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Circular No. 145/2007/TT-BTC dated December 06, 2007 of the Ministry of Finance providing guidelines for implementation of Decree 188/2004/ND-CP dated Government dated 16 November 2004 (as amended by
22/04/2011
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THE MINISTRY OF FINANCE
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SOCIALIST REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
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No. 145/2007/TT-BTC

Hanoi, December 6, 2007

 

CIRCULAR

PROVIDING GUIDELINES FOR IMPLEMENTATION OF DECREE 188/2004/ND-CP OF THE GOVERNMENT DATED 16 NOVEMBER 2004 (AS AMENDED BY DECREE 123 DATED 27 JULY 2007) ON LAND PRICE DETERMINATION METHODS AND PRICE FRAMEWORKS FOR ALL TYPES OF LAND

THE MINISTER OF FINANCE

Pursuant to Decree 77/2003/ND-CP of the Government dated 1 July 2003 on the functions, duties, powers and organizational structure of the Ministry of Finance;

Pursuant to Decree 188/2004/ND-CP of the Government dated 16 November 2004 on price determination methods and price frameworks for all types of land (hereinafter referred to as Decree 188);

Pursuant to Decree 123/2007/ND-CP of the Government dated 27 July 2007 amending Decree 188 (hereinafter referred to as Decree 123);

Having reached agreement with the Ministry of Natural Resources and Environment, the Ministry of Finance provides the following guidelines on Decree 188 (as amended by Decree 123):

 

I. LAND PRICE DETERMINATION METHODS

1. Direct comparison method:

The following steps shall be taken in order to determine a land price in accordance with the direct comparison method:

(a) Step 1: Survey and gathering of information:

- Identify the sites of land parcels or vacant blocks (i.e.  land  on  which  there  has  not  yet  been investment in construction of buildings) which are comparable with the land parcel or vacant block subject to the price determination ["the land in question"]1, in order to gather information.

Select three to five land parcels or vacant blocks which adjoin or are situated in an area neighbouring the land in question and which have similar characteristics to the land in question in terms of land type,  location2,  land  area,  infrastructure,  legal  grounds  and  use  purpose  and  which  have  been successfully  sold  on  the  market  (comprising  traded  directly  between  individuals  and  organizations with  each  other,  traded  via  an  auction  of  land  use  rights,  or  successfully  traded  on  a  real  estate exchange floor).

- Period for gathering information:

Information gathered must have been created in the most recent period from the time of survey in order to determine a price for the land in question. If information in the most recent period cannot be gathered, information on assignments of land use rights in the period of one year before the time of land price determination may be gathered.

- Information on the following should be gathered:

+ Location.

+ Current use characteristics (land type, land area and measurements of borders, geographic features, assets on the land, current use purpose and zoned use purpose).

+ Conditions regarding infrastructure.

+ Environment  (comprising  the  natural  environment  including  landscape,  water  sources;  level  of pollution of air and water sources; noise pollution etc.; and the social environment including social order and security, and population density).

+ Legal characteristics (zoning and construction master planning of the land in question; certificate of land use right; whether financial obligations have been discharged and if so to what degree).

+ Time and price of successful assignment, transaction or auction of land use rights.

+ Date and conditions of such assignment, transaction or auction, and payment therefor.

- Conditions of information:

The above information must be gathered from results of actual market assignments of land use rights in normal conditions as stipulated in article 1.2 of Decree 123.

(b) Step 2: Comparison and analysis of information:

Information which is surveyed and gathered in Step 1 shall be analysed and compared in order to sort out the similar and the different elements between the land parcels or vacant blocks which are comparable with the land in question, and such elements shall be used to calculate and fix a price for the land in question.

(c) Step 3: Adjust the different price elements:

Adjust the different price elements of the comparable land parcels or vacant blocks in order to determine a price for the land in question.

The estimated value of the land in question shall be calculated by way of adjustment of the different price elements of the comparable land parcels or vacant blocks as follows:

Estimated value of the land in question

=

Price for assignment of land use rights of each comparable land parcel or vacant block

±

Amount of money for adjustment of the price formed from the different price elements of each comparable land parcel or vacant block

Of which the amount of money for adjustment of the price between each comparable land parcel or vacant  block  and  the  land  in  question  is  to  adjust  the  difference  in  terms  of  prices  resulting  from differences  in  terms  of  location,  infrastructure,  legal  characteristics  and  level  of  environmental pollution etc. The difference in terms of prices between the comparable land and the land in question (which may be calculated as an absolute value or as a percentage of the price for assignment of land use  rights  in  normal  conditions  on  the  local  market)  shall  be  determined  on  the  basis  of  the evaluation  of  experts  and  the  price  determining  body  which  assisted  the  provincial  people's committee when the latter made its decision on specific prices in the locality.

Where a land price was changed during the period from the time of successful assignment of the land use right of the comparable land parcel to the time of price determination of the land in question, then before applying the above formula, the price for the assignment of the comparable land parcel must  be  adjusted  (increased  or  reduced)  by  the  current  fluctuation  indicator  for  land  of  such  type which may be taken and calculated from information collated by the Department of Finance or price consultants  pursuant  to  Circular  80/2005/TT-BTC of the Ministry of Finance dated 15  September 2005 providing guidelines for implementation of Decree 188, or the current fluctuation indicator for land of such type may be taken from statistics provided by the statistics body (if available).

