Decree 12/2024 on land valuation is “forgetting” two important types of costs, making land price calculation not economically viable.

According to Dr. Vu Dinh Anh, surplus is simply understood as subtracting the purchase price from the selling price to determine profit. In the field of real estate, surplus is the method of subtracting the total development costs (estimated) from the total development revenue (estimated) of the land plot or land area. “I don’t understand why, when developing Decree 12, the Ministry of Natural Resources and Environment “forgot” two important costs that investors have to pay: land use costs and capital costs,” Mr. Anh emphasized.

Also according to Mr. Anh, for projects related to land, land use fees are a huge expense, which can reach thousands of billions of VND/project. At the same time, capital costs are not small because the characteristics of real estate are high value and businesses usually have to use loans. Even if the investor only uses equity capital, when accounting, it must be considered the same as loan capital because in the economy, capital must earn profit. If not invested, depositing it in the bank will still earn profit.

“Cost must be the total of all the expenses that the investor must spend to create the final product. These extremely large and extremely important costs for land are left out, which is not of the right economic nature.”Mr. Anh emphasized.

Mr. Anh also pointed out Point c, Clause 3, Article 5d, Decree 12/2024 stipulates: “The investor’s profit (including the cost of equity capital and the cost of loan capital) is calculated as a percentage. on construction investment costs specified in point a of this clause”. This is also an unreasonable regulation in determining investors’ profits. All “expenditures” must be included in expenses and only “receipts” should be included in profits, no type of profit includes expenses. Profit including costs is a distorted and misleading understanding. This regulation is completely wrong of economic nature.

“The incorrect expression and implementation of the nature of the residual method also means abandoning an extremely effective tool for land valuation. Land valuation is clogged right from the source because even the valuation method is misleading. The foreseeable consequence is that many segments of the real estate market will not be priced appropriately, causing supply congestion to become increasingly serious. The goal of reducing house prices becomes impossible“, Mr. Anh emphasized.

“Currently, the Ministry of Natural Resources and Environment is drafting a new Decree on land valuation. I think this is a good opportunity to correct mistakes before it is too late,” Mr. Anh said.

Previously, discussing this issue, Chairman of the Vietnam Valuation Association Nguyen Tien Thoa also assessed that the revised Decree 12/2024/ND-CP had accepted the opinions of experts and businesses when retaining the Method. Surplus to determine land price. However, this absorption is not thorough, leading to incorrect and insufficient calculations of investors’ reasonable expenses, causing businesses to potentially suffer losses/waste of trillions of VND.

Along with that, the construction Input factors to determine land prices are not truly economic in nature, which can lead to supply bottlenecks that cannot be removed.. In addition, businesses’ expenses that are not fully accounted for can lead to high project development costs, causing house prices to only increase, not decrease.

Faced with some inadequacies of Decree 12, on April 1, 2024, the Vietnam Valuation Association issued official dispatch No. 33/2024/CV-HTĐGVN to the Vietnam Federation of Commerce and Industry, Ministry of Natural Resources and Environment. school to comment on the Draft Decree on Land Price Regulations drafted by the Ministry of Natural Resources and Environment to guide the implementation of the Land Law 2024.

Accordingly, regarding the calculation of land valuation using the surplus method, the Vietnam Appraisal Association also recommends that the Ministry of Natural Resources and Environment review a number of regulations in Article 8. Specifically, as stipulated in point 1. c, Clause 3 stipulates that the investor’s profit (including the cost of equity capital and the cost of loan capital) is calculated as a percentage of the construction investment cost considered by the Vietnam Valuation Association to be calculated. not correct.

In addition, the Vietnam Valuation Association also proposed that the Ministry of Natural Resources and Environment consider writing more clearly point d, Clause 3, Article 8 in the direction that if this cost is paid to the investor, the State will deduct compensation, Site clearance included in the financial obligations to the State according to the plan approved by the competent authority is not included in the total development costs.