Factors that affect land values and the development of land value maps for strenthening policy making in Vietnam: The case study of non-agricultural land in Quang Ninh province, Vietnam

1.Introduction

Land is the premise for allocating production space for economic activities such as industry, agriculture, transportation and human living space. The value of land and mapping land values are among the topics discussed very early by scholars, both theoretically and practically. Prime examples of scholars include William Petty (Mcgovern, 27); David Ricardian (Bidard, 2014); Von Thun'e'n (1783-1850) (Mohamed Elbarmelgy, 2014); A. Myrick Freeman (A. Myrick Freeman III, 2014). Based on the theory of land value, other authors in the field of economic positivism have used models to quantify land values.

Vietnam applies the “universal ownership” regime. Accordingly, “Land belongs to the entire-people and the State acts as the representative of the land ownership and uniformly manages land which also belongs to all the people. The State grants land use rights to land users based on the Land Law” (Vietnam National Assembly, 2014). Simultaneously, Vietnam’s economy is operated on the basis of “socialist-oriented market economy institution”. In recent years, institutions and methods of land management have been gradually improved to meet the country’s development requirements. However, land management and regulation, especially land relations in the economy, have some limitations. One of the issues is currently the “simultaneous existence of two types of land prices: state-issued prices and market prices”, leading to inequality in implementing policies on compensating and site clearance when the State acquires land (Tran Thi Minh Chau, 2013). Although the State has attempted to adjust land valuation methods to be closer to market prices, the gap is still high. The overview of domestic research shows that the evaluation and mapping of land value areas are still something new but very meaningful to help the Government recognize fluctuations in land values in the economy, thereby adjusting land prices, taxes and fees to ensure social equality.

This study aims to find useful tools, make recommendations to help the Vietnamese Government recognize the true values of land to make policy decisions for managing and regulating land market in Vietnam to ensure efficiency and equality.

2. Literature Review

- William Petty (1623-1687) (Mcgovern, 27) in “Wealth, Stock or Provision of the Nation” discussed labor, land and claimed that “labor is the Father and active principle of Wealth, as Lands are the Mother”. Although this statement does not have a specific viewpoint about land values, it is fundamental for future arguments and research on the value of land .

- “Principles of Political Economy and Taxation” by David Ricardo (1772-1823) explained the inconsistency between price and value. When examining land rent, Ricardo stated that “Economic rent on land is the value of the difference in productivity between a given piece of land and the poorest [and / or most distant], most costly piece of land producing the same goods. (e.g. bushels of wheat) under the same conditions (of labour, capital, technology, etc.)”. The author also analyzes and concludes that rent increases as the population increases. Hence, Dicardo’s study reveals that land quality and population have impacts on land values. (Suman)

- According to economist Von Thunen (1783-1850), the distance from the land to the output market determines the values of that land. He builds a model to prove that land returns are dependent on farm profits minus product transportation cost. The model also allows accurate land use prediction based on the distance to urban areas. (Mohamed Elbarmelgy, 2014)

- A. Myrick Freeman from Bowdoin University, United States in “Measuring the value of natural resources and the environment: Theory and methods” (2003) analyzed the theoretical model of calculating economic values of land and houses in chapter 11, “Real estate value models”. There are two main approaches to measure the economic values of land and houses: Theory of Rents and the modern approach of Hedonic Theory. The economic theory recognizes that the profitability of land varies by location. Differences in profitability will lead to different economic rent levels, thus create different economic values for the land. The Hedonic Theory states that environmental characteristics such as air and water quality can have impacts on profitability of land both in the form of producer goods and consumer goods. The structure of ground rent will then reflect the differences in profitability which is determined by this environmental factor. (A. Myrick Freeman III, 2014)

