Thông tư 42/2024/TT-BTC Chuẩn mực thẩm định giá Việt Nam về Thẩm định giá bất động sản do Bộ trưởng Bộ Tài chính ban hành

CIRCULAR

PROMULGATING VIETNAM’S VALUATION STANDARD ON REAL PROPERTY VALUATION

Pursuant to the Prices Law dated June 19, 2023;

Pursuant to the Government’s Decree No. 14/2023/ND-CP dated April 20, 2023 defining functions, tasks, powers and organizational structure of the Ministry of Finance of Vietnam;

At the request of the Director of the Department of Price Management;

The Minister of Finance of Vietnam promulgates a Circular promulgating Vietnam’s Valuation Standard on real property valuation.

Article 1. Vietnam’s Valuation Standard on real property valuation is promulgated together with this Circular.

Article 2. Effect

1. This Circular comes into force from August 05, 2024.

2. The Circular No. 145/2016/TT-BTC dated October 06, 2016 of the Minister of Finance of Vietnam promulgating Vietnam’s Valuation Standard No. 11 - Real property valuation ceases to have effect from the effective date of this Circular.

Article 3. Implementation

1. Relevant organizations and individuals are responsible for implementation of Vietnam’s Valuation Standard enclosed with this Circular.

2. Difficulties that arise during the implementation of this Circular should be promptly reported to the Ministry of Finance of Vietnam for consideration./.

VIETNAM’S VALUATION STANDARD

ON REAL PROPERTY VALUATION
(Enclosed with the Circular No. 42/2024/TT-BTC dated June 20, 2024 of the Ministry of Finance of Vietnam)

Chapter I

GENERAL PROVISIONS

Article 1. Scope

This Vietnam’s Valuation Standard prescribes and provides instructions about real property valuations which are conducted in accordance with regulations of the Prices Law. This Vietnam’s Valuation Standard does not apply to determination of land prices in accordance with regulations of the Law on land.

Article 2. Regulated entities 

1. Valuers, valuation firms rendering valuation services in accordance with regulations of the Prices Law.

2. Organizations and individuals that perform State valuation tasks in accordance with regulations of the Prices Law.

3. Organizations or individuals ordering valuation services, third parties using valuation reports under valuation service contracts (if any).

Article 3. Definitions

1. “real property with development potential” means vacant land used for construction purposes or land with existing buildings which may be renovated or demolished to build new buildings on land to achieve the highest and best use.

2. “residual method” means a valuation method which is employed to determine the value of real property with development potential on the basis of the estimated development value of the property (gross development revenue) minus estimated reasonable costs (including a profit for the investor) which arise from that development (total development costs).

Article 4. Real property valuation approaches and methods

1. The valuation of real property may be conducted adopting the market approach, cost approach or income approach as prescribed in Vietnam’s valuation standards or a combination thereof.

2. Valuation methods used in the real property valuation include valuation methods used in the approaches or combinations of approaches prescribed in clause 1 of this Article. Residual method is a valuation method which is developed on the basis of combination of the market approach, the cost approach and the income approach.

3. Appropriate valuation approaches and methods will be selected based on the characteristics of the real property to be valued, valuation purposes, time of valuation, bases of value, information and data on the real property to be valued which can be collected.

Chapter II

RESIDUAL METHOD

Article 5. Application of residual method

1. Formula used in residual method:

V = DT - CP

Where:

V: Value of the subject property;

DT: Gross development revenue;

CP: Total development costs.

2. Steps of the residual method:

a) Determining the highest and best use of real property;

b) Determining the forecast period of future cash flows (n);

c) Determining gross development revenue (DT);

d) Determining total development costs (CP);

dd) Determining value of the real property (V).

3. Cases of time when development revenue and development costs arise:

a) Case 1: Both development revenue and development costs arise in the same year. In such case, the development revenue and development costs of the real property shall be calculated according to the price levels applied at the time of valuation.

V = DT - CP (at the time of valuation)

b) Case 2: The development of the real property lasts for several years; upon the completion of construction, the real property will be entirely or partially leased to serve business purposes or will be partially sold during several years.

Where:

V: Value of the subject property;

DT_t : Expected development revenue in year t;

CP_t : Estimated development costs in year t;

r: Discount rate;

n: Forecast period of future cash flows;

t: Forecast year.

Article 6. Determining highest and best use of real property

The highest and best use of real property is determined on the basis of:

1. Characteristics of the subject property.

2. Information on land use plannings, construction plannings, traffic plannings, regulations on land repurposing and regulations on investment and construction approved by competent authorities.

3. Guidance on the analysis of the highest and best use provided in Vietnam’s valuation standard on collection and analysis of information on assets to be valued.

