Real Estate Market Overview

1.1.2. Overview of the real estate market

1.1.2.1. Real estate

Up to now, most countries in the world classify assets according to ancient Roman law, that is, classify assets into "Real estate" and "Moveable property". Thus, real estate is not only land, assets in the ground but also everything created by human labor attached to land such as construction works... and everything related to land or attached to land in 3-dimensional space (height, depth, width) to form a material form with a defined structure and function.

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In our country, the 2015 Civil Code stipulates: "Real estate (RE) is assets including: Land; Houses, construction works attached to land; assets attached to land, houses, construction works; other assets prescribed by law" (National Assembly, 2015).

1.1.2.2. Real estate market

The real estate market is a mandatory component of real estate commodity production. It was born and developed along with the birth and development of real estate commodities. There are many different understandings of the real estate market, but the concepts have a common general point about the real estate market, which is the sum of real estate transaction relations carried out through monetary commodity relations. Therefore, the characteristics of commodities and the land market are always the factors that play a central role and dominate the entire operation of the real estate market.

Real estate differs from other commodities in that it is not only bought and sold, but also the subject of many other transactions such as leasing, mortgage, and transfer of real estate use rights. Therefore, the complete real estate market cannot only be the relationship between buyers and sellers of real estate but also the place where transactions related to real estate take place.

Therefore, the real estate market is generally understood as follows: The real estate market is the sum of real estate transactions based on

Commodity and monetary relations take place in a certain space and time. In common expression, the concept of real estate market is often mentioned as the place where real estate transactions take place. The function of the real estate market is to bring buyers and sellers to interact with each other to determine the price and quantity of real estate goods and services traded. In this expression, the concept of "place" does not simply refer to the location but it includes the spatial and temporal factors when real estate transactions take place. (Nguyen Thanh Tra, Nguyen Dinh Bong, 2005)

1.1.2.3. Land use rights market

Our country's land use rights market includes two types:

Firstly, the secondary market: The State provides for the needs of use in accordance with the land use planning that has been decided and approved through land allocation, land lease, recognition of land use rights, land recovery, people often name this type of market as the primary market.

Second, the secondary market: transactions of land use rights between land users through the exercise of the rights to convert, transfer, lease, sublease, inherit, donate land use rights, mortgage, guarantee, and contribute capital using land use rights according to the provisions of law. This type is often called the secondary market.

Land is the basis for making investments in assets attached to land and the value of land increases after making investments in assets on it. The level of land price increase after investment depends on the type of assets attached to land. The land use rights market has its own characteristics in each area of the real estate market, in each form of real estate business.

The land use rights market in our country has gone through a period of more than 10 years from 1993 to 2003 operating under a financial mechanism of 2 land prices, in which the land price regulated by the State is quite different from the market price.

In some places, at times, it was only 20% to 40% of the market price of land, the price of non-agricultural land in the market in 2003 increased 50 to 100 times compared to 1993. The "ask-give" mechanism for land was a characteristic of the land finance system at that time, from which the phenomenon of corruption in management, speculation in use, and storing people's savings in real estate became increasingly common. By 2004, when the 2003 Land Law came into effect, the land law had abolished the "ask-give" mechanism for land, land prices in the market stagnated and tended to decrease (Phung Ngoc Phuong et al., 2011). And now that the 2003 Land Law has been replaced by the 2013 Land Law, with more specific and accurate determination of land prices, the demand for real estate has decreased sharply.

The land use rights market in our country still has many shortcomings, both in theory and in practice. Even the term "land use rights market" or "land market" is still under debate. The land law system still has a large gap in the land finance system, there are not enough policies to regulate by economic instruments for land users, the land tax system has not been innovated in sync with the innovation of land policies, the land registration system is fragmented, not enough conditions to build a public and transparent management system. The mechanism for implementing mortgage rights, guarantees, and capital contributions using land use rights has not met the practical requirements to create development investment sources using the potential capital of land. The work of planning and land use plans still has many weaknesses, the scientific content is still low, the feasibility is not high, it has not really supported the orientation of sustainable development, and it has not effectively regulated the primary market. The system of management agencies still has many weaknesses, does not serve the people well, and has many violations in applying the new legal system on land (Phung Ngoc Phuong, et al., 2011).

