REAL ESTATE INVESTMENT OPPORTUNITIES IN THE DOMINICAN REPUBLIC.
Relevant Statistics for the international foreign investor
The Dominican Republic real estate market is solid, even through the pandemic or the economic inflationary situation
Interest in the Dominican Republic real estate market is at an all-time high, even after the temporary slowdown due to pandemic-related travel bans, and the global inflationary events that have arisen "What I hear now is an increase in inquiries about the second home market," said Anders Bogebjerg, owner of local real estate firm Group Palmera. "Interest didn't really decrease with COVID, nor inflation. A lot of people are asking, especially from the USA, Canada, Latin America and European nations.
Barbara Warren of Noval Properties said the pandemic actually did the opposite. "There has been a boom in residential investment because of the coronavirus pandemic and the fear of large crowds," Warren revealed. "There has been a significant increase in sales of ready-to-go properties."
These points were supported by Lucien Echavarria, director of the Dominican Republic's Ministry of Tourism. "Interest in Dominican Republic real estate, particularly in Punta Cana, remains high because smart investors know that the Dominican Republic is the type of destination travelers are now looking for," Echavarria said. "It's close and has a strong, stable government."
The Dominican Republic's residential real estate market has grown rapidly in recent years, thanks to solid tourism growth and the arrival of boutique and international luxury hotels, along with solid economic fundamentals.
"Tourists come for the surfing and windsurfing, and many of them also end up buying homes here," says Josefina Covents of Cabarete-based agency Josefina Covents y Asoc. There are no restrictions on foreigners buying property.
Aside from its reputation as a tax haven and long stretches of white sand beaches and pleasant temperature, foreign homebuyers are attracted because a property is still a bargain, relative to the rest of the Caribbean. A newly built one-bedroom apartment near the beach can be purchased for only $150,000 or less.
Foreign real estate investment is also encouraged by incentives that, according to the country's tourism office, include:
Guaranteed tax-free receipt of pension income from foreign sources, including the transfer of belongings into the country (Law 171-07 on Special Incentives for Pensioners and Persons of Independent Means).
Foreign buyers receive a 50% property tax exemption.
Tax exemption on dividends and interest income, generated within the country or abroad.
Foreign buyers receive a 50% exemption of taxes on mortgages, when the creditors are financial institutions regulated by the Dominican financial monetary law.
Exemption from payment of taxes on household and personal items.
Tax exemption on property transfers
Partial exemption of taxes on vehicles
Developers are exempt from all national and municipal taxes for ten years, including the tax on the transfer of property to the first purchaser of a property, by Law 158-01 of Tourist Incentive.
However, the Dominican Republic is not your usual Caribbean fantasy, an "unspoiled virgin island paradise". It has more than 10.4 million people spread over 48,072 mountainous square kilometers, and social problems include a wide gap between rich and poor.
There has been a staggering increase in wealth, with the country's average GDP per capita rising by more than three times from just US $2,460 in 2003 to US $8,600 in 2019, one of the highest in the region, according to the International Monetary Fund (IMF).
In addition, the national poverty rate dropped dramatically from 41.2% to 30.5% in the last five years. It also has great attractions for the adventurous traveler. "There is the natural beauty of the landscape. The country is very green, with different shades of green," says Monique Frings of Dominican-realty.com, "It has the highest mountain in the Caribbean and a small saltwater lake. There are miles and miles of beaches and nobody comes. It's still very open.
The Dominican Republic offers good rental yields, with some areas posting net rental yields of up to 10% annually, according to some local real estate experts.
Foreigners are encouraged by a strong economy, stable government, improved infrastructure and easy access through its three international airports.
Foreign investors push property prices up.
The rise of foreign property investors has pushed up prices by an average of 10% every year since the global crisis, according to local real estate experts. Currently, prices for oceanfront residential properties generally start at around US $120,000, while beachfront properties start from US $150,000.
