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:

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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.

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+ 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.

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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.

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- 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 calculatedat Step 2
(d) Step 4: An estimated land price shall be determined in accordance with the following formula:
Estimated land price
=
Annual net income earnedfrom the parcel of land
Rate of interest for Vietnamese dongsavingswith a term of 12 months

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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:

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- 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 theland
=
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 valueof assets onthe property.
Land unit
=
Value of the property
 
Area of theproperty
 
(e) Step 5: A price for the land in question shall be determined as follows:
Adjust the different price elements of the properties as chosen in Step 1 in order to determine a price for the land in question (the same as Step 3 of the direct comparison method above).

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The unit price of the land in question shall be the average adjusted unit price of the properties chosen in Step 1.
Appendix 3 provides an example of determining a land price in accordance with the subtraction method.
4. Surplus method:
The following steps shall be taken in order to determine a land price in accordance with the surplus method:
(a) Step 1: Determine the optimal use purpose and effectiveness of the land in question on the following bases:
- Special characteristics of the land in question.
- Regional and urban zoning; construction master planning and plans, and master plans and specific plans for land use as issued and approved by the competent authority.
(b) Step 2: Estimate the total developed value of the property:
- The total developed value of the property includes the total value of housing, of sub-divided plots etc. which it is proposed to sell after completion of the investment project.
- A determination of the total developed value of the property must be conducted on the basis of an investigation and survey of actual prices of market assignments of houses, apartments, buildings, sub-divided plots and so forth of other projects which have been completed and which have similar features to the project in question, and these other projects must be in the adjoining area or in neighbouring areas with similar living conditions and infrastructure conditions; there must also be consideration of the current market orientation and market fluctuations in order to make a realistic estimate of the selling price.

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(c) Step 3: Estimate the total costs of developing the property:
- Total costs of developing the property shall include all costs which the investor spends in order to construct the infrastructure (including roads, water supply and water drainage, power supply and so forth); to create the landscape; and to construct the houses, buildings or sub-divided plots in order to sell them correctly in accordance with the detailed zoning approved by the authorized body; and shall also include advertising costs, sales' costs, general management expenses, and an item for profit of the investor (to include an item for business risks).
Estimated total costs must be calculated on the basis of unit prices, drawdown of investment capital, and standard rates stipulated in regulations of the competent authorities. If there are no such applicable regulations, then costs should be based on actual prevailing costs of similar projects in the adjoining or neighbouring areas.
If the investment project for development of the property extends for a number of years and has a number of different stages and revenue and expenses are calculated on an annual basis, then there must be a discount on revenue and expenses in terms of current prices at the time of determining the price of the land in question in accordance with the following formula:

n

 

 

 

H. Total developed value:

 

Total costs of developing the property:
In which:
TRi is the revenue in the nth year of the project.
C is the expenses in the nth year of the project.
r is the discount rate3 (calculated at the interest rate charged by commercial banks for lending to perform investment projects for development of properties).
n is the number of years required to implement the project (calculating from the commencement of building works until the date of completion of the project).
(d) Step 4: An estimated land value shall be determined as follows:
Estimated value of the land in question
=
Total developed value of the property
Minus
 (-)
Total costs ofdeveloping the property
Appendix 4 provides an example of determining a land price in accordance with the surplus method.

 

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