1.1.3. Land valuation

1.1.3.1 . Concept of land valuation

Real estate has different types such as: Real estate is residential land and separate houses, real estate is apartment buildings, agricultural and forestry real estate, agricultural real estate... Therefore, the concepts of real estate valuation also need to be considered according to the content of principles, general and specific concepts and methods. Among these types of assets, land is a special type of asset.

Land is a type of property because it has all the properties of property such as: It is a real thing that can satisfy a certain human need, is in human possession, has valuable characteristics and is the object of civil exchange. Furthermore, land is a special property because:

- Land is not produced by labor, labor only transforms land from a barren state into something usable for different purposes.

- Land is fixed in location, limited in space and unlimited in time of use.

- Land has the potential to generate profit. If used properly, the value of land will not only not decrease but also tend to increase.

Therefore, in principle, land valuation is similar to the valuation of ordinary assets. On the other hand, as a special asset, land price, in addition to the factors of space, time, economy, and law, is also affected by psychological and social factors. Therefore, land valuation can only be an estimate of value and cannot be calculated correctly and fully like the valuation of ordinary assets.

Thus, land valuation is understood as the estimation of the value of land use rights in monetary form for a defined purpose, at a defined time. (Trinh Huu Lien, 2013)

1.1.3.2 . Land valuation principles

Implementing the 2013 Land Law on land prices, the Government has issued 02 Decrees including: Decree No. 44/2014/ND-CP dated May 15, 2014 regulating land prices; Decree No. 104/2014/ND-CP dated November 14, 2014 regulating land price framework. On that basis, the Ministry of Natural Resources and Environment issued Circular No. 36/2014/TT-BTNMT dated June 30, 2014 detailing methods for land valuation, construction, adjustment of land price tables, specific land valuation and consultancy on land valuation; currently, a circular is being developed to regulate economic and technical norms for land valuation (including economic and technical norms for construction, adjustment of land price tables and specific land valuation).

The principles of land valuation are stipulated in the 2013 Land Law as follows:

+ According to the legal land use purpose at the time of valuation;

+ According to land use term;

+ Consistent with the common market price of land with the same transferred purpose, the winning price of land use rights auction in places where land use rights are auctioned, or income from land use;

+ At the same time, adjacent land plots with the same purpose of use and similar ability to generate income from land use have the same price (National Assembly, 2014)

1.1.3.3 . Land valuation method

The Land Law dated November 29, 2013 regulates land prices but does not specifically regulate land valuation methods and assigns them to the Government. The Government issued Decree No. 44/2014/ND-CP dated May 15, 2014, stipulating in Article 4; At the same time, assigning the Ministry of Natural Resources and Environment to regulate in detail land valuation methods and is regulated in Circular No. 36/2014/TT-BTNMT dated June 30, 2014. Decree No. 44/2014/ND-CP has inherited the current regulations, continuing to regulate 4 land valuation methods, which are:

direct comparison method, deduction method, income method and surplus method. For these 4 methods, the Decree has revised and supplemented information on the land price selected for comparison, not only the actual transfer price on the market but also the winning price of the land use right auction to comply with Article 112 of the 2013 Land Law. In addition to the 4 land valuation methods mentioned above, Decree No. 44/2014/ND-CP has supplemented the land price adjustment coefficient method prescribed in Clause 5, Article 4 of the Decree. This method is applied in some cases of calculating land use fees, land rents, calculating the value of land use rights where the land plot (land area) of the project has a small value; determining the land price for compensation when the State reclaims land in cases where the project has adjacent land plots with the same purpose of use, similar profitability and income from land use. The addition of this method is to meet the practical and immediate requirements of our country due to the large number of land plots that need to be appraised and the limited capacity of the land price consultancy team. Based on the collected information, the conditions for applying land valuation methods specified in Clause 2, Article 5 of Decree No. 44/2014/ND-CP to select the appropriate land valuation method. If necessary, a combination of land valuation methods specified in Clauses 1, 2, 3 and 4, Article 4 of Decree No. 44/2014/ND-CP can be applied to check, compare, contrast and decide on land prices (Government, 2014).

