Preventing Real Estate Price Inflation

While the real estate market in many localities remains stagnant, the recent surge in apartment and land prices in Hanoi and some northern provinces has caught investors off guard. However, when the winner of an auction for a plot of land worth over 100 million VND per square meter in Thanh Oai, Hanoi, forfeited their deposit, it became apparent that this was a ploy by speculators to drive up prices.

Controlling the frequent buying and reselling of properties

In a document sent to local authorities last week, the Ministry of Construction stated that the real estate market had been developing on an unsustainable trajectory, fraught with risks. Notably, some investors and brokers have been spreading rumors, buying and reselling properties, distorting information, and pushing prices up to exploit the situation for their gain.

The document referred to land auctions on the outskirts of Hanoi that stirred public opinion. According to the Ministry, the record-breaking winning bids, which far exceeded the starting prices, have negatively impacted the socio-economic situation and the healthy development of the real estate market.

To curb this situation, the Ministry of Construction has requested the People’s Committees of provinces and centrally-run cities to focus on several tasks. These include inspecting and reviewing the business activities of real estate enterprises, investors, exchanges, and brokers in their respective localities. Additionally, authorities need to control the frequent buying and reselling of properties, especially in areas and projects where prices have surged abnormally. Relevant agencies should also inspect and take measures to rectify price manipulation and speculation, while handling violations of land, business, and real estate laws and related regulations.

Immediately after receiving the Ministry of Construction’s document, the People’s Committee of Khanh Hoa province issued Document No. 9648, instructing relevant agencies to review the organization of land auction to ensure compliance with the law, transparency, and publicity. They are also tasked with promptly detecting and strictly handling violations in land auctions, especially collusion and market manipulation to create an unhealthy market that does not reflect reality for profit…

According to Mr. Tran Hoa Nam, Vice Chairman of the People’s Committee of Khanh Hoa province, to stabilize the local real estate market, the province will continue to promote social housing development. They will effectively implement the project “Investing in building at least one million social housing units for low-income people and industrial park workers for the period 2021-2030” and efficiently deploy the “120,000 billion VND credit program.”

Meanwhile, Mr. Le Quoc Thanh, Deputy Director of the Provincial Finance Department, said that in 2025, the province will auction 41 houses and land lots. These are areas managed by the Investment and Development Fund and the Urban Management Office of Ninh Hoa Town to generate revenue and supplement resources for development. In addition, Khanh Hoa province is also focusing on completing the detailed planning (at a scale of 1/2000) in three critical areas: Van Phong Economic Zone (part of Van Ninh district and Ninh Hoa town), Nha Trang city, and Cam Lam New Urban Area. Once the planning is completed, new projects can be put up for bidding and auction.

Increasing deposit amounts and imposing stringent penalties

From the industry insider’s perspective, Mr. Le Dinh Chung, CEO of SGO Homes Real Estate Consulting and Development Joint Stock Company (Hanoi), suggested that to curb speculative and price manipulation activities, the State needs to readjust land price frames to match the market. Along with this, raising the deposit amount to 10-20% of the value of the auctioned land lot could deter investors from speculating and driving up prices. Notably, for individuals who win land auctions but later back out, Mr. Chung recommended lowering their credit score or barring them from participating in future land auctions. “Governance of auction prices and methods is essential,” he emphasized.

According to Dr. Chau Hoang Than, Head of the Administrative Law Department, Faculty of Law, Can Tho University, to optimize the efficiency of land auction rights, the decision to put land up for auction should be made uniformly by the Provincial People’s Committee. It is necessary to review and determine the number and location of land lots, develop a suitable auction plan to avoid creating scarcity, and publicly disclose the list of land lots to be auctioned effectively. Notably, auctions should avoid oversupply by refraining from announcing too many lots at once. “While we cannot hastily conclude that the auction result in Hoai Duc district, Hanoi, which was several times higher than the starting price, is unstable, there is evident price manipulation in the area. Additionally, starting the auction at a price too far below the market price may not reflect the actual value at the time of the auction,” Dr. Chau Hoang Than commented.

From a legal perspective, lawyer Nguyen Phuong Lien from SENLAW Law Firm suggested that to prevent price manipulation and market instability, the starting price must be in line with the market value. The starting price is the basis for calculating the deposit amount, and the winning bidder who fails to pay or pays insufficiently will not get their deposit back.

According to Lawyer Lien, although Decree 10/2023/ND-CP has increased the deposit amount for land auction participation to 20% of the value of the land lot calculated based on the starting price (four times higher than before), it has not been effective due to the low starting price. “If the starting price remains low, the deposit percentage should be higher than the current 20% because auction participants must be financially prepared. Alternatively, another solution is to increase the administrative fine for failing to sign a contract for the auctioned asset (forfeiting the deposit). Currently, this violation only incurs a fine ranging from 7 million VND to 10 million VND for individuals (according to Point c, Clause 1, Article 23 of Decree 82/2020/ND-CP),” Ms. Lien proposed.

Meanwhile, Dr. Ho Quoc Tuan, Lecturer and Director of the Master’s Program in Finance and Accounting at the University of Bristol, UK, cited international experience, indicating that the only tool to stabilize the real estate market is to impose a reasonable tax based on the principle that profits from real estate business should be on par with those from commodity trading and service provision. This approach can prevent price manipulation and artificial price inflation.