Land auction mess gives authorities food for thought

It was revealed last week by the city’s Tax Department that Sheen Mega JSC and Dream Republic JSC have yet to pay up after winning land at an auction in Thu Thiem New Urban Area at the end of last year.

The auction hit the headlines when, days after seeing record highs in auction price in Vietnam, Tan Hoang Minh Group and Binh Minh Trading and Development Investment Company announced they would forgo their deposits worth millions of dollars to back out of the auction result.

On March 4, Le Duy Minh, director of Ho Chi Minh City Tax Department, said that the office had sent a letter to remind the businesses to pay the money as prescribed. The department will request them to also withdraw from these land plots if they do not pay after 90 days.

According to the previous plan of the city, 19 plots of land were expected to be auctioned in Thu Thiem New Urban Area alone.

After the first four land plots were won by the aforementioned companies many times higher than the starting price, city authorities expected to successfully put into auction the remaining 15 land lots, creating a significant source for the city’s budget. However, this expectation has drifted away after the companies left their deposits.

A source from the Property Auction Service Centre under the city’s Department of Justice said that the cancelled land plots have not yet been scheduled for auction again.

Huynh Phuoc Nghia, deputy director of the Innovation Institute at the University of Economics Ho Chi Minh City, said that this cancellation had affected the plan to put up for auction a series of other land plots in the city in the near future.

“The city cannot immediately execute the auction of other land lots, possibly fearing a repeat of the above cases. They are now wondering how to set a starting price to avoid a repetition of this situation,” Nghia said.

Companies themselves will also carefully consider when participating in land auctions because of the uncertainty they could burden in those auctions.

According to data from Ho Chi Minh City Department of Planning and Architecture, more than 60 land lots located along Hanoi Expressway with a total of 200 hectares were planned for auction. In addition, the city has just proposed to take more than 2,400ha of land along Ring Road 3 to be auctioned to generate revenue for the city’s budget. All of these plans have now been delayed.

According to Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association, the cancellations have had a negative impact in terms of reducing trust in the auction process.

“At the same time, this also adversely affects the investment environment of Ho Chi Minh City and reduces the effectiveness of the land auction, making it difficult to invite incoming investors into Thu Thiem New Urban Area, which has been targeted to become a financial centre for the region,” Chau said.

Meanwhile, Nguyen Van Dinh, chairman of the Vietnam Association of Realtors, said that this withdrawal would lengthen the appraisal process for incoming auction activities.

Dinh suggested that the city could temporarily stop all auctions and improve its regulations on land auction activities to have a better tool to assess the companies’ financial and technical capacity. More critically, Dinh said, it was necessary to add more severe fines if future auction winners drop out.

Real estate expert Phan Cong Chanh also believes that competent bodies will have to review all target customers who have a strong enough capacity.

“The city needs to have a backup plan if the first winner backs out of the auction. In the coming time, the land auction process will likely be more professional and strict because all parties have learned from this,” Chanh said.