VietNamNet Bridge – A newly proposed land revaluation plan indicates the HCMC Department of Finance's concern about a fresh wave of price increases that have shown no signs of abating despite tentative measures to keep the wildly rallying real estate market in check.

The 10 to 50% upward revisions of land prices in the city's 24 districts depending on locations as shown in the plan are milder than those earlier sought lay the department.

The department's mid-November proposal for adjusting up land prices to a maximum of VND81mil per square meter as per Government Decree 123 caused worries that it would lead to a sharp new price rise.

Any increases in land prices will make the investment environment less attractive to investors who have repeatedly bemoaned that land in Vietnam is most expensive in the Southeast Asian region.

The higher land prices will also diminish the poor people's chance of owning a home in the country's most dynamic economic center. And there is a high possibility that the city's major infrastructure development plans will go bust due to high land clearance compensation costs.

At the city government's discretion, the Department of Finance took a step backward by proposing new land prices that it hopes would have the least impact possible on the sensitive property market. So, the moderate price adjustments went up for discussion at a city government meeting late last week.

If the newly suggested revisions are approved by the city People's Council at its session early next month, Nguyen Hue, Dong Khoi and Le Loi will become the city's most expensive streets, at VND67mil per square meter.

These prices are used for reference only as actual market levels are far higher. But they will certainly give speculators a good excuse to hold on transactions in anticipation of making bigger gains.

Business and investment costs will eventually rise once land prices move up because financial obligations like taxes will get higher in accordance with the revised land prices.

Decree 123 provides the highest permissible price of VND67.5mil per square meter of urban land plus a 20% adjusting band on either side, so this explained why the Department of Finance, in its previous proposal sent to the city government, sought to scale up the price to the maximum of VND81mil.

This level was almost double the VND43mil currently applicable to the most expensive streets in the commercial district of the city.

This demonstrated the department's intention to narrow the gap between official and market prices, and thus remove the virtual dual pricing system in the long term and facilitate the clearance of land for development projects as compensation rates could be revised up to levels expected by affected people. Furthermore, State budget income from land-use and land-registration fees would grow as well.

But then the department seemingly did not look into how the market would react to the plan at a time when land prices are mainly decided by rumors and hearsay rather than the supply-demand rule.

On the main streets like Nguyen Hue, Dong Khoi and Le Loi, land prices are, in fact, four to five times higher than officially fixed levels, according to the local media. Thus, if the authorities introduced new prices, the market would, of course, experience a knee-jerk reaction in the upward direction.

This is a dilemma which the city government has found itself in. Official land prices are currently far lower than market levels, eating into the city's tax revenues, while any fresh official price hikes will "add fuel to the flames."

The plan would have a negative impact on the issuance of house ownership certificates, which is lagging far behind expectations by the Government, because the land-use fees which the house owners are required to pay are based on the official land prices.

The real estate market must be holding its breath in the lead up to the forthcoming session of the HCMC People's Council that will have a final say on such a break-or-make issue.

(Source: SGT)