Bait and Switch: The Dark Side of Market Manipulation Through Phantom Bids

According to the Ministry of Construction, the phenomenon of investors bidding very high prices for some land lots in auctions and then canceling deposits in recent times is to create a virtual price level to manipulate the market. The practice of buying and reselling many auctioned land lots to make illegal profits is quite common and organized. Land auctioned in Hoai Duc (Hanoi) is priced 28 times higher than the starting price. Photo: Nguyen Hung

The Ministry of Construction has just sent a report to the Government Office on the situation of real estate and commercial housing prices in some major cities increasing recently. According to the Ministry of Construction, land auctions have revealed a number of limitations and negative aspects. Accordingly, in the process of organizing land auctions in some places, there are still phenomena of “auction brokers”, collusion… affecting auction participants.

“The phenomenon of investors bidding very high prices for some plots of land, then canceling deposits, creating virtual price levels to manipulate the market, buying and reselling many auctioned plots of land to make illegal profits is quite common in many places and is even organized,” the Ministry of Construction said.

The ministry also pointed out some auctions in Hanoi with very high results, such as the land auction in Hoai Duc district, where the winning bid was 18 times higher than the starting price.

According to the Ministry of Construction, there are three main reasons affecting the results of land auctions in recent times: low starting prices, low deposits, and many investment groups in the auctions specializing in participating in auctions and then selling immediately to make a profit. Outside the auction area, there are also many brokers waiting for the results, ready to buy and sell auctioned land with a price difference of 200 – 500 million VND/lot.

The Ministry of Construction believes that the winning land auction results are many times higher than the starting price, which will negatively impact the land and housing price level, the housing and real estate market (supply and demand) because this price will be considered as the reference price to determine the land price, then create a new price level. The high auction price is beneficial for projects that have been allocated land and have paid land use fees, but is disadvantageous for projects that have been approved but the project owners have not paid land use fees.

The Ministry of Construction proposed to study and complete regulations related to land auctions, ensuring that they are consistent with the practical situation, in the direction of increasing deposits, determining starting land prices to closely match the actual situation of the area, shortening the time to pay the winning bid, and limiting auction participants for speculative purposes.

The Ministry also assessed that the fact that many people won land auctions at prices many times higher than the starting price also affected investors’ psychology, leading to an increase in the price of houses and real estate that were or are being offered for sale near the auction location.

“Increasing land prices will increase input costs and lead to an increase in housing and real estate prices. Businesses will have little opportunity to invest in affordable, low-cost projects and will be forced to invest in high-end, super-luxury real estate to serve those with very high incomes in society in order to recover capital and operate effectively. This will cause more difficulties for people, especially those with low and average incomes, in creating housing,” the Ministry of Construction analyzed.

Not only for the people, the excessively high land price level will make it impossible for businesses and investors to have effective investment and business plans, leading to a failure to attract construction investment in the area and a decrease and limitation of future supply. In addition, land recovery, compensation, support, and resettlement for projects using land for defense, security, and socio-economic development purposes will also be affected when the land auction results are unusually high.

“This could easily provoke people whose land has been recovered and who have received or have not received compensation to complain and demand a higher level than the approved plan, causing social instability,” said the Ministry of Construction.

Ngoc Mai