Introduction

On 5^th February 2024, the Government issued Decree No. 12/2024/ND-CP amending and supplementing several articles of Decree No. 44/2014/ND-CP dated 15^th May 2014 (“Decree 44/2014” ) regulating land prices and Decree No. 10/2023/ND-CP dated 3^rd April 2023 amending and supplementing several articles of Decrees guiding the implementation of the Land Law (“Decree 12/2024”). Decree No. 12/2024 introduces several new provisions regarding land valuation methods, providing some positive impacts on enterprises operating land-use projects.

1.         Methods of land valuation in Decree 12/2024

According to Decree 12/2024, there are four methods of land valuation, including comparison method, income method, residual method, and land price adjustment coefficient method. The application of the aforementioned methods is specified as follows:

·        The comparison method is applied if there are at least three land parcels meeting the following conditions: (1) having the same land use purpose and (2) having reasonably similar factors affecting transferred land prices on the market or prices of land use rights obtained from winning bids that the winning bidder has fulfilled financial obligations. The current Decree 44/2014 does not specify a minimum number of comparable land plots. Additionally, it strictly regulates the winning land price at land use rights auctions, emphasizing that the winning price should reflect the financial obligations fulfilled by the auction winner.

·        The income method is applied to value agricultural and non-agricultural land. However, it is not residential land that does not meet the conditions for applying the comparison method, yet is able to determine the income and expenses from using land according to legitimate land use purposes at the time of valuation. According to Decree 44/2014, this method requires that the land plot has identifiable income and expenses from land use. The process involves calculating the average annual net income per unit of land divided by the average savings deposit interest rate in Vietnamese currency for a 12-month term at commercial banks where the State holds over 50% of the charter capital or total voting shares in the province for three consecutive years until the end of the latest quarter before the valuation date. Decree 12/2024 specifies that the interest rate for this calculation should be the average interest rate of commercial banks where the State holds more than 50% of charter capital or total voting shares in the provincial area for three consecutive years until the end of the most recent quarter with data before the valuation date. This regulation updates the previous requirement that only considered the annual average of the state-owned commercial bank with the highest savings deposit interest rate in the province.

·        The residual method is applied to value land used for investment projects that do not meet the conditions for applying the comparison method and income method yet are able to determine the total revenue and total expenses for the development of the project. The residual method is conducted by subtracting the estimated total development expenses from the estimated total development revenue of the land based on the most efficient land use according to the approved land use planning and detailed construction planning. Basically, this method is regulated by Decree 12 similar to Decree 44/2014.

·        The land price adjustment coefficient method is applied to determine the price for the land in the land price list issued by the Provincial People's Committee and is specified for certain cases. For example, this method is used for (1) calculating the annual land lease fee when the State leases land without auctioning land use rights, (2) determining the starting price for auctioning land use rights when the State allocates or leases land, and the aforesaid land has been invested with technical infrastructure according to detailed construction planning, or for (3) calculating compensation money when the State acquires multiple adjacent land parcels with the same land use purpose that do not meet the conditions for applying the comparison method. This method is implemented by multiplying the land price in the land price list by the land price adjustment coefficient, which e Provincial People's Committee issues.

2.         Several new regulations have been introduced:

Land Valuation for the Entire Land Area:

Decree 12/2024 now allows the valuation of all land plots within the same project utilizing the entire land area. This reregulation departs from Decree 44/2014, which limited valuation to individual plots. The adjustment in Decree 12 aims to streamline the land valuation process for real estate project investors.

Introduction of the Concept of Market Transfer:

While Decree 44/2014 did not define the concept of "market transfer," Decree 12/2024 provides clarity. It represents market transfer as the transfer of land use rights, land use rights, housing, and other assets attached to the land. This transfer occurs after completing tax procedures, fees, and charges at the tax authority, registering at the land registration office, or signing a transfer contract between the real estate project investor and customers of commercial housing.

Additional Regulations on Information Sources for Land Valuation Methods:

Decree 12/2024 adds specific regulations on information sources used in land valuation methods. The information must be within 24 months from the time of land valuation. Priority is given to data collected from reliable sources such as the national land database, price database, land registration office, units organizing land use rights auctions, and entities containing asset auctions. The emphasis is on utilizing the most recent and trustworthy information during the valuation process.

3.         Impacts of Decree 12/2024

It is not that Decree 12/2024 was issued with the expectation of improving some limitations in land valuation in Decree 44/2014 for real estate projects and commercial housing. As can be seen, Decree 44/2014 did not specify the basis for determining land prices in the comparison method, leading to a situation where the land parcels and areas used for comparison could have higher values than others in the real estate market, causing losses to enterprises having land-use investment projects. Decree 12/2024 has specified the methods for determining land prices, supplemented the collection of information from national databases on land prices when applying the comparison method and residual method, and an established land price adjustment coefficient. These changes are the basis for land valuation closer to market prices.

Disclaimer: This Legal Update is intended to provide updates on the Laws for information purposes only, and should not be used or interpreted as our advice for business purposes. LNT & Partners shall not be liable for any use or application of the information for any business purpose. For further clarification or advice from the Legal Update, please consult our lawyers: Ms Minh Vu at minh.vu@lntpartners.com