(d) Step 4: The price for the land in question shall be determined by using the average of prices for three to five comparable land parcels or vacant blocks which has been adjusted for the price difference in Step 3.

Appendix 1 provides an example of determining a land price in accordance with the direct comparison method.

2. Income method:

The following steps shall be taken in order to determine a land price in accordance with the income method:

(a) Step 1: Calculation of total annual income derived from the land in question:

- With respect to a vacant block or land on which buildings (housing) have been constructed for lease, total annual income derived from the land in question is the rent for the real estate (comprising the land plus assets on the land) collectible annually.

- With  respect  to  agricultural  land  on  which  the  person  allocated  with  such  land  himself  organizes agricultural production, total income earned means:

+ For land for planting annual crops and for land for aquaculture, total income earned from the land in question is the total turnover from the above-mentioned production activities on the land collectible annually.

+ For land for planting perennial crops (fruit trees, industrial orchards and trees for wood production), total income shall be calculated on the basis of annual revenue, periodic revenue or one-off revenue depending on the type of trees planted.

(b) Step 2: Calculation of expenses payable for generation of total income:

- Total expenses shall include specific costs such as land use fees, costs for investment in improvements, and production costs. These costs shall be calculated in accordance with the current State regulations; costs for which there is no relevant State regulation shall be calculated on the basis of actual prevailing prices in the local market where the business or production entity made the payment (specified in the contract or goods sale invoice published by the competent financial body).

- If there has been investment in construction of assets on the land in question, total annual expenses shall not include any item for depreciation of the assets on the land.

(c) Step 3: Annual net income shall be calculated in accordance with the following formula:

Annual net income

=

Total annual income calculated at Step 1

Minus
 (-)

Total expenses calculated at Step 2

(d) Step 4: An estimated land price shall be determined in accordance with the following formula:

Estimated land price

=

Annual net income earned from the parcel of land

Rate of interest for Vietnamese dong savings with a term of 12 months

When a land price is determined in accordance with the income method, then the total income, total expenses and net income calculated at steps 1, 2 and 3 respectively must be the net average total income, total expenses and net income respectively of the location of land of the type subject to the land determination, with the correct land use purpose approved by the authority, and calculated as an average of the three years immediately prior to the time of the land price determination. If it is impossible to gather data for three years, then the data of the year immediately prior to the time of the land price determination shall be used. Total income and total expenses shall be calculated using prices stipulated in State regulations, or if there are no such applicable regulations than the market floor prices of goods, materials, services and labour remuneration and annual production volumes o as at the time of the land price determination.

The Vietnamese dong savings interest rate for a term of 12 months means the interest rate of the commercial bank with the highest interest rate in the locality.

Appendix 2 provides an example of determining a land price in accordance with the income method. With  respect  to  land  parcels  on  which  there  has  been  investment  in  construction  of  assets (comprising project works, housing or buildings; or perennial crops such as rubber tree, coffee, tea, pepper tree, cashew or fruit trees and so forth have been planted) in order to conduct business or production, then first and foremost the price of the land and assets must be estimated in accordance with  the  income  method, and  then  the value  of  the assets  on  the  land shall be  deducted and  the residual value shall be the value of the land in question.

The method of deduction of the value of assets on land shall be as provided in clause 3 (c) below of this Section 1.

3. Subtraction method:

The following steps shall be taken in order to determine a land price in accordance with the subtraction method:

(a) Step 1: Gathering of information:

- Gather market information in order to select at least three properties (comprising the land plus assets on the land) which have been successfully sold on the market  and which have similar characteristics to the land in question in terms of location, status quo, infrastructure conditions, legal grounds, use purpose, cost and so forth.

- The period for gathering market information shall be the same as stipulated in clause 1(a) above for the direct comparison method.

(b) Step 2: On-site survey:

- Conduct an on-site survey and obtain a complete and accurate description of the assets on the [three] properties mentioned above (assets comprising housing, buildings or perennial crops).

(c) Step 3: Determine a present value for the assets in question in accordance with the following formula:

Present value of assets on the land

=

Value of new construction calculated at the time of land price determination

Minus
 (-)

Part of the value for wear and tear.

Of which:

- Value of new construction calculated at the time of land price determination means the costs of either replacing the present assets on the land, or of constructing new assets with exactly the same use function as the current assets on the land. This value of new construction shall include both direct and indirect costs, and an appropriate profit margin for the person investor in construction.

- Wear  and  tear  of  assets  on  the  land  comprises  both  tangible  and  intangible  wear  and  tear,  and includes  a  reduction  for  damage  to  the  assets  during  their  use  process  and  an  allowance  for outdated function and for wear and tear due to the effect of outside factors.

- The method of calculating the value of new construction and of deducting a part of the value for wear and tear shall be implemented in accordance with current regulations of the Ministry of Construction and  the  Ministry  of  Finance,  and  the  Evaluation  Standards  of  Vietnam. If there is no specific regulation on such method, then calculations shall be made on the advice of consultants, experts or organizations directly conducting an evaluation on the basis of market information and data.

(d) Step 4: The value of a property as chosen in Step 1 shall be determined as follows:

Value of the property

=

Price of assignment of the property

Minus
 (-)

Current value of assets on the property.

Land unit

=

     
         
               

 

 

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