Overcoming shortcomings for transparency and fairness in asset auctions

Inadequacies and problems from practice

Through the practical application of legal provisions in operationsproperty auction, many localities, departments and branches in Nghe An have identified shortcomings and problems that need to be adjusted and amended. For example, the case of 73 households and individuals in Dien Chau district, after winning the auction to buy land lots, abandoned their deposits and did not pay the full amount to buy the land according to the auction results. The People's Committee of Dien Chau district had to issue Decision 1467 dated May 24, 2022 "Cancel the results of the land auction and collect the deposit from customers participating in the auction of land use rights for lots in the residential planning areas of the communes: Dien Van, Dien Dong, Dien Phuc, Dien Bich, Dien My". The total area of ​​73 land lots is 13,418.74 m²with a deposit of over 15 billion VND.

According to the leader of Dien Chau district, one of the reasons why auction participants may abandon their deposits is because the current time limit for paying the full amount after winning the auction is 90 days, which is too long and the deposit amount is too low.

According to the provisions of Clause 3, Article 1 of Decision 07/2021/QD-UBND, determining the deposit amount must meet two requirements: In the planning area, there are many land lots with different starting prices put up for auction at the same time, then a maximum of two deposit amounts is prescribed for a planning area. The minimum deposit is 5% and the maximum is 10% of the starting price of the land lot in rural areas. In reality, each property package put up for auction of land use rights, depending on the area and location of the land lot, so most of each property package will have many land lots with different starting prices, the difference between the land lots is from 500 million VND to over 1 billion VND, some lots are over 1.5 billion VND. Due to the regulation on the leveldepositLow prices and regulations on payment within 90 days, so organizations and individuals doing real estate business have the opportunity and conditions to participate in depositing on many plots of land, paying very high prices (almost 2 times the starting price, many plots nearly 3 times). After winning the auction, the winner will wait to find a buyer to resell the plot of land before paying the land use fee. If they cannot find a buyer, they will forfeit the deposit.

Land auction officials, local government representatives and people directly count votes and announce land auction results at an auction session. Photo: Nguyen Hai

Regarding the procedures and auction documents, there are also shortcomings and problems that cause difficulties for localities and implementing units. The representative of Nghe An Property Auction Service Center stated: The Law on Property Auction 2017 in Articles 49 and 59 stipulates auctioned assets and organization in cases where there is only 1 registered person (but not participating), 1 other person participating, 1 bidder, 1 other person accepting the price, but the determination of "1 bidder" is currently not clearly regulated, leading to the auction supervision team and auction organization in each locality being applied arbitrarily and inconsistently.

Or as in Point a, Clause 6, Article 39 of the Law on Property Auction, it is stipulated that auction participants shall not receive their deposit back in case they have paid the deposit but do not participate in the auction or the price announcement without any force majeure. However, if the customer is still present at the price announcement but intentionally does not vote, votes blank or is threatened not to vote, is he considered as not participating in the auction or will his deposit be processed or not, there is no specific regulation.

Proposed amendments

At the conference summarizing 5 years of implementing the Law on Auction, many localities, departments, branches, and units such as the Department of Finance, the Department of Justice, the Provincial Property Auction Service Center, Dien Chau district, Vinh city, etc. had many opinions stating the current situation and proposing to adjust specific regulations to ensure more fairness and transparency in this activity.

Regarding the regulation of paying land use fees 90 days after winning the auction, Mr. Nguyen Sy Dieu - Vice Chairman of Vinh City People's Committee said that this is an inadequacy, affecting the revenue source for reinvestment in infrastructure construction, creating opportunities for speculators to "hold land". Mr. Dieu proposed to amend the regulation on the deadline for paying the auction winning fee to 30 days and increase the deposit to 30% - 40% of the starting price of the auction. Meanwhile, the representative of Dien Chau District People's Committee proposed to increase the deposit to 30% - 50% of the starting price. Mr. Nguyen Minh Hieu - Director of International Auction Partnership Joint Stock Company - IPA proposed further: Circular 108/2020/TT-BTC of the Ministry of Finance stipulates that within 20 days from the end of the auction, the owner of the auctioned property must pay the auction service fee, the auction costs in Clause 2, Article 66, Law on Property Auction... However, in reality, there have been cases where the auctioned property owner did not pay the above fees for the land lots that won the auction but had their deposit forfeited, so there should be specific regulations to avoid disputes and loss of service fees.

Representatives of Hoang Mai town and people supervise a direct land auction in Quynh Trang commune. Photo courtesy of Nguyen Hai

Regarding the service fee issue, departments, branches and localities proposed to amend and supplement Circular No. 48/2017/TT-BTC dated May 15, 2017 of the Minister of Finance regulating the financial regime in auction activities to stipulate the auction participation fee to be consistent with the nature; it should not be stipulated as the sale price of auction participation documents. The documents should not be stipulated for sale but posted on the electronic information page for auction participants to refer to and register for online auction.

Regarding the subjects participating in the auction, the representative of the Department of Justice stated that currently there are no sanctions to limit (or prohibit) individuals (including officials and civil servants) from participating in the auction not because of the actual need to use land, but to trade and do business in land for profit. It is necessary to add sanctions to limit participation in the auction for the auction winner who then abandons the deposit and in the case of bidding lower than the starting price if the auction is by the method of bidding up, it is necessary to stipulate the confiscation of the deposit. Also related to this regulation, it is necessary to amend and supplement Article 218 of the 2015 Penal Code in the direction of colluding to lower the price, or raising the price according to the starting price of the auctioned property to apply. Because in reality, there may be acts of collusion, lowering the price or raising the price for State assets with a very high starting price but it is not possible to prove illegal profits.

Along with adjusting regulations related to asset auction activities in legal documents, to ensure more fairness and transparency in asset auction activities, representatives of many agencies and localities of Nghe An unanimously proposed to legalize or amend and supplement Decree No. 62/2017/ND-CP dated May 16, 2017 detailing a number of articles and measures to implement the Law on Asset Auction in the direction of building a common national online auction software. Mr. Nguyen Cong Hoan - Deputy Director of the Department of Justice affirmed: The Department will continue to review and advise the Provincial People's Committee to amend and supplement legal documents under the province's authority to suit practical conditions and legal regulations.