In the high-end market, prices for luxury homes, which generally have a starting price of at least US $5million are stable, but in some areas, these prices are also rising strongly.
"It has bottomed out and now, it's going up," said Cesar Herrera Gutierrez of Provaltur International, Christie's International's exclusive affiliate in the Dominican Republic. The volume of luxury property transactions has steadily increased in recent years, according to local real estate experts.
The Caribbean's top tourist attraction
The Dominican Republic has been the top vacation destination in the Caribbean since 2005 by a considerable margin, according to the World Bank.
During the 2008-2009 financial crisis, the country's tourism sector remained stable, with around 3.98 million and 3.99 million overnight tourist arrivals, respectively, according to figures from the Caribbean Tourism Organization.
In 2016, non-resident stayover tourists had increased to nearly 6 million, while cruise ship arrivals rose to 809,286 people. In 2017, tourism continued to grow, despite Hurricanes Irma and Maria. Non-resident stayover tourists increased 3.8% year-over-year in 2017, while cruise arrivals soared 36.9%.
In 2018, nonresident overnight tourist arrivals increased 6.2% to 6.57 million over the previous year. Cruise arrivals fell 11.3% year-on-year to 982,319 people last year, but still more than doubled compared to a decade ago.
In 2019, overnight tourist arrivals fell slightly by 1.9% year-on-year to 6.45 million people, while cruise arrivals rose 12.4% to 1.1 million.
The tourism industry contributes about 15% of the country's GDP
The volume of international tourism in the Dominican Republic is growing after dropping naturally due to the pandemic in 2020. By 2021 Foreign visitors arriving in the Caribbean country by air and sea have almost doubled.
Most of the country's hotel chains have already reopened.
"We are focused on driving the continued growth of the sector, along with the image of our country," said Tourism Minister David Collado. "Together we overcame the challenges of the pandemic and ensured that the Dominican Republic remains the number one destination in the region for international travelers, visiting either for vacation, business, investment opportunities or returning to their preferred second home. "
Foreign buyers rush to the coast
Tourist developments are concentrated in the east and north. Southern areas such as Barahona and Pedernales are less developed and less visited, but efforts have been made to promote them as ecotourism destinations.
Punta Cana is the most popular tourist destination. Punta Cana International Airport, located in the popular eastern region of the country, receives about 65% of all tourists traveling to the country each year.
Some of the most desirable residential areas are located in tourist hotspots such as the capital, Santo Domingo, and areas along the country's beautiful Atlantic coast, such as the resort towns of Sosua and Cabarete, the Samana peninsula and Puerto Plata. In recent years, luxury beachfront apartments have been built in places such as Punta Cana and Bávaro, Las Terrenas and Boca Chica.
One of the most outstanding developments has been the Atlantida Punta Cana project, one of the most ambitious residential and touristic projects of the Caribbean featuring apartments from 1 to 3 bedrooms, infinite swimming pool, beach club, sports area, shopping malls, restaurants, ecological path and so much more.
¿What is on offer?
The Dominican Republic real estate market is very diverse. Prices at the lower end of the luxury market range from around $100 to $420 per square foot (sq. ft.) for a prime beachfront home. However, prices for high-end residential properties can reach up to US$5 million in the north and US$9 million in the south. The highest priced home in the Dominican Republic is priced at US$25 million.
In Santo Domingo, the country's capital and largest city, the average price of a two- or three-bedroom house in the city center is around US$150,000.
In Puerto Plata, on the north coast, apartment prices have risen by double digits. Larger apartments have shown the greatest price appreciation. A 200 square meter apartment in exclusive neighborhoods in Puerto Plata, such as Sosua, costs around US$2,400 per square meter.
In the Cabarete area, the price for an older two- or three-bedroom condo farther from the water starts at about US $200,000, while beachfront homes in newer luxury developments, such as Sea Horse Ranch, sell for at least US $700,000, said William Holden. of Holden Sotheby's International Realty.
Several new luxury oceanfront condominium developments have been built in recent years, with unit prices ranging from US$500,000 to US$2 million.