- Hoang Huu Phe & Patrick Wakely (2002) in “Position, quality and other options: Towards a new theory of urban population position”: Position and quality quantification can be implemented either through estimating a proxy by a ranking process, or through estimating inferred prices of attributes related to position and quality of land. From this point of view, goods can be exchanged because of its economic values and market values. Therefore, buyers need to have market values and sellers are able to perform a valuable exchange. (Hoang Huu Phe, 2000)

- A study by Perry (2018) examines the value of farmland by mapping assessor data to have a better understanding about land use change. Using ArcGIS, the author comes to several conclusions : (i) land value is at its highest in the middle of the city center and gradually decreases towards the edges of urban system as well as rural areas; (ii) values of residental lands and farmland show similar trends since both experience a decrease in density as the distances from the city center are greater. Landuse changes are shown to be clustered in urban areas. Zrobek et al (2005) analyzes impacts on spatial differentiation of prices and real estate values which have not been developed but are aimed for building houses. The study includes calculating transaction price registration layer in ArcGIS. This layer should allow displaying “information of a transaction indicated on the map; selecting real estate properties based on attribute values; and presenting statistic values for real estates”. The range of land values can be represented by isolines showing the same value or by isolated zones, where “a relative uniformity of price-determining factors are assumed”. This method could be useful for analyzing preferences of real estate purchasers. Mostafa (2018) found that land price is positively influenced by population density, percentage of locals in Kuwait over the total population and schools, while it is negatively impacted by air pollution. Moreover, land prices in Kuwait are often clustered in groups/ hotspots. Hotspots are detected by the Kernel Density Estimation (KDE) method. Li & PGRNI (2015) determines the market value of land by using seven parameters: distance to schools; distance to roads, distance to police station; distance to railway station; distance to health facilities; types of land and distance to government buildings. ArcGIS software is used to create shapefiles for each of the above factors. Analytical Hierarchical Process (AHP) and surveys are also utilized to establish weights. The study area is divided into land value classes and classified as “very low, low, moderate, high and very high valued areas”. The results show that the total area has many moderately high and high land values. In another study by Elmanisa et al (2017), information and data of land prices are collected through sampling method. This data is then processed and represented on isoline maps on ArcGIS. Land price data sampling is done by interviewing real estate business stakeholders as well as websites and finance magazines. The isoline map ultimately shows the significant differnces in land prices among different regions of Jakarta.

- The above results from past research indicate that: (i) the study of land value has been developed by many scholars with various viewpoints and theories but there still remains a lack of comprehensiveness, especially in the current context; (ii) the study of land value in Vietnam has been discussed and brought up, but the topic has been neither throroughly analyzed in theories nor put into practice; (iii) Developed countries such as Japan, the USA, Sweden, China have sucessfully applied mapping land value, showing that this is a very useful tool that helps governments anticipate fluctuations and changes in land prices and it is the premise for proposing policies of compensation, assistance, taxes and fees to regulate the market. However, this is still something new to Vietnam.

3. Methodology and Research Design

3.1. Methodology

- Desk study method: Uses the Desk study method collects research and studies of land values to identify factors affecting land values, theories of land values, to apply outcomes of land value maps in reality, to collect secondary data relating to land values in Vietnam in general and Quang Ninh province in particular to serve the testing processes.

- Modeling method: based on the land value factors determined by the SPSS tool, ArcGIS is used to run a regression model in order to produce a land value map in Quang Ninh province, Vietnam.

- Policy analysis method: Recognizes the limitations in managing and regulating the land market in Vietnam, thereby relating theories of land values to mapping land value areas for policy recommendations.

3.2. Research design

- The procedure of this study is illustrated in Figure 1. After reviewing past research, the study clarifies viewpoints on the Price Theory and factors affecting land values; determines the method of developing a land value map. Next, the database used for testing in Quang Ninh province, Vietnam is collected.

4. Results and discussion

4.1. Factors affecting land values

Based on theories of value and an overview of past research on land values, three groups of factors involved in land price formation are identified: (i) distance factors; (ii) socio-economic factors; (iii) environmental factors. More details are provided in Table 1.

