Land valuation income method in Vietnam

by Anh Việt

Land is the priceless asset of every citizen. In some cases, because of many different requirements, people have to sell their land. So about the matter “Land valuation income method in Vietnam” Let’s find out with LSX in the article below.

Legal grounds

  • Decree 44/2014/ND-CP
  • Circular 36/2014/TT-BTNMT

Land valuation income method in Vietnam

According to Clause 3, Article 4 of Decree 44/2014/ND-CP, regulations on land valuation income methods are as follows:

“The income method is a method of valuing land

In what order is the income method of land valuation done?

According to the provisions of Decree 44/2014/ND-CP and Circular 36/2014/TT-BTNMT, the order and content of land price determination by income method is carried out according to the following steps:

Step 1: Survey and collect information about the income of the land plot to be valued

a) For non-agricultural land, the average annual income of the land plot to be valued is the average amount earned from production, business or leasing activities for 5 consecutive years up to the time of valuation. .

b) For agricultural land, the average annual income of the land plot to be valued is calculated as follows:

– For land for growing annual crops, land for aquaculture, and land for making salt, the average income per year is the average amount earned from production activities for 3 consecutive years up to the time of valuation;

– For land for planting perennial crops and land for production forests, the average income per year is calculated on the basis of annual revenue, revenue by period, and one-time revenue.

c) In case the income of the land plot to be appraised cannot be determined, information on the average income of at least 03 similar land plots shall be collected in terms of land use purposes, location, profitability, and conditions. technical and social infrastructure conditions, area, size, shape and legal status of land use rights or based on actual information and data collected on the market.

Step 2: Survey and collect information on costs to form income of the land plot to be valued

a) The annual average cost is calculated based on taxes related to land use; investment costs for land improvement; expenses for maintenance and repair of construction works attached to land; production cost.

b) The expenses specified at Point a of this Clause are calculated according to norms and unit prices promulgated by competent state agencies. In case there is no norm or unit price promulgated by a competent state agency, collect information on the cost of a similar land plot in terms of land use purposes, location, profitability, and conditions of connection and social infrastructure, area, size, shape and legal status of land use rights or based on information and actual data collected on the market.

Step 3: Determine the average net income per year according to the following formula

Average net income per year = Average income per year – Average expenses per year

Step 4: Determine the value of the land plot to be valued according to the following formula

Value of land plot to be appraised = Average net income per year / Average interest rate on savings per year

Average savings deposit interest rate per year (r) for 03 consecutive years up to the time of land valuation of VND 12 month term deposit of state commercial banks with high savings deposit interest rate (determined at the time of land valuation) in the province.

Particularly for non-agricultural production and business land with definite term, the average annual savings deposit interest rate is adjusted according to the following formula:

Term-adjusted interest rate = r x (1 + r)n / (1+r)n – 1

Where it is the remaining land use term of the land plot to be valued (in years).

In case the land plot to be valued has been invested and built with assets attached to the land to be put into production and business, after determining the value of the land plot and assets attached to the land, Currently subtracting the present value of assets attached to the land to determine the value of the land plot to be valued.

The determination of the present value of assets attached to land shall comply with the provisions of Clause 2, Article 4 of this Circular.

Step 5. Determine the land price of the land plot to be valued according to the following formula

Land price of the land plot to be valued = Value of the land plot to be valued / Area of ​​the land plot to be valued

What are the advantages and disadvantages of the land valuation income method?

  • Advantages of the land valuation income method

+ Simple in application, clear calculation formula, easier to understand than the discounted cash flow method;

Relatively high accuracy when there is accurate and comparable deal information.

  • Disadvantages of the land valuation income method

+ In the analysis of deals, it is necessary to adjust many aspects: life expectancy, quality, lease term, changes in rental rates in the future, etc. It makes it difficult to convince customers by the information that has already been provided.

+ A lot of data is estimated and adjusted, so it requires high level and experience of adjustment and must be full of information. Accuracy may be limited due to the accuracy of the forecast information.

Carry limited information about assumptions about future cash flows.

+ Apply a fixed capitalization rate, so that the total annual return from real estate is also fixed. While the performance of real estate in the past has been of primary importance in raising capital, investors’ interest has focused on the potential net profit.

The income method requires an accurate determination of the total income from the property in each year and must predict the income for the entire remaining economic life of the property. This is a very difficult job, especially for countries with underdeveloped market economies like ours.

Note: The calculated income method is very complicated.

Therefore, this method is rarely used in bulk valuation, but is often used to value individual properties.

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Frequently asked questions

What are the conditions for applying the collected land valuation income method?

Pursuant to Point c, Clause 2, Article 5 as follows:
This method is applied to the valuation of land plots with which incomes and expenses from land use can be determined.

Is the land valuation income method accurate?

The accuracy of the land price determined by the income method is determined by the accuracy of the land income and the rate of return. Determining the income of land is accurate or not, choosing the appropriate rate of return on investment will directly affect the results of determining land prices. Therefore, calculating land income and determining the rate of return on investment are key stages of the income method.

What is the principle of the land valuation income method?

Land has fixed and individual characteristics in terms of location, non-increase in area, and permanence in use when having the right to use a certain parcel of land, land can not only provide income current income for the user, but also be able to maintain that income in the following years. When that income is calculated at current value (called income value or capital value) by a certain rate of return on investment, it will represent the value of that land, and also the value of capital. appropriate objective exchange, which is the principle of the income method.

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