También se espera que la construcción de importantes proyectos hoteleros como River Island, Las Terrenas, Harbor Bay, Atlándita, Oceana, Reserva Real, Ocean Bay o Cana Pearl en la República Dominicana impulsen el turismo, así como el mercado inmobiliario.
The US$220 million St. Regis Cap Cana Resort & Residences will open in October 2020. It will feature 200 rooms and suites and 67 residences, the iconic St. Regis butler service, bespoke amenities and a world-class 8-hole golf course designed by Jack Nicklaus.
Other tourism-related developments include Amber Cove, Carnival Cruise Lines' luxury port and resort village in Maimon, located west of Puerto Plata, which finally opened in October 2015. Royal Caribbean also plans to open a new port near Playa Dorada, between Puerto Plata and Sosua.
Although the Dominican Republic has its own currency, the peso, most real estate listings and transactions, especially for high-end properties, are priced in U.S. dollars.
ATLANTIDA
OCEANA
RESERVA REAL
OCEAN BAY
CANA PEARL
Residential construction costs continue to rise
Residential construction costs rose 7% from a year earlier in October 2020, following annual increases of 2.4% in 2019, 9.1% in 2018, 5.1% in 2017, 3.4% in 2016, and a 0.9% decrease in 2015, according to the National Statistics Office.
Shortage of affordable housing
The construction sector accounted for more than 7% of the country's GDP in recent years. The number of permits for apartment construction increased by 10.7% in 2019, following a spectacular 81% growth in 2018, according to the National Bureau of Statistics. Likewise, permits issued for residential construction also rose 11.1% last year, after increasing 121% in 2018.
However, most residential construction is aimed at the high-end market. The low-end market has a severe housing shortage, and the country has a housing deficiency of around 600,000 units.
Hurricanes and floods have ensured supply shortages
Economic damage from natural disasters in the Dominican Republic costs about US $420 million a year, according to a recent study by the World Bank and the Ministry of Economy, Planning and Development.
For example, in September 2017 alone, two strong hurricanes, Hurricane Irma and Hurricane Maria, devastated a large number of houses, particularly those built with low-quality materials near the sea. Recently, the government pledged to expand social housing and build up to 40,000 new houses every year until 2023, with the help of the private sector.
About 80% of all housing in the Dominican Republic is single-family homes. Mortgage rates remain high despite the fall in key rates. In August 2020, the Dominican Republic Central Bank cut its benchmark interest rate by 50 basis points to 3%, its second consecutive rate cut that year in an attempt to boost economic activity amid the coronavirus pandemic.
The central bank also cut the overnight repurchase rate from 4.5% to 3.5%. Despite this, average mortgage lending rates remain high.
Home loans denominated in domestic currency: the average interest rate was 10.75% in August 2020, almost unchanged from a year earlier.
Foreign currency-denominated home loans: the average interest rate was 6.45% in August 2020, up from 6.23% in August 2019
Developing mortgage market
The majority of real estate transactions in the Dominican Republic are conducted in cash. The country's mortgage market equaled only 4.7% of GDP in 2019, despite home loans growing by more than 17% annually between 2000 and 2019. Local banks have offered more mortgages since the Mortgage Market and Trust Development Act of 2012 provided tax incentives and established the Trust as a legal instrument.
As a result, mortgages are offered with a loan-to-value ratio of 70% of the appraised value of the property.
In July 2019, the total value of home purchase loans was DOP $203.81 billion (US $3.97 billion), up 12.4% from the previous year and about 20 times the amount in 2000, according to the Central Bank Dominican Republic.
Economic activity growth accelerates in August 2022
Economic activity increased 5.4% compared to the same month of the previous year in August, which followed July's 4.7% increase. On monthly and seasonally-adjusted basis, activity rebounded and logged a 1.3% rise in August (July: -1.3% mom s.a.) Meanwhile, annual average economic activity growth fell to 7.3% in August (July: +7.8%), which marked a one-year low.
