Purpose and Role of Land Use Rights Auction

Thus, from the general awareness of property auctions and the practice of organizing and implementing land use rights auctions in Vietnam in recent times, it is possible to come up with the concept: “Land use rights auction for the State to allocate land with land use fees or lease land is a special form of property purchase and sale, organized publicly according to the principles, order and procedures prescribed by law, controlled by the auctioneer (the competent state agency to allocate land, lease land) in order to sell land use rights to buyers (organizations and individuals with land use needs) at the highest price. The winner of the land use rights auction is the person who offers the highest price and at least equal to the starting price offered by the seller.

1.1.2. Characteristics of land use rights auction

Normally, the purchase and sale of assets is often carried out through direct purchase and sale, negotiated according to the principle of "willing buyer - willing seller": the seller often offers a price higher than the real value of the goods, the buyer often "bargains" until the price is accepted by the seller. On the contrary, in the auction of assets such as land use rights, based on the selling price offered by the seller, buyers compete with each other by offering prices at least equal to the starting price or higher to buy the land use rights; whoever offers the highest price will be the winner of the auction.

Land use rights auction is a special form of property trading. Due to the special nature of land, the characteristics of the whole people's ownership of land and the special nature of land use rights, land use rights auction has its own characteristics to distinguish it from normal forms of property auction or other forms of land use rights transfer.

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Firstly , in the auction of land use rights, the “person” who owns the property to be auctioned and manages the auction is the competent state land management agency as prescribed by law, representing the entire people's ownership of the land. This agency has the right to regulate, consider the starting price, price steps, confirm the auction results, collect money according to the auction results and use the collected money according to the provisions of the State Budget Law. When organizing an auction of land use rights, the organizing party

The auctioneer has the obligation to publicly announce the auction invitation documents, contents related to the land plot, bidding method, auction results, issue auction regulations; determine the qualifications of auction participants, starting price, bidding steps, auction results, complete legal documents related to land use rights and hand over land to organizations and individuals who win the auction in accordance with regulations. Thus, in the relationship of auctioning land use rights, the State participates as a direct subject (through competent state agencies).

This feature of land use rights auction is different from auction of other normal assets (commercial auction). In commercial auction, the person with the asset to be auctioned is the owner of the asset or the person authorized by the owner to sell the asset. The auction operator is a professional auction organization that the seller chooses to auction the asset according to the provisions of law. The subject of commercial auction is generally defined much more broadly than in land use rights auction.

This feature of land use rights auction is also different from land use rights transfer. In the land use rights transfer relationship, the State does not participate as a direct subject. The direct subjects are land users who have the legal right to use land granted by the State or recognized by the State. The transfer is completely agreed upon by the parties and the State only participates as the person who regulates the order, procedures, methods of implementing the transfer, the rights and obligations of the parties as well as recognizing the transfer of land use rights between the parties.

Second , in the land use rights auction, the auction participants - "buyers" are organizations and individuals who have a need to use land, register to participate in the auction according to the provisions of law and enjoy the rights and obligations according to the provisions of law and the auction regulations. The number of organizations and individuals participating in the land use rights auction in each auction session is at least 02 (two). Because the land use rights auction is a method of public property sale according to the method of bidding from low to high.

The auction is high and the highest bidder is the winner, so it is necessary to have the participation of many entities.

The auction winner is the person who offers the highest bid among the auction participants. The auction winner of land use rights is allocated land by the State for stable, long-term use or is leased land for a period of time depending on the type of land and the purpose of land use as decided by the competent authority. Through the auction, the auction winner of land use rights is conditionally transferred the right to possess, the right to manage and the right to use the land, but is not transferred the ownership of the land. The time of transfer of land use rights is the time when the auction winner completes the procedures to receive land use rights and pays the land use fee or land rent according to the approved auction results and the buyer is granted a land use rights certificate. The management and use of money collected from land use rights auctions must be carried out in accordance with the provisions of law. Money collected from land use rights auctions is deposited into a separate account at the State Treasury or collected and paid into the annual budget. This money is used to invest in building common infrastructure to serve the needs of economic and social development and economic restructuring. The use of money collected from land use rights auctions must comply with the provisions of law on investment management, construction and State budget management.

