Absolutely - a nice piece of farmland
just far enough away from the hustle and bustle of a major capital
city, yet close enough to be, well - close enough. In fact, this
is exactly what many of our clients are looking for. Not a
commercial farming operation
mind you, but a nice tract of land, say 1/2 to 3 acres for example,
whereby
they can build a nice home for themselves and have some breathing room
at
the same time (not to mention peace and quiet).
To be sure, it might sound like a
strange idea, as most people would tend to think of beach property when
they think of the Caribbean. However, while it is true that the
Dominican Republic still has miles and miles of undeveloped and very
affordable beach front real estate, it is also true that acre for acre,
farmland may still be one of the very best bargains all around.
After all, even with some of the
lowest prices in the entire Caribbean, the cost for 1 acre on
the
beach may be cost prohibitive for some clients (but farmland, being
very very affordable). In addition, many
of
our clients have said they want to take it easy, but not TOO easy.
So, in this regard, a nice stretch of land for growing flowers or
vegetables, a horse or two - all on a very manageable piece of
real estate may be just what the doctor ordered (not to mention you
will never have to shovel snow again, and you can grow whatever you
wish year round - thanks to the warm Caribbean climate).
With this thought in mind, investors
then may want to consider looking for such properties on the outskirts
of Santo Domingo, the busy capital city containing almost 4 million
people. Many of our clients have already decided to do just that,
buying a comfortable parcel of land for about US$35,000 (or more) -
with the
intention of building their dream estate home. In other words,
with the idea of becoming a Caribbean Country Squire - and why not?
Having some acreage means you can put
in a
nice guest home on the property and a man made lake or swimming pool.
If you are someone with adult children or grandchildren, getting
the kids to visit will never be a problem - especially when Grandma and
Grandpa have a really neat home in the Caribbean (just 45 minutes from
a Caribbean Beach). Being close to modern shopping malls. modern
supermarkets, stores such as PriceSmart and not to mention modern
medical facilities and beautiful Caribbean golf courses, also means
that you can - in a way have the best
of both worlds. The city and the country - blended into one.
Making a value comparison to some of
the over priced properties often marketed to foreigners or tourists,
and considering the very reasonable labor costs in the Dominican
Republic, it is very possible that you can literally own your own
Caribbean Estate for less than have the price of these other properties
(many European plumbers and other building professionals work part time
for US$6 per hour, or you can hire local Dominicans for even much less)
. With the money you save, certainly investing it in a tax-free
bank certificate of deposit (about 4% or more in US Dollars or up to
20% in Pesos) provides a locally tax-free monthly income to round out
your Caribbean financial plan and just makes sense.
.
That really
is the reason many people are relocating to the Dominican Republic, as
other Caribbean jurisdictions are simply no longer affordable, in terms
of real estate or often general cost of living. For example, in the
case of Americans specifically, having about US$300,000 in cash means
you can forget about owning your own home mortgage free these days
(either in the
US or other Carribean spots) - never mind even thinking about living
off your investment income in
the US - but this is not the case of course in the Dominican Republic.
Plus you can
finish your home with marble or high quality tile throughout - or we
can also say in general, have a more luxurious home for the money - all
at a fraction of the cost for a similar home in Florida or California
(without the high real estate taxes either).
Sound too good to be true? Well,
the first step is to contact someone who can show you
some of the properties we have spoken about here. For this and
other additional information about
residency or tax-free banking, please use our reply form below:
There is tremendous confusion among
investors with respect to real estate and property taxes in the
Dominican Republic. Local real estate agents often tell tourists
that there are no real estate taxes. In addition, many
Dominicans living in the US often indicate the same thing. What
is the truth and why do some people believe this? This article
will explain this problem, and try to offer a simple clear
guideline to determine if you must pay annual property taxes on your
real
estate. We will also try to clear up the confusion about titles,
and
title transfer taxes.
.
The Problem with Some Local Real Estate
Agents
.
