Vietnamese Valuation Principles en

Advanced Real Estate Valuation
Vietnamese Principles of Property Valuation
08.01.2019 | Institut für Geodäsie | Fachgebiet Landmanagement | Tran Hoang Nam, M.Sc. M.Ed. | 1
Contents
1. Introduction
2. Vietnamese valuation system
3. Property valuation process
4. Property valuation approaches and methods
5. Comparison between property valuation in Germany and Vietnam
6. Conclusion
Introduction (1)
Hanoi
Ho Chi Minh City

(Saigon)
VIET NAM
Introduction (2)
Vietnamesisch-Deutsche Universität
 Founded in 2008 as a research-oriented Vietnamese State University

 Following the model of German higher education
 Academic profile is focused on engineering areas, natural sciences and economics
 Total number of students by 2016/2017: 1,195
 The VGU New Model University Project Total Investment: 200 million USD
Introduction (3)
SUSTAINING
OUR FUTURE
Sustainable Urban Development (SUD) is a full-time two-year
master program offered at Vietnamese German University
(VGU) by Technical University of Darmstadt (TUD) since 2012.
Vietnamese valuation system (1)
THE ADMINISTRATIVE SYSTEM OF VALUATION IN VIETNAM
THE GOVERNMENT
Ministry of
Ministry of Ministry of
Natural Resources
and Environment Construction Finance
Land Construction COMPANY / MACHINE / INTELLECTUAL
Valuation Valuation FIRM EQUIPMENT PROPERTY

REAL ESTATE VALUATION VALUATION VALUATION VALUATION
PROPERTY VALUATION
THE LEGAL SYSTEM OF VIETNAM (CENTRAL LEVEL)
NATIONAL ASSEMBLY
CONSTITUTION
Code
Law
Ordinance
GOVERNMENT
Decree / Decision
MINISTRY
Joint-Circular Circular Decision
LEGAL FRAMEWORK CONCERNING VALUATION IN VIETNAM
ORDINANCE ON LAW ON PRICES

PRICES 2002 2012
Decree on Decree on
Valuation 2005 Valuation 2013
Standards 1, 3, 4 Standards 7-12 Standard 13 Standards 1-4 Standards 5-7 Standards 11

on 18/04/2005 on 31/12/2008 on 07/01/2014 on 27/10/2014 on 06/03/2015 on 06/10/2016
Standards 2, 5, 6 Standards 8-10

on 01/11/2005 on 20/08/2015
INVALID VALID
2005 - 2014 2014 - Present

01 Market values using for property valuation Ethical rules for property valuators
02 Non-market values using for property valuation Market values using for property valuation
03 Ethical rules for property valuators Non-market values using for property valuation
04 Report and draw up the certificate of valuation results Economic rules affecting to property valuation
05 Valuation process Valuation process
06 Economic rules affecting to property valuation Report and draw up the certificate of valuation results
07 Comparison method Classificarion of property

08 Cost-based valuation method Market-based valuation method
09 Income-based valuation method Cost-based valuation method
10 Residual method Income-based valuation method
11 Profit method Real property valuation method
12 Classificarion of property
13 Valuation of intangible property
Property valuation process (1)
Valuation standard No. 05: Valuation process

 Step 1: General determination of to-be-valued property, and determination of
market or non-market values which shall be used as the basis for the valuation.
 Step 2: Formulation of the valuation plan.
 Step 3: Actual survey and information collection.
 Step 4: Information analysis.
 Step 5: Determination of value of to-be-valued property.
 Step 6: Formulation of the report on the valuation result and valuation certification,
and delivery of this valuation report and certificate to clients as well as other
parties concerned.
Step 1: General determination of to-be-valued assets, and market or non-

market values which shall be used as the basis for the valuation.
 Determining basic legal, economic, technical characteristics of to-be-valued

property which affect the value of to-be-valued property at the valuation date.
 Specifying entities that use the valuation result.
 Defining the valuation objective and valuation date.
 Determining the basis of valuation.
 Determining assumptions and special assumptions.
Step 2: Formulation of the valuation plan.
 Determining objectives, requirements and contents of work.
 Determining valuation methods or approaches.
 Identifying necessary data for the valuation as well as documents that need to be
collected about market, to-be-valued property or comparable property.
 Identifying and developing sources of materials, ensure that such sources of materials
must be reliable and proven.
 Creating the implementation timeline, identifying the steps in collecting and analyzing
data as well as the permitted deadline for each valuation step.
 Determining arrangement for implementation and resource distribution.
 Determining which contents of work may require independent third party experts (if any).
Step 3: Actual survey and information collection (Real estate)

