Legal

What should investors bear in mind regarding the auction of land use rights in Vietnam?

Trường Lăng

January 4, 2023

Legal

What should investors bear in mind regarding the auction of land use rights in Vietnam?

Trường Lăng

January 4, 2023

The land is a natural resource, a type of property – a unique commodity generated by nature, a means of production, and a valuable capital of the nation and the land user. In fact, land resources have benefited the state, users, enterprises, and society as a whole. Thus, the auction of land use rights is vitally crucial for the national economy’s stability, sustainable development, and prosperity, and directly concerns all investors with a stake in the Vietnamese market. 

Legal basis of land use right auction

According to the Land Law, 2013 (Article 118) and the Investment Law 2020 (Article 29), the auction of public land use rights (LUR) is one of the forms used when the State wants to allocate land, and select investors to implement investment projects that utilizes the land.

Currently, regulations on LUR auctions are primarily governed by the Land Law 2013, the Law on Property Auction 2016, and the Investment Law 2020, as well as guiding documents such as Decree 43/2014/ND-CP, Decree 31/2021/ND-CP, Circular 02/2022/TT-BTP, and Joint Circular No. 14/2015/TTLT-BTNMT-BTP.

In general, the LUR auction procedures have been widely disseminated, allowing competent authorities, relevant organizations, and citizens to have a full legal basis for implementation. 

Auction process for land use rights

Make plans for the auction of LUR 

The Department of Natural Resources and Environment or the Division of Natural Resources and Environment is responsible for reporting to the People’s Committee of the same level about the existing land fund. This is based on the authorized district-level annual land use plan and the suggestion of the reporting agency on the auction of LUR. The Committee will order the units tasked with managing the land fund to create a feasible LUR auction plan and submit it for approval.

Prepare land use rights auction dossier

The property auction organization must create dossiers for the auctioned land parcels based on the authorized LUR auction plan, then submit such dossiers to The Natural Resources and Environment Agency for evaluation. This process takes place before submitting to the competent People’s Committee for an official decision on the auction.

Determine and approve the auctioned property’s reserve price

The Department of Natural Resources and Environment organizes the determination of the starting price of the auctioned land parcel (including the price of land, technical infrastructure, and assets attached to the land, if any) in accordance with the law. Then, they submit it to the People’s Committee of the province for approval. As a result, the province’s People’s Committee authorizes the reserve price of the auctioned property. The auction of land use rights depended on the reserve price of the authorized auctioned property.

Select and sign a contract to engage a company to conduct a land use rights auction.

The property auction organization in charge of conducting the LUR auction is responsible for coordinating the selection and execution of a contract to employ a company in charge of conducting the LUR auction in line with the regulations and prevalent practices. The signing of a contract to employ an auctioneer occurs if the LUR auction plan specifies a process of assigning an auctioneer or if there is a report from the auction agency proposing to allocate particular firms to conduct the auction.

Conduct and supervise the implementation of the auction of land use rights.

The property auction organization must issue the Auction Regulations relevant to each auction before the asset auction is listed. The parties engaging in the auction must follow the rules of the auction regulations.

Approve the land use rights auction results

The property auction organization should prepare a dossier and deliver it to the natural resources and environment agency within 05 working days of receiving the handover of papers and minutes of the results of the auction of land use rights. This agency will request that the People’s Committee release a decision recognizing the winner of the land use right auction. Competent People’s Committees will sign and promulgate resolutions recognizing the winning auction results of successfully auctioned land use rights for distribution to related parties.

Complete financial responsibilities

The tax authority is responsible for giving the auction winner a formal notification of payment of the land use charge or land rent. The natural resources and environment agency shall submit it to the People’s Committee of the competent level for issuance of the Certificate of land use rights and related rights in compliance with the Law of the Land after the auction winner pays money to the State Treasury and returns required proofs. The appropriate agency then passes over the land in the field, as well as the land use right certificate and other related rights, to the organization or individual that won the land use right auction.

Legal implications regarding the auction of LUR

First, the deadline for registering to participate in the auction.

According to the 2016 Law on Property Auction (Article 38), the property auction organization sells and receives auction participation documents during office hours, continuously from listing the asset auction until 02 days before the auction opening date. At the same time, Clause 2, Article 39 of the 2016 Law on Property Auctions states that the property auction organization may only collect an advance payment from auction participants within 3 working days before the auction date. 

According to this rule, if the deadline for submitting an application for auction participation expires, the registrant can still pay an advance payment two days later. Pre-agreement and collusion between applicants suppress prices, which negatively affects the interests of genuine land auction participants. 

Second, the bid increments in a distrain.

Currently, the regulations governing the bid increment are arbitrary and ambiguous, relying on the person’s will to determine the bid increment. This led to a lack of impartiality and transparency in auction operations.

At the moment, the text of the Property Auctions Regulation does not have to define the bid increment. Meanwhile, the auctioneer’s disclosure of the bid increment is an obligatory procedure during an auction. In the case of an Auction in the form of directly casting bid tickets, the Auctioneer must additionally declare the bid increment during the auction. This creates a paradox in the asset auction process since the Regulations on the Property Auction do not require specifying the bid increment. Thus the bid increment is announced at the auction depending on where it is announced.

The lack of transparency in determining the bid increment can cause difficulties for individuals and organizations participating in the auction. Therefore, to avoid risks, investors need to pay close attention to information about bid increments or consult top leading experts in the industry for detailed guidelines.

Third, the case of the auction in the form of directly casting bid tickets.

Currently, Article 42 of the Law on Property Auction 2016 does not require participants in direct vote auctions to pay at least the reserve price. As a result, there are circumstances where ads are lower than the reserve price and are still legitimate. Another case also creates an inadequacy is that the auction winner will be determined by a lottery if the top bidder does not agree to continue the auction.

Fourth, lack of regulations when the auction shows signs of abnormality

There is no legal requirement to suspend the auction if there are odd indicators, such as pushing the price or blowing the price up excessively high in comparison to the reserve price or market price. Land is a valuable asset that has a significant influence on the economy and society. As a result, setting the winning price at auction too high in comparison to the market value, then an advance payment and canceling the contract might have a significant detrimental influence on nearby land and real estate values.

This issue will affect investors if the auction outcome is not transparent. As a result, investors must consult official information on land auction regulations and report any issues of lack of transparency to the competent authorities. At the same time, investors should adhere to the spirit of the law and refrain from engaging in the aforementioned acts of negative influence.

Currently, the restrictions governing the auction of land use rights need improving. As a specialist in this industry, Viettokin is willing to provide current market and policy knowledge. Contact us right now to improve your chances of success!

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