Table 2: Factors affecting land value formation

4.2. Develop a land value map

According to Vevin S. Ardiwijaya (2006), Trinh Huu Lien (2009), a land value zone is a geographic area that comprises of the same land units (pixels) impacted by natural, socio-economic, environmental and legal conditions and it is expressed in monetary values. Land value zones are classified based on usage purposes including agricultural land value zone and non-agricultural land value zone. Every zone has a standardized price, which is the average of the market price range. The number of standardized prices or the number of value zoning levels will be uniformly determined in each valuation period.

Developing a land value map is a process that assesses the potentials of a location and quantifies the position and quality of land. Each land parcel has a certain value. This value remains constant if factors involved in land parcel price formation do not change. An area that is not divided into parcels will have a primitive value. Different attributes of land parcels will lead to different prices. Factors such as direction, area, facade, shape have created differences in price between two adjacent parcels, even if the two parcels are within the same land value zone. Figure 2 below demonstrates a 7-step process of producing a land value map:

Figure 2: Steps in producing a land value map

Step 1: Preparation and field investigation

Preparation of documents, data for establishing land value areas for administrative units with cadastral maps:

1- Collecting thematic maps, socio-economic information:

+ Maps, diagrams identifying areas and neighborhoods that need to be preserved; maps of red-line boundaries, construction boundaries, electrical safety corridors, dyke safety …; Maps of assessing air quality and water quality; Soil maps; Administrative maps.

+ Topographic map for interpolation of terrain slope in the form of raster within the administrative units to create a land value map.

+ Other thematic maps for extracting background information.

+ Statistical yearbook; socio-economic reports in the area.

2- Field investigation preparation:

+ Determine investigation scope.

+ Anticipating investigation locations requires sales, auction, compensation data.

+ Provide training for technicians about requirements and methods of investigation.

+ Prepare a survey form.

3- Investigate land parcels with transactions in the field:

+ The investigation team needs to have a cadastral officer or a street leader.

+ Areas without required samples need to have participation of real estate experts in order to estimate land prices of areas where land parcels do not have transactions.

Step 2. Data processing:

1- Spatial data standardization.

- Clarify administrative boundaries, the scope of non-agricultural land in urban areas.

- Standardize cadastral map data: combine cadastral map pieces according to administrative units; process and analyze boundaries of administrative units as well as internal data according to each administrative unit; divide cadastral map data into data layers of non-investigated land parcels to create a land value map; standardize information of socio-economic objects (20 objects) for distance calculation; standardize linear objects for distance calculation.

- Data that needs to be standardized for extracting information includes: ability to provide clean water, traffic density, conservation of historic towns, terrain slope raster, population density, rate of natural increase, new urban areas, urban planning areas, construction-limited areas, security, total product per capita, air, water and soil quality.

2 - Data conversion: Having standardized data layers from above, use editing and data processing software to convert to database for the land value map.

3-Process surveyed land prices data: In this step, the user needs to eliminate individual factors, values of land assets. The land survey data is then standardized in Excel format (*.xls).

Step 3. Enter, process surveyed land parcels data:

- Create central points for surveyed land parcels (tamthuadieutra) with similar attribute information to that land parcel (DatPNN_Dtra).

- Enter the land survey data which was standardized in Excel format.

- Calculate the distance from land parcel centers to the nearest point-type socioeconomic objects.

- Export attribute information from attribute data layers (15 layers) in Dataset DL_Vungthuoctinh into the land parcel central point layer.

- Synthesize information of the surveyed land parcel, distance and other attribute information in a table.

- Export the synthesized information to calculate nominal land price regression function.

Step 4. Develop a nominal land price regression function:

- Having the surveyed land parcel information table in .xls format, a statistical software SPSS is used to calculate and determine the coefficients in the linear regression function.