 Location;
 Legal characteristics;
 Land size;
 Property attached to land;
 Geometric features;
 Architectural types and building materials;
 Completion date, lifetime, repair and maintenance status;
 Technical and social infrastructure;
 Landscape and surrounding environment;
 Use of the property determined at the valuation date;
 Data about economy, society, environment, planning and other elements;
 Etc.
Step 4: Information analysis

 Analyzing information about the legal, economic and technical characteristic of property.
 Analyzing information about the market of to-be-valued property:
 Supply - demand;
 Change to policy and law;
 Scientific and technological growth;
 Other factors.
 Analyzing the highest and best use of property:
 Legal requirement for the use of property, restrictions on the use of property that have
been determined under the terms and conditions of a contract or under the provisions of
legal regulations;
 Material and technical relevance to the use of a property;
 Financial feasibility.
Step 5: Determination of value of to-be-valued property
 The valuator shall analyze and select the valuation method which are appropriate and relevant
to the valuation objective, the underlying value of a property, availability of valuation inputs
and data used to apply this valuation method, and compliant with relevant legal regulations.
 The valuator shall apply two valuation methods or more to property in order to collate the
valuation results and reach accurate conclusions about the valuation results, unless otherwise
stipulated by legal regulations of specific specialized agencies.
 The valuator shall be entitled to use one valuation method in the following cases:
 The comparison approach is adopted when there are many data and inputs from
transactions (at least three transactions) of comparable property on the market that take
place close to the valuation date.
 There is a lack of information necessary for applying two valuation methods or more and
there are sufficient grounds for any failure to deal with the restrictions on information.
Step 6: Formulation of the report on the valuation result and valuation certification,
and delivery of this valuation report and certificate to clients and other parties.
 The valuation report and certification shall be formulated under the provisions of
Vietnam’s valuation standard No. 06.
 Determination of the date on which the valuation certificate begins its validity: The date
on which the valuation certificate is issued.
 Determination of the validity term of the valuation result: Maximum 6 months from the
date on which the validation certificate begins its validity.
 The valuation report and certification, after being signed for issuance by the valuation
enterprise or its branch in accordance with legal regulations, shall be delivered to
clients and the third party for the purpose of use of the valuation result (if any) as
agreed upon in the valuation contract that contracting parties have signed.
Property valuation approaches and methods (1)
Valuation standard No. 08: Market-based approach
The income-based approach includes method of valuation based on

comparison between to-be-valued property and the same or similar property
which has been successfully transacted or are transacting in the market.
 Comparison method
Comparison method is a valuation method based on analysis of the price of

similar real estate, which has been successfully transacted or are
transacting in the market under normal commercial conditions at the same
time or at a time close to the time of valuation, in order to estimate and
determine the market price of the real estate.
Valuation standard No. 09: Cost-based approach
The cost-based approach includes methods of valuation based on the

difference between cost of producing the same or similar property and
depreciation cost of the to-be-valued property.
The cost-based approach includes reproduction cost method and

substitute cost method.
 Reproduction cost method
The reproduction cost method is used to determine the value of property

based on difference between cost of reproduce the same property and
depreciation cost of to-be-valued property.
 Substitute cost method
The reproduction cost method is used to determine the value of property

based on difference between cost of reproduce a similar property and
depreciation cost of to-be-valued property.
Valuation standard No. 10: Income-based approach
The income-based approach includes methods of valuation based on

conversion of net income flows in the future that may be received from the
exploitation of property, into the present value of the property.
The income approach includes direct capitalization method and discounted

cash flow method.
 Direct capitalization method
The direct capitalization method is applicable to cases where the income

from property is unchanging over the years of investment and the
investment period is infinite.
 Discounted cash flow method
The discounted cash flow method is applicable to cases where the income
from property changes year by year.
Valuation standard No. 11: Real estate valuation
The real estate valuation method is used to determine the value of land-use
right or the value of real estate with development potentiality. The method is
a combination among the market approach, the cost approach and the
income approach.
The real estate valuation method includes extraction method and residual
method.
 Extraction method
The extraction method is used to determine the value of the land use right
over the land plot with properties attached to land by subtracting the
contributory value of the properties on land from the total value of the real
estate (value of the land use right and value of properties attached to land).
 Residual method
The residual method is used to determine the value of real estate with
development potentiality on the basis of the estimated value of presumptive
development of the real estate (total development revenue) minus estimated
costs that may arise to make such development (including investors' profits).
Comparison between property valuation in
Vietnam and Germany (1)
ISSUE VIETNAM GERMANY
The legal documents, which has been The legal documents are
promulgated by different agencies in promulgated by agencies at the
national and provincial levels, are Federal States and State levels.
various and confused.
The legal documents are more
At the national level, the legal stable during a long time because
Legal documents concerning land valuation they can deal with various situations
include the Constitutions, Land Laws, in the reality.
Framework
Decrees, Decisions, Circulars, and
Joint Circulars.
The legal documents have not been

stable because they change every ten
years to adapt to the reality.
The Government has assigned three The public valuation boards are
different tasks for various Ministries: responsible for certain locality.
- The Ministry of Construction has been The offices of the boards are
Public assigned: the task of property valuation; established in the departments of
Valuation - The Ministry of Natural Resources and surveying and every board has
Organization Environment: the task of land valuation about 10 to 20 members.

