The Capital’s Upcoming Suburban Land Auctions: Strategies to Prevent Price Inflation and Bid Withdrawal

There has been recent news of the highest bidder in an auction for 68 land plots in Ngo Ba, Thanh Than village, Thanh Cao commune, Thanh Oai district, Hanoi, officially forfeiting their deposit. Prior to this, the bidder had caused a stir in the market by offering over VND 100 million per square meter.

In the upcoming months, several districts in Hanoi’s outskirts will be hosting land auctions with starting prices as low as VND 3.6 million per square meter. To control and prevent intentional high bidding that could further disrupt the market, experts believe that authorities need to implement various solutions.

One suggested solution is to increase the deposit amount to encourage more responsible bidding. Currently, the minimum deposit requirement is 5%, and the maximum is 20% of the starting price. For example, in the recent auction in Hoai Duc, each land lot had a starting price of VND 7.3 million per square meter, with an area ranging from 74 to 118 square meters. This meant that with a 5% minimum deposit, investors only had to put down VND 27-43 million per lot, while a 20% deposit would amount to VND 108-172 million per lot.

“In reality, investors only need to place a deposit of around VND 100 million to participate in bidding for a land lot. This has led to a rush of speculators, creating an effect that drives up the value of land in the area far beyond its actual worth,” shared Dr. Do Xuan Trong, Vice Head of the Land Law Department at Hanoi Law University.

Therefore, Dr. Trong suggested increasing the deposit amount compared to the current rate. He explained that with such a low amount, investors might be more inclined to bid for speculative purposes and be willing to forfeit the deposit if they can’t offload the property quickly. Additionally, the current law prohibits successful bidders who forfeit their deposits from participating in land auctions for a certain period, but this deterrent may not be sufficient and could be circumvented.

Sharing a similar viewpoint, Dr. Tran Xuan Luong, Vice Director of the Institute for Real Estate Market Research and Evaluation in Vietnam, suggested increasing the deposit amount to 50% of the initial value to deter high bidding and subsequent forfeiture. He also recommended requiring clear information about the bidders to reduce the involvement of speculative groups and ensure fair and transparent auctions.

Besides increasing the deposit amount, experts also proposed additional measures to address the issue.

Lawyer Tran Dai Nghia, a project legal expert and director of FII Vietnam, suggested reducing the time for fulfilling financial obligations to less than 15 days. Successful bidders should complete their financial obligations as soon as possible, as a prolonged period provides opportunities for speculators to engage in transactions.

Additionally, he proposed a restriction on transferring ownership of auctioned land for a minimum of 3 to 5 years. In recent years, there has been a prevalent issue of auctioned land being quickly resold for a profit. Therefore, transactions involving these lots should be limited.

“Another solution I propose is for the successful bidder to commit to constructing on the land before being permitted to transfer ownership. In addition to restricting transactions, we should also set conditions for carrying out transactions. For example, the property can only be traded after the basic construction is completed and the asset is updated in the red book [land use right certificate], ” Mr. Nghia analyzed.

“Additionally, only people from the auctioned area should be allowed to bid. Auctioning land plots for individuals to build houses is a measure taken by district-level authorities to meet the housing needs of local residents. This helps prevent outsiders from driving up prices and taking away opportunities from those with genuine needs,” he added.

Mr. Dinh Minh Tuan, Southern Region Director of PropertyGuru Vietnam, also suggested restricting transactions for at least one year after a successful bid to reduce the number of investors deliberately participating to ride the wave and make a quick profit.

Increasing the starting price to match the market value and imposing a penalty of twice or thrice the deposit amount for forfeiture could help filter out bidders without genuine needs. Additionally, requiring proof of assets (at least 30-40% of the market value) before participating in the auction could be considered.