a. Direct comparison method: Direct comparison method is a method of land valuation through analyzing the prices of vacant land plots similar in terms of land use purpose, location, profitability, infrastructure conditions, area, shape, legality of land use rights transferred on the market, winning land use rights auctions to compare and determine the price of the land plot to be valued.

b. Deduction method : The deduction method is a method of land valuation for land plots with assets attached to the land by excluding the value

value of assets attached to land out of total real estate value (including land value and value of assets attached to land).

c. Income method: The income method is a method of land valuation calculated by the quotient between the average annual net income per unit of land area compared to the average annual savings interest rate up to the time of land valuation of the 12-month VND deposit at the state-owned commercial bank with the highest savings interest rate in the province.

d. Surplus method: The surplus method is a method of land valuation for land plots with development potential according to land use planning, construction planning or permitted to change land use purpose for the highest and best use by excluding the total estimated cost from the total assumed development revenue of the real estate.

e. Land price adjustment coefficient method: is a method of land valuation by using the land price adjustment coefficient multiplied (X) by the land price in the land price list issued by the People's Committee of the province or centrally-run city (hereinafter referred to as the Provincial People's Committee) (Government, 2014).

1.1.3.4. Regulations on land prices

According to the 2013 Land Law, land prices regulated by the State include land price lists regulated by the Provincial People's Committee and specific land prices. Article 114 of the 2013 Land Law stipulates land price lists and specific land prices as follows:

- Based on the principles, methods of land valuation and land price framework, the People's Committee at the provincial level shall develop and submit to the People's Council at the same level for approval the land price list before promulgation. The land price list is developed periodically every 5 years and publicly announced on January 1 of the first year of the period.

- Land price list is used as basis in the following cases:

+ Calculate land use fees when the State recognizes the land use rights of households and individuals for the area within the limit; Allow

Change the land use purpose from agricultural land, non-agricultural land that is not residential land to residential land for the area within the land allocation limit for households and individuals;

+ Calculate land use tax;

+ Fees and charges in land management and use;

+ Calculating administrative fines for violations in the land sector;

+ Calculate compensation to the State for damage caused in land management and use;

+ Calculate the value of land use rights to pay for people who voluntarily return land to the State in cases where the returned land is land allocated by the State with land use fee collection, recognized land use rights with land use fee collection, or leased land with one-time land rent payment for the entire lease term.

- The provincial People's Committee decides on specific land prices. The provincial land management agency is responsible for assisting the provincial People's Committee in organizing the determination of specific land prices. During the implementation process, the provincial land management agency is allowed to hire an organization with the function of consulting on land price determination to advise on the determination of specific land prices.

a. Documents guiding the implementation of the 2003 Land Law

- Implementing the provisions of the 2003 Land Law, the Government issued Decree No. 188/2004/ND-CP dated November 16, 2004 on methods for determining land prices and price frames for land types. At the same time, the Ministry of Finance issued Circular No. 114/2004/TT-BTC dated November 26, 2004 guiding the implementation of Decree No. 188/2004/ND-CP of the Government on methods for determining land prices and price frames for land types; Circular No. 80/2005/TT-BTC dated November 26, 2004 guiding the organization of a network for statistics and investigation, survey of land prices, and statistical reporting of land prices according to the provisions of Decree No. 188/2004/ND-CP of the Government on methods for determining land prices and price frames for land types.

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