Vietnam set to re-auction controversial southern land parcels that fetched US$100,000 per sq m in 2021

[HO CHI MINH CITY] Developers in Vietnam are gearing up to vie for prime land in the country’s southern hub as plans to re-auction these plots are set for this year.

But don’t expect these “golden land” lots to draw the sort of eye-popping bids they did more than two years ago, said Troy Griffiths, the deputy managing director at real estate agency Savills Vietnam.

The auctions for more than 30,000 square metres of land in Vietnam’s southern hub caused a big stir in late 2021, with bids reaching an average of around US$100,000 per sq m.

Authorities are planning to re-auction several land parcels in the area this year, among them one of four infamous “golden land” plots that ran into trouble over two years ago.

These four prime plots are located on the Thu Thiem peninsula, positioned across the Saigon River from District 1, the heart of Ho Chi Minh City’s business district.

“Thu Thiem is going to have to be developed over 10 or 20 years to become the new (central business district),” said Griffiths.

In recent years, the Thu Thiem new urban area has emerged as a hot spot for real estate development, driven by Ho Chi Minh City’s rapid growth and urbanisation. It is envisioned as a new financial and commercial hub of the city, drawing comparisons to Shanghai’s Pudong district from investors and property enthusiasts.

Positioned as gateways to several neighbouring provinces, Thu Thiem and District 2 also boast a vital connection to the future Long Thanh International Airport, which is poised to be a critical hub for both passenger and cargo transit.

Another shining beacon is the performance of the office property segment in the area. In the second half of 2023, District 1 and Thu Thiem were the top destinations for new office projects, making up 91 per cent of the total office supply in Ho Chi Minh City, as noted in a report by Savills.

“The high rate of occupancy in two new office developments in Thu Thiem showcases the strong demand from clients in the banking and finance industry as well as the appeal of the Thu Thiem new urban area,” the real estate agency noted following the launch of two Grade-A office projects in the peninsula in the third quarter of 2023.

During the 2021 auction, investors bid up the land plots to staggering levels, about seven times the reserve price, emboldened by the location and surrounding amenities.

The outcome of the previous auction indicates that, considering the land’s gross floor area, an average apartment in the project could have fetched a price tag as high as US$14,000 per sq m. This figure is the minimum price developers needed to recoup investments from the initial land acquisition, said property analysts.  

The valuation may appear inflated, especially given that it was the equivalent to the average prices of high-end real estate in developed cities such as Beijing and Berlin then.

A year after the auction’s outcome, the value of the plots of land was no longer at sky-high prices after the winning bidders ditched their purchases and forfeited some US$40 million, resulting in the land parcels being abandoned since.

These developers were slammed for abusing loopholes in land auctions to seek plump profits. They were alleged to have done so to inflate the land prices in neighbouring areas where they also had projects.

Presently, the going rate for residential properties in Thu Thiem ranges from US$2,000 to US$5,000 per sq m, as evidenced by the prices of some of the more popular developments in the vicinity.

“It is still very strong pricing, not that far off District 1 and is a view to the future,” said Griffiths. “In many ways, Thu Thiem has not progressed as fast as it should have. There’s a whole raft of reasons there, but land pricing is one of the key issues to mute the development, not just in Thu Thiem, but across Vietnam.”

Lately, the local property market seems to have regained some confidence as policymakers have been working hard to restore consistency and transparency to woo investors. They have also tightened rules on corporate bond issuances and amended crucial property and land acquisition legislation.

The recently amended Land Law, enacted earlier this year, has drawn significant attention; the legislation is hoped to re-energise the country’s real estate market with its new market-based land valuation and pricing frameworks.

Towards that end, local authorities are now tasked with creating and updating the land price table annually. It is hoped that this approach will better reflect current market valuations and move away from the past practice of issuing land price lists every five years.

Ho Chi Minh City officials have reportedly said that they plan to use this year’s auctions as a learning experience to schedule future bidding sessions for the remaining parcels in Thu Thiem.