Surging land prices in Hanoi auctions spark concern over market impact

Record-high auction prices

A land auction in Tien Yen commune, Hoai Duc district, Hanoi, concluded early this morning after 18 hours, with 19 plots sold. The highest winning bid reached VND 133.3 million per square meter, 30 times the starting price, while the lowest bid was VND 91.3 million per square meter, 12.5 times the initial offer.

These prices are two to three times higher than typical market rates. According to PropertyGuru Vietnam, land in this area was generally listed at VND 43 million per square meter in the last quarter, following a 48 per cent increase over the past year.

This spike in land prices is not unique to Hoai Duc. In Thanh Oai district, auction prices last week ranged from VND 63 to 100 million per square meter, 2.3 to 3.7 times above the market average.

Dinh Minh Tuan, Regional Director of PropertyGuru Vietnam, expressed concerns about the potential adverse effects on the real estate market and local economic development due to the sharp increase in land prices at recent auctions.

Tuan noted that high winning bids could drive up land prices in surrounding areas, creating a new price level that could be difficult to control. As landowners in these areas seek to match rising prices, local real estate costs could continue to climb.

Unusually high land prices may also fuel land speculation, with investors rushing to purchase land in hopes of profiting from further increases. This could result in capital being tied up in land rather than circulating in other economic activities, posing risks to investors if prices do not rise as expected.

According to Tuan, nationwide searches for land plots increased by 33 per cent in the second quarter compared to the previous quarter, with interest in Hanoi rising by 75 per cent.

Interest and prices have surged in Hanoi's outskirts due to factors such as urban planning and auction activity. In the first half of 2024, searches for land in districts like Dong Anh, Gia Lam, Hoai Duc, Thach That, and Quoc Oai increased by 48 to 104 per cent, leading to a 4 to 24 per cent rise in asking prices compared to the second half of last year.

However, Tuan warned that this improvement is localized, and investors should exercise caution.

He also highlighted that the sharp rise in land prices could reduce the competitiveness of these areas in attracting investment for business and production projects.

Higher land costs will increase input costs for businesses, negatively impacting their operations and local economic development. In the short term, high land prices will make land clearance more expensive for new projects.

Speculation or Market Forces?

Despite the dramatic rise in land prices, legal expert Nguyen Van Dinh views this as a "normal economic phenomenon" rather than price manipulation.

Dinh argued that prices are determined by market supply and demand, and the high demand from bidders naturally led to higher prices.

He noted that this trend was foreseeable, as apartment prices in Hanoi have surged since the beginning of the year, creating a new high price level and prompting many investors to turn to auctioned land with clear legal status.

Moreover, concerns about rising land prices following the implementation of the 2024 Land Law and related legislation on August 1 have driven people to participate in auctions.

The 2023 Real Estate Business Law also tightens regulations on land subdivision and sales, leading to a potential shortage of land plots and prompting investors to seek opportunities quickly.

Another factor, Dinh pointed out, is that Article 159 of the 2024 Land Law sets the starting price for auctioned land use rights based on the land price table.

Since the current land price table is relatively low compared to market transactions, the starting price for auctions is very attractive. Many see winning the auction as a "big win" opportunity.

Additionally, the deposit required to participate in an auction is only 20 per cent of the starting price, leading to a rush of registrations. At the auction, many investors are willing to bid high, hoping to resell at a profit, and are prepared to forfeit their deposit if they fail to sell successfully.

Dinh attributed this situation to the insufficient deterrent effect of penalties for forfeiting deposits.

He emphasized the need for stronger market regulation, urging authorities to take firm action to inspect and penalize violations in land auctions. He also called for clearer legal provisions to prevent such situations.

Recently, the National Assembly passed a revised Law on Asset Auction, effective January 2025, which includes stricter penalties for auction participants who violate regulations.

Under the new law, violators could face administrative penalties or criminal prosecution, depending on the severity of their actions. Winning bidders who fail to pay the auction price, leading to the cancellation of results, could be banned from participating in auctions for six months to five years.

While these regulations are set to take effect soon, there have been no reported cases of deposit forfeiture among the winning bidders in the two recent Hanoi auctions that have drawn widespread attention.