One thing we love about the Dominican
Republic, is the fact that it can be called one of the true Libertarian
countries
on earth. Certainly, this was not the deliberate intention, but
this
is the reality. The meaning is, there is minimal government
regulation and oversight for many business sectors. A businessman
that is tired of government "red tape" and ridiculous regulations, will
find the Dominican Republic to be a paradise. The inherent
problem with this, is that
there are unscrupulous people that can take advantage. In the
case
with real estate agents, there are no "truthful disclosure" statutes as
they
exist in the US. In addition, the goal of many agents is to "make
a
quick sale", rather than develop an honest and long-lasting
relationship
with the client. The concept of gaining future business from
referrals
seems to an alien concept for many. To be fair, this does not
apply
to all real estate people, but such has been the case with enough that
many
foreigners have shied away from this wonderful and very affordable real
estate
market.
.
The other problem, if not outright
dishonesty, is a lack of professionalism. Many Dominicans, not
just real estate agents, do not know the tax regulations or other laws
that exist in their own country. For the average "man in the
street", this is understandable. For a "real estate
professional", it is both unprofessional and unacceptable.
.
Any real estate agent you are working
with should be able to break-down the title transfer costs, estimated
real estate taxes, and any other related information on paper for any
property you are investigating. The good ones will do it.
If you cannot get a
straight answer to these questions, walk out the door. This
sounds
terrible, but It is not. The Dominican Republic offers the best
value
for real estate and investment in the entire Caribbean. The lack
of
formal standards just means that investors must do a little "due
diligence".
The phenomenal bargains make the extra effort worthwhile.
.
The System is Confusing and Disorganized
.
The lack of information about certain
things is not entirely the fault of the people that you may
encounter. The government offices tend to give out conflicting
information. In addition, some of the tax code tends to be
condradictatory at times. If you
put this into perspective, I would guess that half the people working
for
the IRS or Revenue Canada do not understand the tax codes they are
meant
to enforce. In the past, I have contacted five different
individuals
in the Dominican government or private sector, and have received five
different
replies to the same question. Similarly, my experience has been
the
same when making inquires to different offices of the IRS. So,
the
point is, it is not all that suprising to encounter government clerks
that
do not know what they are talking about in any government.
.
Things are improving in the Dominican
Republic in this regard, but like any efforts of this kind, it takes
time to trickle down to the bottom. For the time being, do your
homework and navigate the current system. Once you learn the
system, and you understand
that you are dealing with a different culture, things will go
smoothly.
For a guidebook, you may wish to purchase The Dominican Republic Report
mentioned below.
.
One must also understand that tax
sales
or "Sheriff" sales are not the normal course of things in the Dominican
Republic. In most cases, the government tax office will not send
you a formal tax
bill or late notice. Nor will anyone come knocking on your door
if
you are 12 months in arrears with your property taxes. For this
reasons,
many Dominicans hold the impression that, the government either does
not
care about property taxes, or such a thing does not exist. Believe me,
they
care, and they will get you when it comes time to change title.
.
The Real Estate or Property Tax System
.
Property taxes in the Dominican
Republic are a form of "hidden wealth tax". The meaning is that
some properties, priced at a certain level, are not liable for annual
property taxes. So it is not false if someone says they do not
have an annual property tax liability. It depends. Property
taxes will be a function of
whether or not the property is developed, the value of property, and
the
location. Here is a general breakdown or "rule of thumb":
.
Undeveloped or Raw Land - All
undeveloped property in the Dominican Republic has a tax
liability. This concept was meant to encourage the building of
homes, and discourage land speculation. In the past, the
Dominican Republic did have somewhat of a housing shortage.
Regardless of what any realtor or anyone else tells you, if you are
purchasing a building lot or raw land, you will be liable for an annual
tax liability.
.