for the State’s price; Board members can be either head
- The Ministry of Finance: the task of of public surveying departments or

market-based land valuation services. experts of the private economy.
- Certificate of general valuation: is German valuation certificates:

issued by the Ministry of Finance; - “ö.b.v.S.”: is awarded by Industrial
- Certificate of construction valuation and Trade Association;

engineer: is issued by the Ministry of - “HypZert”: is a useful certificate for
Chartered Construction; working in the banks;
Valuator - Certificate of real estate valuation: is - “ÖbVI”: is a special title for a land
issued by the Ministry of Construction. surveyor;
- Certificate of land valuation: is issued International certificate of valuation

by the Ministry of Natural Resources is issued by Royal Institution of
and Environment. Chartered Surveyors (RICS).

- Comparation method; Three official valuation methods:
- Reproduction cost method; - Comparable method;
- Substitute cost method; - Rental method;
Property - Direct capitalization method; - Depreciated replacement cost method.

Valuation
- Discounted cash flow method; Other valuation methods:
Method
- Extraction method; - Discounted cash flow method;
- Residual method. - Developer method;
- Investment method.
Conclusion (1)
Complete
legal
framework
Inherit
‘Promising’
international
business
standards
Pros
Conclusion (2)
Lack of
property
Reliability of index Lack of ‘big’

data database
‘Experience-
Authorities
overlap
Cons based’
valuation

Vietnamese Valuation Principles en

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Vietnamese Valuation Principles en

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Advanced Real Estate Valuation

Vietnamese Principles of Property Valuation

2. Vietnamese valuation system

3. Property valuation process

4. Property valuation approaches and methods

5. Comparison between property valuation in Germany and Vietnam

Ho Chi Minh City

 Founded in 2008 as a research-oriented Vietnamese State University

THE ADMINISTRATIVE SYSTEM OF VALUATION IN VIETNAM

Land Construction COMPANY / MACHINE / INTELLECTUAL

Valuation Valuation FIRM EQUIPMENT PROPERTY

THE LEGAL SYSTEM OF VIETNAM (CENTRAL LEVEL)

Joint-Circular Circular Decision

LEGAL FRAMEWORK CONCERNING VALUATION IN VIETNAM

ORDINANCE ON LAW ON PRICES

Standards 1, 3, 4 Standards 7-12 Standard 13 Standards 1-4 Standards 5-7 Standards 11

Standards 2, 5, 6 Standards 8-10

2005 - 2014 2014 - Present

07 Comparison method Classificarion of property

Valuation standard No. 05: Valuation process

 Step 2: Formulation of the valuation plan.

 Step 3: Actual survey and information collection.

 Step 4: Information analysis.

 Step 5: Determination of value of to-be-valued property.

Step 1: General determination of to-be-valued assets, and market or non-

 Determining basic legal, economic, technical characteristics of to-be-valued

 Specifying entities that use the valuation result.

 Defining the valuation objective and valuation date.

 Determining the basis of valuation.

 Determining assumptions and special assumptions.

Step 2: Formulation of the valuation plan.

 Determining objectives, requirements and contents of work.

 Determining valuation methods or approaches.

 Determining arrangement for implementation and resource distribution.

Step 3: Actual survey and information collection (Real estate)

Step 4: Information analysis

Step 5: Determination of value of to-be-valued property

Valuation standard No. 08: Market-based approach

The income-based approach includes method of valuation based on

Comparison method is a valuation method based on analysis of the price of

Valuation standard No. 09: Cost-based approach

The cost-based approach includes methods of valuation based on the

The cost-based approach includes reproduction cost method and

 Reproduction cost method

The reproduction cost method is used to determine the value of property

 Substitute cost method

The reproduction cost method is used to determine the value of property

Valuation standard No. 10: Income-based approach

The income-based approach includes methods of valuation based on

The income approach includes direct capitalization method and discounted

 Direct capitalization method

The direct capitalization method is applicable to cases where the income

 Discounted cash flow method

Valuation standard No. 11: Real estate valuation

The legal documents have not been

ISSUE VIETNAM GERMANY

Organization Environment: the task of land valuation about 10 to 20 members.

- The Ministry of Finance: the task of of public surveying departments or

ISSUE VIETNAM GERMANY

- Certificate of general valuation: is German valuation certificates:

- Certificate of construction valuation and Trade Association;

- Certificate of land valuation: is issued International certificate of valuation

ISSUE VIETNAM GERMANY