This is also a different feature from the auction of goods in commerce, the auction of land use rights does not bring land ownership to the auction winner but only transfers the land use rights. The winning money in the auction of normal assets (after deducting the fees and costs of the auction) will belong to the owner of the auctioned assets. In the auction of land use rights, that amount does not belong to the competent state agency organizing the auction, but is a source of revenue for the State budget and is managed and used according to the State budget regime.

Third, the auction of land use rights is conducted in accordance with the principles, order and procedures prescribed by the law on land and the law on property auctions. The auction of land use rights is conducted publicly and continuously...

Ascending bid method. Bidders offer increasing prices compared to the starting price to compete with each other when auctioning land use rights. The winning bidder will be the one who offers the highest price and at least equal to the starting price offered by the land use rights auctioneer. Unlike commercial auctions, in commercial auctions, the auction of ordinary assets can be conducted in many different methods and forms. Of which, the two most common methods are: the price increase method and the price decrease method.

Price escalation method: the auctioneer offers the lowest starting price for the goods being auctioned, then the customers participating in the auction will gradually increase the price by a certain amount. The price escalation can be by speech or by making signs. The goods will be sold to the highest bidder.

The Dutch auction method: the auctioneer sets the highest starting price and then gradually lowers the price by a certain amount until someone agrees to buy. This auction method (also known as the Dutch auction method) makes customers afraid of missing out on the opportunity to buy the goods, so they often accept a higher price than expected.

The commercial auction form can be conducted publicly orally or by direct secret ballot.

This feature of land use rights auction is also different from land use rights transfer. Both are methods of transferring land use rights and are essentially property purchase and sale relationships and the subject is land use rights. However, in land use rights transfer, there is no price competition, no bidding from low to high as in land use rights auction. The land use rights transfer relationship is established when there is an agreement between the parties, accordingly, the transferor has the obligation to transfer the land use rights to the transferee and receive money, and the transferee has the obligation to pay money and receive the land use rights.

1.2. Purpose and role of land use rights auction

1.2.1. Purpose of land use rights auction

Land use rights auction aims to create a new channel for the State to distribute land use rights to society in a market-oriented manner, in order to develop the real estate market in general and the land use rights market in particular. In essence, the State's allocation of land with land use fees and land lease through land use rights auction is a commodity-monetary trading relationship in which the State is a special subject of the real estate market. Through auction, the State carries out the first distribution of land use rights to the market, which can be called the "primary market", on that basis, land use rights are continued to circulate in the "secondary market" through land use rights transfer activities, leasing, subleasing, etc. of land users. Land use rights auction is expected to become an important channel for the State to distribute land use rights to the market.

The next purpose of the land use rights auction is to help eliminate the possibility of price fraud and bring the land price closer to its real value on the market thanks to its openness and fair competition. The openness is because the auction opens up opportunities for everyone, not reserved for anyone. The competition is because this is a price challenge between those who want to buy the property, which is the land use rights, and the winner is the one who offers the highest price (actually the highest price in a reasonable way).

According to current law, land belongs to the entire people, with the State as the representative owner, and the State is also the subject of land management. The State grants land use rights to entities through various forms such as: land allocation, land lease, and recognition of land use rights. The land users are then entitled to exercise the rights of land users as prescribed by law, such as: land use rights transfer, conversion, lease, sublease, etc. The problem arises when the State grants land use rights with compensation, simply put, the land use rights are sold for the first time: the land is transferred from the State to another entity for use, in return the State receives an amount of money paid by the land user, in current law, this is called land rent or land use fee.

An important basis for determining land rent or land use fee is land price. There would be nothing to discuss if the land price was always sold by the State at the correct market price. But in reality, it is impossible not to be skeptical about whether the land price regulated by the State is too low compared to its real value? But besides that, there is a paradox that the land price is low but people who really need to use the land cannot access it. More clearly, is there or not speculation by some subjects, who do not really need to use the land but have financial potential, who have compromised and colluded with subjects who are granted the right to allocate land by the State, to lease land to obtain the right to use land at a price much lower than the real value, and then transfer or lease, sublease... at a much higher price to gain personal profit, causing loss of revenue for the State budget and reducing the effectiveness of State management of land.

