Bui & Partners Insights - August 2023
Key Points:
-
The subtraction method for land pricing has been eliminated, and it has been incorporated into the method of comparison instead.
-
Information on land prices, land rents and ground rents for application of the land pricing method must be information within the specified time period from the time of land valuation.
In July 2023, the Ministry of Natural Resources and Environment submitted to the Government a draft decree (“Draft Decree”) amending and supplementing many articles of Decree 44/2014/ND-CP of the Government dated 15 May 2014 regulating land prices ("Decree 44”) and Decree 10/2023/ ND-CP on guiding the implementation of the Land Law 2013 (“Land Law”).
Below is a summary of some keynote provisions:
New Regulations On Land Pricing Methods
-
Method Of Comparison
The comparative method is performed by adjusting the prices of the comparable land parcels.
LAND PRICE OF COMPARABLE LAND PARCEL = [VALUE OF COMPARABLE LAND PARCEL - PRESENT VALUE OF ASSETS ATTACHED TO LAND] / [SIZE OF COMPARABLE LAND PARCEL]
This method applies to land valuation when there are at least 03 comparable land parcels transferred on the market winning the auction of land use rights.
The method of comparison replaces the method of direct comparison in Decree 44. The first method compares only the prices of lands with the same land use purpose. Meanwhile, in the latter method, the land plots to be compared must be similar in terms of land use purpose, location, profitability, infrastructure conditions, size, shape and legality of land use rights. Moreover, the minimum number of comparable land plots that have been transferred or won at auction is not required in the direct comparison method.
-
Income-Based Method
LAND PRICE OF LAND PARCEL = [AVERAGE ANNUAL INCOME - AVERAGE ANNUAL EXPENSES] / [ AVERAGE SAVINGS INTEREST RATE X SIZE OF LAND PARCEL]
The value of the land parcel is calculated as the average annual net income per land area divided by the average savings deposit interest rate of the deposit in VND with a term of 12 months at commercial banks (in which more than 50% of charter capital is owned by the State) in the province for three consecutive years before the time of valuation.
Meanwhile, the annual average savings interest rate as specified in Decree 44 was the interest at a state-owned commercial bank having the highest savings interest rate in the provincial-level locality. In addition, the average deposit interest rate in Decree 44 is calculated within 1 year instead of 3 consecutive years before the time of valuation as in the Draft Decree.
-
Surplus-Based Method
LAND PRICE OF LAND PARCEL = [TOTAL DEVELOPMENT REVENUE - TOTAL DEVELOPMENT COST] / [SIZE OF LAND PARCEL TO BE VALUED]
This method is implemented by subtracting the total estimated development costs from the estimated total development revenue of the parcel, land on the basis of the most efficient land use (land use coefficient, construction density, maximum number of storey) according to the land use planning, detailed construction planning approved by competent state agencies.
-
Land Price Adjustment Coefficient Method
THE LAND PRICE OF THE LAND PARCEL TO BE VALUED = [LAND PRICE IN THE LAND PRICE LIST OF THE LAND PARCEL TO BE VALUED] X [LAND PRICE ADJUSTMENT COEFFICIENT]
This means a method of determining the land price by multiplying the land price in the land price list by the land price adjustment coefficient. The land price adjustment coefficient is issued by the People's Committee of the province through the comparison of the land price in the land price list with the common land price on the market.
Meanwhile, Decree 44 does not prescribe the issuance of the land price adjustment coefficient by comparing the land price in the land price list with the common land price in the market.
The land price adjustment coefficient method is applied in the following cases:
-
The cases specified in Article 114.4(a) and Article 189.3 of the Land Law include: Calculating land use fees when the State recognizes the land use rights of households and individuals with an excess of residential land area limit, etc (similar to Decree 44);
-
Determine the land rental with annual payment in case the State leases land without land use right auction;
-
Determine the starting price for auctioning land use rights when the State allocates or leases land, in case the land plot has been invested with technical infrastructure according to the detailed construction planning;
-
Determine the land price of the land plot, the land area to be valued for calculating the collection of land use levy and land rent (the Draft Decree offers 02 options);
-
Determine the specific land price for compensation calculation when the State recovers the land.
Information to Be Used in the Land Pricing Methods
In addition to the proposal to amend the land valuation method, the Draft Decree also proposes additional regulations on the information to be used in the land pricing methods.
Land prices, land rents and ground rents for applying the above methods are information from a period not exceeding 24 months before the calculation of the land price. This information is collected from the following sources:
-
The national database of land;
-
The national database of prices;
-
The winning price of the land use right auction, in case the auction winner has fully paid for the land use right value;
-
Land prices used to collect financial obligations in cases of land use right transfer collected at tax offices;
-
Land rent and ground rent price stated in the land lease or ground lease contract or collected at the tax office;
-
The successfully transferred land price, land rent and ground rent in the market are collected at real estate trading floors with certification and seal of the real estate trading floor.
Information on income and expenses from the use of non-agricultural land for the application of the income-based method may be collected from income from production and business activities recorded in financial statements or land rental prices, the ground rent is collected for 03 consecutive years before the time of valuation.