Apply interest costs and investor profits lower than reality?

The Law on Real Estate Business, which took effect on August 1, stipulates that to implement a project, the investor must have a minimum capital of 15% or 20% of the total construction investment cost, the remaining amount the investor will have to mobilize by borrowing from banks and customers.

Regarding the payment process in the purchase and lease-purchase of future real estate, the law stipulates that investors can only mobilize capital when the foundation has been completed (for apartments) and the first payment for the purchase and sale of future housing must not exceed 30% of the contract value. Therefore, the rate of bank loans for real estate projects ranges from 50-70% of the total construction investment cost.

According to businesses in Ho Chi Minh City, if the medium-term loan interest rate is 12%/year, the interest expense will account for 6-9% of the total construction investment cost. Meanwhile, in Decree 71 on land valuation that has just been issued, it is assumed that the interest expense and the investor's profit are calculated as 15% multiplied by the total construction investment cost, business cost and land use right value.

A business leader said that according to Decree 71, both interest costs and profits are "applied" at an assumed figure of 15%, meaning that if interest costs are calculated at 6-9%, the investor's profit will be around 6-9% of the total construction investment costs and land costs.

"Obviously, the profit level is lower than the standard profit of social housing development. If the investor's profit is calculated higher, the interest expense will decrease, which will be much lower than the actual level when currently many businesses are still borrowing for real estate projects with interest rates of 10-14%/year," he said.

There needs to be unified regulation.

According to experts, although the decree's appendix stipulates figures that are illustrative in nature and not applicable in practice, the 15% rate still causes concerns for the project developer community.

Investors of many real estate projects in the South (who requested not to be named) said that when applying the decree, the implementing agencies will be guided by the ratio given in the decree's appendix with the interest costs and profits of investors.

Therefore, when the attached appendix stipulated a rate of 15%, localities and land valuation consultants were also apprehensive and were guided by the number 15% without setting another rate suitable for the market.

Meanwhile, a large valuation unit in Ho Chi Minh City said that although there is a decree and examples of hypothetical application rates, valuation units hope that the Ministry of Natural Resources and Environment will issue official regulations for uniform application and at the same time, close to the actual operations of enterprises.

According to this unit, calculating the interest rate and profit of investors when calculating land prices, as well as many other reasonable costs, will solve the problem of land valuation that has been stuck for many years.

According to businesses, the investor's profit usually falls between 15-20% of the total construction investment cost and land cost, while the interest expense accounts for 6-9% of the total construction investment cost. Therefore, the interest expense and the investor's profit account for 21-29% of the total construction investment cost and land cost.