Figure 3: Establish a land value function by modelling impact factors

Step 5: Interpolate land value zone:

Having processed nominal land prices from the surveyed land prices and nominal land prices of unsurveyed land parcels calculated from the regression function, the Kriging interpolation tool in ArcGIS will be used to interpolate the land value zone.

Step 6: Edit, present the land value map:

Use map editing and presenting tools to illustrate the thematic content, map elements and notes.

4.3. Application to non-agricultural land in Quang Ninh province:

Quang Ninh is a mountainous, midland province located in the coastal and border areas of Northeast Vietnam with an area of 6,177.7 km2 and a population of 1,224,600 people (2016). The topography of the province can be divided into three regions, mountainous, midland and coastal plains, sea and islands (Figure 4)

In order to create a land value map based on factors affecting land values, the required data includes: (1) spatial data (types of current land use maps, topographic maps, soil and air quality); (2) attribute data indicating socio-economic and environmental factors that are involved in land values. Details of data source are provided in Table 3.

Table 3: Data source details

The results from collecting and processing land transaction price information are demonstrated in Figures 5, 6, 7, 8, 9.

The project could use the nominal land price function to calculate land parcels with unknown prices but with similar socioeconomic and natural information to land parcels with prices. A land value map in Quang Ninh is developed based on seventeen land price formation factors from the current land use map.

4.4 Discussion and application:

- The Viet Nam Land Law states that “Lands belong to all the people, the State represents land owners, manages and grants land use rights to users according to regulations”. Land users have a total of eleven rights, which are the basis for establishing land market relations such as the rights of transferring, donating, inheriting, mortgages, making financial contribution. Land users could include organizations, households, communities, individuals, foreign organizations, Vietnamese residing overseas according to law on nationality, national enterprises and those that are foreign-invested.

- There are two basic forms of land use rights market in Vietnam: (1) primary market, assigned and rented to land users by the State; (2) secondary market, includes market segments transferring land use rights, land rental market, market that contributes financially with land use rights. Transactions of land use rights is implemented on the trading floor. Land prices of primary market are assigned by the State according to the issued price lists and price brackets. Land prices of secondary market are the free market price.

- Land price reflects the relationship of supply-demand of land. It is also a tool used by the State to regulate land and real estate market, ensuring efficiency in land use. Therefore, the State needs to have an appropriate land pricing mechanism, reflecting the true value of land. Moreover, there are two types of land price: (1) land prices set by the State, used to calculate land use taxes, compensation when the State acquires the land or grants the land to enterprises, state agencies; (2) market land prices are those transferred by the parties based on the market mechanism. To ensure equality, it is necessary to regulate the added or diminished land value without investment from land users. Land taxes and fees need to be based on market’s principles. However, in reality, price brackets are stable for a period of time while the minimum and maximum are still lower comparing to the market. Assigning and renting land do not show future values of land, thus land is not exploited and used effectively, leading to the above two types of land prices. Figure 11 reflects the current situation of land prices in Viet Nam.

Therefore, in order to reduce the gap between market price and prices set by the State as well as reflecting the actual land value, using a land value map will help us adjust the price list and price brackets.

5. Conclusion:

This study has provided different viewpoints on land value and discussed methods of developing a land value map. Nevertheless, in the case of Viet Nam, determining factors affecting land value and creating land value zones are still limited. The study also identifies three groups of land value formation factors: distance, socioeconomic and environmental factors. With these three groups being concretized into seventeen factors, the study shows that determined factors are suitable, and that it is certainly feasible to create and build a land value map in Viet Nam.

In particular, comparing with the practical context of land management in Vietnam, it is significant to apply the method of developing land value zone maps based on the factors affecting the value of land. In order to solve the current shortcomings related to reducing the gap between the market price and the price issued by the State and at the same time ensuring fair. To do this, first of all need the official recognition of the Government through legalizing the development, updating and use of land value zone maps in land management and administration.

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