FocusEconomics panelists see the economy growing 4.7% in 2022, which is down 0.1 percentage points from last month’s forecast, and expanding 4.4% in 2023.
To sum it all up, the real estate market in Dominican Republic keeps on flourishing, based on an ever-increasing demand of international tourism to paradise cities like Punta Cana and its beautiful beaches.
At the same time, since prices are low, (compared to other touristic cities such as Miami, Cancún, etc) the impact from inflationary events does secure a very affordable option for investment entry and return of investment. ROI.
If you wish to discover the best projects to invest in real estate in the Dominican Republic and Punta Cana, consider visiting the ones included in this article or contact me directly and I will gladly share with you a personalized online counseling session according to your requirements.
Alejandro Betancourt.
Sources:
Index of Direct Costs of Home Construction (ICDV) (National Statistics Office): https://www.one.gob.do/precios-y-costos/icdv
Tourism (National Statistics Office): https://www.one.gob.do/economicas/turismo
Tourism Sector (Central Bank of the Dominican Republic): https://www.bancentral.gov.do/a/d/2537-sector-turismo
Top 3 Buy-To-Flip Markets Overseas (Forbes): https://www.forbes.com/sites/kathleenpeddicord/2020/08/19/top-3-buy-to-flip-markets-overseas/?sh=11b750c32f09
Buying a House in the Dominican Republic (7th Heaven Properties): https://www.7thheavenproperties.com/2020/01/buying-a-house-in-dominican-republic/
The State of Dominican Republic Real Estate (Caribbean Journal): https://www.caribjournal.com/2020/08/11/dominican-republic-real-estate-market/
World Economic Outlook Database, October 2020 (International Monetary Fund): https://www.imf.org/en/Publications/WEO/weo-database/2020/October/select-country-group
Monetary and Financial Sector (Central Bank of the Dominican Republic): https://www.bancentral.gov.do/a/d/2536-sector-monetario-y-financiero
Real Sector (Central Bank of the Dominican Republic): https://www.bancentral.gov.do/a/d/2533-sector-real
The Dominican Republic announces tourism recovery plan centered on health safety (Travel Daily News): https://www.traveldailynews.com/post/the-dominican-republic-announces-tourism-recovery-plan-centered-on-health-safety
Tomorrow begins the decisive bet to reopen Dominican tourism (Dominican Today): https://dominicantoday.com/dr/tourism/2020/09/30/tomorrow-begins-the-decisive-bet-to-reopen-dominican-tourism/
Construction and Infrastructure (National Statistics Office): https://www.one.gob.do/economicas/construccion-e-infraestructura
Construction on the Rise in Dominican Republic with Groundbreaking of St. Regis Cap Cana Resort & Residences (Global Newswire): https://www.globenewswire.com/news-release/2020/10/22/2113181/0/en/Construction-on-the-Rise-in-Dominican-Republic-with-Groundbreaking-of-St-Regis-Cap-Cana-Resort-Residences.html
House hunting in the Dominican Republic (The New York Times): https://www.nytimes.com/2018/10/17/realestate/house-hunting-in-the-dominican-republic.html#:~:text=Market%20Overview,of%20Holden%20Sotheby´s%20International%20Realty.
Dominican Republic economy shows real signs of recovery (Dominican Today): https://dominicantoday.com/dr/economy/2020/10/24/dominican-republic-economy-shows-real-signs-of-recovery/
Central Bank keeps benchmark rate at 3.00%; Aug. prices rise 0.78% (Dominican Today): https://dominicantoday.com/dr/economy/2020/10/01/central-bank-keeps-benchmark-rate-at-3-00-aug-prices-rise-0-78/
The World Bank in Dominican Republic. https://www.worldbank.org/en/country/dominicanrepublic
Dominican Republic economic activity. August 2022. https://www.focus-economics.com/countries/dominican-republic/news/economic-activity/economic-activity-growth-accelerates-in-august
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