LAND PRICE COEFFICIENT (K) AND THE LAND PRICING CHALLENGE: COST PRESSURES IN RESIDENTIAL PROJECT DEVELOPMENT

1. The Impact of Land Costs on Overall Investment Feasibility

The K coefficient is applied in conjunction with land price tables to determine land-related financial obligations in cases stipulated by law. Under Resolution No. 254/2025/QH15, the land price adjustment coefficient is defined as the rate by which land prices are increased or decreased for corresponding land types, areas, and locations specified in the land price table. Provincial-level People's Committees are authorized to issue and adjust the coefficient in accordance with applicable regulations.

However, it is important to distinguish between the mechanism currently stipulated under Resolution No. 254/2025/QH15 and the proposals and recommendations being discussed as part of the ongoing revision of land legislation. According to VARS estimates concerning the proposed mechanism, land-use levies for certain projects could increase by 2–2.6 times compared with the previous calculation method. This estimate applies to specific cases and should not be interpreted as an actual increase that has been uniformly implemented across the market. Nevertheless, it highlights the importance of carefully assessing land-related financial obligations from the earliest stages of investment planning.

These pressures are emerging amid a widening gap between housing supply and purchasing demand. In the first half of 2026, primary market supply reached approximately 102,500 units, up 40% year-on-year. Meanwhile, approximately 26,100 units were transacted, down 62% compared with the second half of 2025 and approximately 12% year-on-year. The average absorption rate stood at around 20–30%.

Notably, despite the increase in supply, housing prices have remained high. According to figures reported by VARS, the average primary apartment price in Ho Chi Minh City reached approximately VND 103 million per square metre. This indicates that the market's challenges extend beyond supply volume to include the composition of available housing products and buyers' affordability.

2. Key Indicators of Land Costs and Market Conditions

Several figures provide a clearer picture of land-related cost pressures and prevailing market conditions:

• 2–2.6 times: Estimated increase in land-use levies for certain projects, according to VARS's assessment of the proposed mechanism.

• 22 localities: Number of localities reviewed by VARS-IRE for information on their 2026 K coefficients.

• Approximately one-third: Proportion of surveyed localities applying a K coefficient of 1.

• 1.45 and 1.7: Planning coefficients cited for Hanoi and Ho Chi Minh City, respectively.

• 30–40%: Estimated share of land costs in total project development costs, according to VARS.

• VND 103 million/sq.m: Average primary apartment price recorded in Ho Chi Minh City in the first half of 2026.

• 20–30%: Average market absorption rate in the first half of 2026.

It is important to note that the planning coefficients of 1.45 and 1.7 should not be confused with the final K coefficient applicable to individual land plots. These are component coefficients referenced in the analysis and cannot be used as substitutes for the land price adjustment coefficient applicable to a particular locality or specific case.

Similarly, the 30–40% share of land costs is an indicative figure representing the proportion of land costs in total project development costs, rather than a fixed benchmark applicable to every project. The actual proportion varies depending on location, project scale, construction density, development plans, and product mix.

3. How Land Price Fluctuations Are Affecting the Market

First, land costs are becoming a critical factor that developers must manage from the initial investment research stage. A low land acquisition price does not necessarily translate into a financially viable project if land-related financial obligations, compensation and site clearance costs, or the time required to complete legal procedures are substantial.

Furthermore, cost pressures extend beyond land. Material prices, labour costs, interest rates, and financing expenses also affect total investment costs. When several cost components rise simultaneously, developers may have less room to reduce selling prices.

Conversely, market demand remains insufficiently strong for developers to assume that all additional costs can be passed on to buyers. Selling prices must therefore be balanced against household incomes, genuine housing demand, and the absorption capacity of each market segment.

4. Strategic Responses for Real Estate Developers

4.1. Land bank and legal considerations:

Developers need to assess land assets based on the total cost of transforming them into marketable products. This includes land acquisition costs, land-related financial obligations, compensation, site clearance, and legal completion expenses. The transparency, predictability, and stability of the land pricing mechanism are also essential factors in managing investment risks.

4.2. Finance and project timelines:

Higher land-related financial obligations may increase total investment costs, capital requirements, and interest expenses. Delays in administrative procedures can tie up capital for longer periods, while slower sales may intensify cash flow pressure. Developers should therefore prepare multiple financial scenarios, assess break-even points, and evaluate capital recovery prospects rather than relying solely on projected revenue.

4.3. Planning and product development:

When land accounts for a substantial proportion of total project costs, optimising building density, the floor area ratio (FAR), and saleable floor area becomes increasingly important. However, improving project efficiency does not mean maximising density at all costs. Development plans must remain compliant with planning regulations while ensuring the quality of living spaces, infrastructure, and amenities.

4.4. Market absorption:

Selling prices must reflect actual purchasing power. A project with substantial total investment costs may face difficulties in sales if its product mix does not match buyers' affordability. Accordingly, research into target customers, apartment sizes, and appropriate price points should be conducted from the pre-feasibility stage.

5. Long-Term Development Priorities Amid Rising Land Costs

Based on the above data, three notable trends can be identified.

First, competitive advantages will gradually shift from simply securing land banks to developing land assets efficiently. A land plot only creates real value when it has clear legal status, appropriate planning parameters, and the potential to generate cash flow.

Second, developers need to move beyond a mindset focused on maximising selling prices towards optimising overall investment efficiency. Product mix, construction costs, project timelines, and market absorption must be assessed in an integrated manner.

Third, cash flow management will become increasingly important. Key indicators such as land-related financial obligations, total investment costs, interest expenses, absorption rates, and capital recovery periods need to be monitored throughout the entire project lifecycle.

Conclusion

The K coefficient is not merely a mechanism for adjusting land-related financial obligations; it also has implications for the cost structure and overall efficiency of residential project development. Against a backdrop of rising input costs and a market that has yet to achieve a meaningful recovery in liquidity, developers can no longer rely solely on selling price adjustments