Five Challenges to Land Price Valuation

9:37:35 AM | 3/15/2023

The Ministry of Natural Resources and Environment is developing a specific plan for the final round of opinions for the draft Land Law (amended). Matters of concern are still on the abolition of the land price bracket, how to calculate market-based land prices, land acquisition, compensation for land clearance and reform of land-related administrative procedures.

The role of an effective land price bracket system

Mr. Troy Griffiths, Deputy Managing Director of Savills Vietnam, said that land valuation is sensitive in many countries and thus requires an accurate, efficient and market-based price framework system.

Owning land and houses is one of the most popular ways to keep assets not only in Vietnam but also in many countries around the world, he said. “A 'house' is tied to special spiritual values for many people, so it is certainly difficult to conduct property valuation. This process can be more difficult in calculating market prices or determining the value for land compensation for public projects,” he added.

Active discussions among the community, businesses, and authorities have shown that the current method of determining the valuation framework does not work effectively, thus leading to delays in the development of public investment projects in particular and growth pace and socioeconomic benefits in general.

“Although the land price bracket used to be an appropriate standard and was seen as a measure of land valuation, this system is no longer suitable for the current development of the real estate market and the current land use value,” said Mr. Troy Griffiths.

Historically, most countries in the world were developed from an agricultural economy and the distance to a market or soil fertility was used to determine the land rent or the land price. However, when the agricultural age went by, land use changed dramatically, which required a deeper understanding of factors that make up the value of an estate.

In fact, the land price bracket system is used for property taxing and for many other purposes. For example, in some countries like New Zealand, the Government's valuation framework has evolved to the point where it is used to calculate the market value and to guide pricing for all real estate transactions. In this case, the land price bracket system has proven to be so accurate that the market trusts and applies it as a basis for valuation.

“Market value, particularly in land compensation, is a sensitive matter globally. If the Government cannot acquire land for infrastructure projects, the country will stagnate. We see that this is happening in Vietnam today when the budget for infrastructure development cannot be allocated due to difficulties in land clearance. There have been legal precedents for fair market compensation to ensure the timely delivery of infrastructure and development projects over the centuries. Although it may lead to emotional reactions, land-owners must not hinder social progress at large. Therefore, the importance of market value in land compensation is to achieve fair compensation,” Mr. Troy Griffiths assessed.

What experience for Vietnam?

Land management in Vietnam is still challenging. In some areas, agricultural land is divided into the smallest plot at the densest rate in the world. Land use regulations are inconsistent. Land use zoning is not strictly applied. Property transfers and transactions are not clear. The hierarchical system leads to complicated legal procedures and inconsistent national cadastral maps.

Although the current system is no longer suitable, it is difficult to replace it with a new one when the above challenges are not completely resolved. Mr. Troy Griffiths pointed out five main issues that need to be solved before building a new land price framework:

First, providing clear regulations regarding local planning to facilitate land allocation for projects. The land use rights must be made legally based on the highest value of that real estate.

Second, publicizing and digitizing land-use rights transfers. Real estate value must be based on actual transfer history or other sales transactions for comparison and endorsement.

Third, considering an appropriate methodology for the context of Vietnam. There are many factors of 'unimproved' value for rural land, the base value for commercial land, locational value and gross rental value.

Fourth, to build a standard valuation framework, it is necessary to collect comprehensive data depending on accuracy and volume of data in the last 3-5 years.

Fifth, it is essential to adopt a thorough complaint and objection process or review cases of potential errors and omissions to strengthen the system's operating method and increase the reliability of the new land price bracket.

If the above issues are strictly implemented, the land pricing framework system will work effectively, he said. Property valuation is a complex and meticulous process that requires a highly qualified team with an accurate, modern and comprehensive valuation method. Savills provides real estate valuation services globally with more than 20 years of experience in the Vietnamese market. Savills appraisers are members of the Royal Institution of Chartered Surveyors (RICS) and provide comprehensive property valuation services for both residential and commercial projects.

 By H.Ly, Vietnam Business Forum