Thus, the problem is that there needs to be a reasonable mechanism to limit the lack of transparency in land allocation with land use fees and land lease by competent authorities, bringing land prices closer to market prices, and limiting the situation of "two prices" in the land use rights market. In order to dispel these doubts, lawmakers have regulated the auction of land use rights in some cases where the State allocates land with land use fees or leases land.

For those who have assets to be auctioned and those who participate in the auction, the auction of land use rights aims to harmonize the interests of both the "seller" and the "buyer". For those who have land use rights to be auctioned, their interests are satisfied because they will sell their goods at the highest price without fear of being "oversold" or "undersold". For buyers, the auction of land use rights aims to find and select serious land users who are willing to pay the most reasonable price, which ensures that the land allocated or leased through the auction will be used and exploited effectively, avoiding the situation where land use rights are transferred in a roundabout way on the market and are "priced" without reaching those who really need to use the land. Those who really need to use the land will be able to access and buy land use rights at a reasonable price, feel comfortable psychologically due to healthy competition, and feel secure because they can determine the origin of the land plot they are participating in the transaction...

For the State, the implementation of land use rights auctions aims at two goals: contributing to improving the effectiveness of State management of land and increasing revenue for the State budget. These two goals are closely related: if the land use rights auctions are well organized, they will limit and control "underground" and "virtual" transactions in the real estate market for land speculation, buying and selling for profit, causing instability in economic activities, thereby limiting revenue loss for the State budget and at the same time effectively implementing the State's management rights on land.

1.2.2 The role of land use rights auction

Towards the above purposes, land use rights auctions have the following roles:

Firstly, land use rights auction is the basis for the State to price land close to the real value of land on the market.

Land prices are always considered a sensitive issue in the context of land ownership belonging to the entire people under the unified management of the State. The sensitivity of the issue is associated with the comparative relationship between that amount of money and the real value (market price) of the land plot. Land prices can be determined from four different sources: land prices issued by the State, land prices formed by auctions and bidding for land use rights, prices agreed upon by the parties when exercising the rights to transfer, lease, sublease, contribute capital... using land use rights and land prices given by price appraisal organizations. In which, land prices regulated by the State are often static and lower than the real value of the land, while market prices are always dynamic and often higher than land prices regulated by the State. The land prices regulated by the State are low, but people with real land use needs cannot access them, they still have to receive land use rights transfers from intermediaries at high, even very high prices. The reason is said to be the lack of transparency in land management and land use rights distribution, creating the formation of a request-grant mechanism in land allocation and land lease. Investors with financial potential, somehow access land use rights at prices much lower than market prices, they put money into buying.

in large quantities even though they do not really have a need to use land in the true sense. Then, using their "tricks", they push up the value of land use rights. In addition, the buying and selling of land use rights on the market, changing hands between many investors, pushes up land prices even higher. Land use rights transactions at this time mainly take place between investors, and it is very rare for people with real needs to appear because real estate prices are too high, beyond the affordability of many people. This price increase is very worrying because it is an unsustainable price increase, or in other words, the value of real estate increases disproportionately to the law and is the cause of "land fever" in the real estate market, especially in big cities. In fact, land fever in the real estate market in Hanoi, Ho Chi Minh City as well as other major cities across the country in recent years has disrupted the real estate market, causing many negative impacts on the economic and social life of the country.

The erratic and unstable state of the land use rights market and the real estate market directly hinders the parties involved in land transactions and at the same time puts pressure on state agencies in exercising state management rights over land. Competent state agencies face many difficulties in determining land prices as the basis for calculating land use fees, land rents or land use taxes as well as other fees or as the basis for the State to calculate compensation when reclaiming land. This is also one of the reasons leading to the situation where land prices regulated by the State are much lower than the actual value of land on the market, creating a "two-price" situation causing great losses to the state budget and damage to land users.

In that situation, land use rights auction plays an important role in stabilizing the land use rights market and real estate market. Land use rights auction is conducted in a public and democratic manner, attracting the attention of many people, which is a condition for organizations and individuals with real land use needs to have the conditions to access and directly receive land use rights from competent state agencies for land allocation and land lease, limiting speculation and land price increases.

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