The Great Suburban Land Rush: Are Sky-High Bids a Ploy to Create a ‘Hype Herd’?

News of 68 land lots in Ngo Ba, Thanh Than village, Thanh Cao commune, Thanh Oai district, Hanoi, selling for 7-8 times their starting bid price has surprised many. Specifically, the land lots up for auction had areas ranging from 60 to 85 sq. m each, with starting bid prices ranging from VND 8.6 to 12.5 million per sq. m. However, many plots of land ended up selling for VND 52-100 million per sq. m. Many investors were astonished as thousands of land lots in the outskirts, nearly 40 km from the city center, were all sold at sky-high prices.

A representative from the People’s Committee of Thanh Oai district stated that the auction process was absolutely safe and secure, with only a few customers having inquiries, but no issues arose, and everything was under control. The auction attracted the participation of 1,600 people, with a total of 7,000 sets of documents submitted for registration. This was a record number of participants in a land auction in Thanh Oai district to date.

The representative added that the starting bid price was not a reference price for participants to base their bids on but only served as a basis for calculating the 20% deposit. “I believe that the participants also took market prices into account,” they said.

Not only in Thanh Oai district, but land auction prices in many other districts are also very high. On July 28th, 85 land plots in Dan Phuong district were auctioned for nearly VND 100 million per sq. m, depending on the lot and location. Previously, Dong Anh district held a land auction, with many land lots selling for over VND 100 million per sq. m.

Significantly higher than the average

Immediately after the successful auction in Thanh Oai district, many land plots were openly offered for sale on real estate forums. The selling prices were VND 400-500 million higher than the winning bid prices. For example, plot LK03-9 had a starting bid price of VND 955 million, and the winning bid price was VND 6.9 billion (VND 81.8 million per sq. m). The winner is now offering it for sale at a premium of VND 500 million. If the transaction is successful, the land will reach the hands of the actual owner at VND 7.4 billion (VND 87 million per sq. m).

According to surveys by PV, land prices in Thanh Cao commune, Thanh Oai district, range from VND 25 to 39 million per sq. m, depending on the location. Comparing the winning bid prices with the land prices currently offered for sale in Thanh Cao commune shows that the winning bid prices are 3-4 times higher than the market average.

Mr. Nguyen Thanh Binh, an investor, said that most of the participants in the recent auction were investors from other places, with very few local residents. Mr. Binh expressed concern about the phenomenon of pushing up land auction prices to create an “artificial” market. Once this artificial market is established, land brokers will then “push” the surrounding land plots they had previously purchased.

Regarding the low starting bid prices in Thanh Oai district, which ranged from VND 8.5 to 12.6 million per sq. m, according to PV Tien Phong’s investigation, these land lots were previously valued by consulting units at starting bid prices ranging from VND 40 to 45 million per sq. m. However, the latest Decree 71 removed the requirement for consulting services in determining land prices. The decree stipulates that the starting bid price is calculated by multiplying the locality’s K factor (land price adjustment factor) by the price in the land price frame. As the land prices in the locality are low, the starting bid prices are also low. According to surveys by PV Tien Phong, many land auction projects in Dong Anh, Me Linh, and Hoai Duc districts over the past few years have had a large proportion of abandoned land. Many land lots that were auctioned off 6-7 years ago remain unbuilt. Many real estate brokers say that land auctions for speculation account for a significant proportion.

The leader of the Land Development Center of an outer district of Hanoi shared that he was very interested in the land prices in Thanh Oai district recently. According to him, the starting bid prices in Thanh Oai district were determined by the District Department of Natural Resources and Environment, following the new decree. However, low starting bid prices can easily lead to deposit forfeiture. “I noticed that some people won bids for tens of land lots, so forfeiting a deposit of VND 100 million for 1-2 lots is not a big deal,” he said.

The representative of the People’s Committee of Thanh Oai district shared that, in the recent auction, the district still hired consultants. Then they requested the inter-sectoral participation of the Department of Natural Resources and Environment, the Department of Finance, and the Department of Justice to provide opinions and report to the Hanoi People’s Committee. Finally, the Hanoi People’s Committee will issue a decision to adjust the coefficient for the auctioned land plots. “Although this process takes a long time (about one month – PV), the high starting bid prices also mean high deposits of VND 500-600 million per lot, making it more difficult for investors to forfeit their deposits,” they said.

Speaking to the press, economic expert, Assoc. Prof. Dr. Dinh Trong Thinh, stated that the reason for the high bids and subsequent deposit forfeitures could be that when the land auction prices are too high, land brokers have already bought many land plots in the area surrounding the “golden” land lots being auctioned. They then try to push up the prices to gain time to sell and profit. The expert opined that abnormally high bids disrupt the market and that there should be a mechanism or regulation to control the price ceiling.