. Additionally, 11 other lots surpassed the 100 million VND per square meter mark, representing a 12.5 times increase from the starting price.

Real estate experts have characterized these land auctions in Thanh Oai and Hoai Duc as unusual due to the presence of a substantial number of real estate brokers who closely monitored the proceedings and immediately offered resales at higher prices after winning bids. Concerns have been raised about the potential for price manipulation to create an artificial frenzy, leading to illegal profits from land auctions.

According to veteran land auction investor, Nguyen Ngoc, the unusually high prices in these auctions could be attributed to the tactics of professional price drivers. He explains, “There are cases where a group of price drivers deliberately bid up the prices of certain land lots to set a high benchmark. They immediately resell the lots at higher prices, even if it means forfeiting their deposits on the more expensive lots. Alternatively, they may already hold land plots in the vicinity of the auction site, and they intentionally bid high to create an artificial price bubble, only to forfeit their deposits on the auctioned lots later. Essentially, they are manipulating the real estate market within a narrow scope.”

Under previous legal regulations, the deposit amount was limited to a maximum of 20% of the starting price of the auctioned asset. However, the amended Law on Auction of Assets allows the auction organizer and the asset owner to agree on a deposit amount ranging from 5% to 20% of the starting price. For land use rights auctions, the minimum deposit is 10%, and the maximum remains at 20%. While these new regulations aim to curb high bidding followed by deposit forfeiture, the calculation is still based on the starting price, providing an opportunity for speculators to drive up prices and then forfeit their deposits after reaping illegal profits from the inflated prices.

Experts caution against the recurrence of past incidents where winning bidders abandoned their purchases after setting record-high prices. They attribute this to the predominance of professional investors among participants, with locals being a minority. The consequences of such actions ripple across all real estate segments, fueling land speculation, market disruption, and ultimately harming the last buyer in the chain.

Profiteering from Land Auctions Has Negative Social Impact

Commenting on the recent land auctions, PSG.TS Dinh Trong Thinh expressed concern about the impact of speculative price increases. He noted that the infrastructure and roads in the area where the 68 land lots were auctioned in Thanh Cao, Thanh Oai, were nothing remarkable, yet the land prices soared to hundreds of millions of VND per square meter. He predicted that this would lead to even higher prices in urban or peri-urban areas.

“A handful of speculators have successfully inflated prices in the Thanh Oai area,” he asserted. “As a result, those holding multiple land plots in more desirable locations with better infrastructure will undoubtedly benefit from the elevated price levels.”

PSG.TS Dinh Trong Thinh further expressed apprehension about the negative consequences of such speculative activities, stating that they would hinder the region’s socio-economic development. A slowdown in urbanization would lead to reduced attractiveness for both foreign and domestic investment, resulting in significant long-term economic repercussions for the locality.

Additionally, the expert pointed out that soaring land prices make it challenging for young couples and those with genuine housing needs to acquire property. He recommended practical measures to curb speculative price increases, thereby fostering better economic development in the region.

Echoing Mr. Thinh’s sentiments, other experts observed similarities between the events in Thanh Oai and Hoai Duc and previous land auction frenzies in various localities. For instance, in October 2023, Bac Giang witnessed 90 cases of winning bidders abandoning their purchases. In 2021, four land lots in Hanoi’s Mai Dich ward were auctioned for 400 million VND per square meter, only for the winners to later forfeit their deposits.

The aftermath of the Thu Thiem land auction in Ho Chi Minh City two years ago also witnessed opportunistic behaviors, with adjacent land and property prices surging. Even listed companies with land banks in the vicinity benefited from inflated stock and bond values.

The recent surge in land auction prices in Hanoi’s outlying districts has experts worried about the potential fallout for the city’s residents and economy if this “high-price syndrome” spreads to other areas. Mr. Nguyen Van Dinh, Vice President of the Vietnam Real Estate Association, emphasized the disruptive nature of such price manipulation, which aims to confuse genuine auction participants and poses significant harm to the state’s reputation, economy, and budget. It also creates social unrest and unpredictable consequences.

“When land auction prices soar, establishing a new price benchmark, the state will face challenges in compensating landowners during future land acquisitions,” Mr. Dinh asserted. “The state needs to establish clear policies and guidelines to address this issue.”

Mr. Dinh also highlighted the need for stricter penalties for bidders who abandon their purchases after driving up prices. Currently, the administrative fine for failing to sign a contract for the purchase of an auctioned asset is relatively modest, ranging from 7 to 10 million VND, according to Article 23 of Decree 82/2020/ND-CP. He advocated for stronger deterrents to combat this issue.