The income-based method for land pricing

There are various land pricing methods such as methods of direct comparison, subtraction method, land price adjustment coefficient method, surplus-based method, and income-based method. Here are the conditions and land pricing methods for the income-based method.

1. What is the income-based method?

The income-based method is prescribed and explained clearly in Decree No. 44/2014/ND-CP beside other land pricing methods as follows:

“3. Income-based method means a method of determining the land price being the quotient between the average annual net income earned on a land acreage unit and the average annual savings interest rate by the time of land pricing of VND deposits with a 12-month term at a state-owned commercial bank having the highest savings interest rate in the provincial-level locality."

2. Application conditions for the income-based method

The income-based method may be applied to land parcels with determined incomes and costs; this regulation is different from other methods.

This content is prescribed in Point c, Clause 1, Article 5 of Decree No. 44/2014/ND-CP as follows:

“c) The income-based method may be applied to land parcels with determined incomes and costs;”

3. The income-based method for land pricing

Pursuant to Article 5, Circular No. 36/2014/TT-BTNMT, the process and content of determining land prices using the income-based method are prescribed as follows:

Step 1: Explore, and collect information on the land parcel

- For non-agricultural land: The average annual income is the average amount earned from manufacturing, business, or lease over 05 consecutive years up to the pricing term.

- For agricultural land: The average annual income is determined as follows:

• Annual crops, aquaculture, or salt production: is the average amount earned from such activities over 03 consecutive years up to the pricing term;
• Perennial plants or production forests: is based on annual revenue, periodic revenue, or lump sum revenue.

- If the income from the target land parcel cannot be determined, information for the average income of at least 03 similar parcels of land in terms of purposes, locations, profitability, technical and social infrastructure, areas, dimensions, shapes, and legitimacy of rights to use land shall be collected, or information collected from the market shall be used.

Step 2: Explore, and collect information about the operating cost of the target land parcel

- The average annual cost is based on the taxes related to land, cost of land recovery; cost of maintenance of constructions on land, and production cost.

- The above costs are based on the limits and unit prices imposed by competent authorities.

If no limits or unit prices imposed by competent authorities are available, information about the average income of at least 03 similar parcels of land in terms of purposes, locations, profitability, technical and social infrastructure, areas, dimensions, shapes, and legitimacy of rights to use land shall be collected, or information collected from the market shall be used.

Step 3: Define the annual average net income

The annual average net income shall be calculated as follows:

Step 4: Pricing determination of land parcel

- Value of the target land parcel is determined as follows:

The annual average saving deposit interest rate(r) in 03 consecutive years up to the pricing date is the highest 12-month interest rate on a VND deposits defined by a state-owned commercial bank in the provincial regions(at the pricing term).

- For non-agricultural land with limited land use terms, the interest rate of the annual average saving deposit is as follows:

Within that, n is the remaining land use term of the target land parcel (by years).

If the land parcel has been invested, and constructed with the asset to bring into use and business, the current value shall be deducted after determining the value of the land parcel and property thereon in order to determine the price of the target land parcel.

The determination of current asset value of the land shall be determined in accordance with Step 2.

Step 5: Price determination of land parcel

 The land price of the target parcel is determined using the formula below:

Here is the Income-based method for land pricing methods.