Article 7. Determining forecast period of future cash flows (n)

The forecast period of future cash flows shall be determined according to instructions given in Vietnam's valuation standard on income approach.

Article 8. Determining gross development revenue (DT)

1. Gross development revenue of the real property is total revenue expected to be earned from the real property when it is put into the highest and best use.

2. Gross development revenue of the real property is determined on the basis of surveys and collection of information on transfer price, rent and other components of the revenue (such as selling time, starting selling time, selling rate, and occupancy rate) of at least 03 pieces of real property whose features are similar to those of the investment project to be built in the area where the subject property is located or the area that has profit-earning capacity and equivalent technical and social infrastructure conditions, taking into account the trends and changes in transfer price, rent and other components of revenue of the project. When determining the gross development revenue, it is necessary to carry out analysis and evaluation of the ability to execute, complete and put the project into operation according to the promised investment schedule and regulations on real property in force.

Changes in transfer price, rent and other components of revenue are determined on the basis of findings of market surveys or data publicly disclosed by statistics authorities or real property market surveillance authorities, and must be conformable with changes in the real property market over years.

3. Gross development revenue is determined adopting either the market approach or the income approach.

a) In case the gross development revenue is generated only in 01 year, the development revenue shall be calculated according to the price level at the time of valuation in respect of the real property, when completed, all products of which are sold out at the time of valuation;

b) In case the development of the real property lasts for several years, and upon the completion of construction, the real property will be entirely or partially leased to serve business purposes or will be partially sold during several years, the gross development revenue of the real property shall be converted to the time of valuation adopting the following general formula:

Article 9. Determining total development costs (CP)

1. Total development costs include all necessary costs of undertaking the development of the subject property which are determined in conformity with applicable laws (on technical - economic norms, consumption of materials and fuels, and accounting for production and investment costs) and ensuring the achievement of the highest and best use of the subject property.

2. Total development costs of the subject property include:

a) Investment and construction costs, including: costs of construction of technical infrastructure, works and other work items; equipment costs, consulting costs; project management costs and relevant costs;

b) Contingency costs;

c) Business costs (such as advertising and selling costs, management and operation costs, and other relevant costs);

d) Financial expenses and taxes, if any (such as taxes on use of assets/real property);

dd) Other reasonable costs;

e) The investor’s profit is determined on the basis of the average ratio of profits on the market to total costs (including initial investment values but excluding financial expenses) of at least 03 similar real property projects in the market or the average ratio of earnings before CIT (as audited or finalized) to total costs of at least 03 similar real property enterprises in the market;

g) Costs of compensation and land clearance, including compensations, subsidies for relocation; expenditures on performing compensation and land clearance works are not included in total development costs.

3. The abovementioned costs are determined on the basis of surveys and collection of information on actual and common costs of similar real property projects and price levels on the market (such as raw materials, fuels, labor and equipment unit prices) at the time of valuation, and in conformity with regulations of law on construction, and relevant provisions of Vietnam’s valuation standard on cost approach. Where information on costs cannot be collected, such costs may be determined according to current regulations adopted by competent authorities on methods for determination of total investment costs of projects, technical - economic norms, construction unit price, and investment capital rates of similar real property projects for each forecast year in conformity with the construction progress of the real property project; however, it is necessary to argue for their suitability for the purpose and time of valuation, and make adjustments to norms, unit prices and investment capital rates (where necessary) before they are put into use.

If regulations of law stipulate that costs must be determined according to technical - economic norms, construction unit prices, and investment capital rates promulgated by competent authorities, total development costs of the real property shall be determined according to such norms, unit prices, and investment capital rates.

4. Determination of total development costs of the real property should take into account the changes in values of whole-life costs of the real property project (if any) so as to ensure their suitability for changes in raw materials and fuels during the forecast period.

5. Total development costs are determined adopting either the market approach or the income approach.

a) In case total development costs are incurred only in 01 year, development costs shall be calculated according to the price level at the time of valuation in respect of the real property, when completed, all products of which are sold out at the time of valuation;

b) In case the development of the real property lasts for several years during which costs are incurred, the conversion of total development costs of the real property to the time of valuation shall be carried out adopting the following general formula:

Article 10. Determining discount rate (r)

1. The discount rate must reflect the time value of money and risks associated with the cash flows which arise during the construction, completion and operation of the real property project.

2. The discount rate is determined adopting one of the following methods:

a) The discount rate is determined adopting the income approach prescribed in Vietnam’s valuation standard on income approach;

b) The discount rate is determined on the basis of the average rate of interests on medium-term loans in VND given by commercial banks over 50% of charter capital or total voting shares of which is held by the State and which are headquartered or have their branches located in provincial-level areas at the time of valuation for the purpose of executing the real property project./.