How much? That depends on the
location. The government does have a tax schedule broken down on
a tax map of the
respective areas. Areas considered to be "luxury" neighborhoods
in
Santo Domingo, such as Arroyo Hondo or Naco, will pay a higher tax
schedule
than "middle class" residential areas found in the Zona Oriental.
....
Homes or Developed Land - I mentioned
earlier that real estate taxes are in effect a hidden wealth tax.
In order
to encourage home ownership and home construction, the poor or lower
middle
class do not pay annual real estate taxes. How so ? Homes
valued
at a certain fixed amount are exempt from annual property
taxes. Homes valued above this amount are liable for annual
property taxes based upon a schedule for the valued amount above that.
.
To put
this in US Dollar terms and to apply it to the current real estate
market as of December 2004, a home or apartment that would be
considered American or European standard will cost anywhere from about
US$75,000 on up (for a most middle class home, new construction) and
about US$100,000 on up for a luxury apartment. Keep in mind that
while these prices may seem similar to what the prices are in other
jurisdictions (such as Panama, for example) you are getting more (if
not double) for your money in Santo Domingo. Stated another way,
on average, a new 100 square meter (about 1,000 square feet)
3-bedroom apartment in Panama costs about US$100,000. A new 180
square meter (1,800 square feet) 3-bedroom apartment in Santo Domingo
costs about US$100,000 (or perhaps slightly more). So, while the
prices may be similar, the size of the apartment surely is not.
<>.
Building A Home on your Lot - The most
confusing aspect of the property tax code becomes evident when
discussing the idea
of building a new home on property you have already owned for a
while. In theory, it is possible to have an annual tax bill when
the property was undeveloped, only not to have an annual tax bill if
both the property and dwelling are re-valued below the amount we spoke
about earlier. Again, the government
incentive is to build or own a home. The problem many foreigners
encounter
when buying an existing home from a local Dominican is as
follows.
.
The Tax Man Cometh
.
Many Dominicans, in an effort to cheat
the tax system, do not file the construction documents, nor do they
report capital improvements when building on property. In fact, a
large percentage buy a building lot, and then go ahead with a private
building contractor
without filing for construction permits. Many may purchase the
land,
build a home, and never pay taxes at all. How is this
possible?
Remember that a Sheriff's sale for back due property taxes is an
un-heard
of concept in the Dominican Republic.
.
The government will get you when it
comes time to transfer title or sell the property. It is
difficult to explain to the authorities how a house has existed for 10
years, without the existence of such a property on the tax map.
Never the less, this is the problem. Many owners wishing to sell
their property may not have paid any taxes,
and may not be able to pay the tax bill (including the 50% multa or
fines)
in order to clear title transfer. This problem, in and of itself,
is one reason buyers have a problem obtaining a new title rapidly with
some
properties.
.
Title Search & Title Transfer
.
The previously mentioned issue is just
one reason why an independent title search by you, the buyer, is highly
suggested. But this is not the only reason. Like a very
large number of other
countries, there is title insurance in the Dominican Republic. However,
the
buyer should thoroughly research any property that they are
considering.
Partly for back tax issues, but also for ownership. In the past,
there
have been individuals who have attempted to sell land they did not even
own.
In truth, this has been more of a problem in the countryside, or with
some
very old properties, but it has happened. Also, considering that
the
Dominican Republic does recognize squatter's rights, you could
encounter
someone that has built a home & lived in it for twenty years. That
does
not necessarily mean that they own the land underneath it, or that they
have
gone through the process of obtaining legal title through the court
system.
.
Again, this is more of problem with
some older properties or raw land in undeveloped parts of the
country.
I do not want to give the impression that every home you encounter will
have a title problem associated with it, but it is a concern to keep in
the back of your mind.
.
One little trick some real estate
agents like to play is, "hide the title transfer tax". Every
title that is transferred in the Dominican Republic, be it a home or
undeveloped land,
carries a list of taxes or fees that are equal to roughly 7% of the
property
value. Period. There are no exceptions to this rule. I do
not
care what your Dominican neighbor in New York told you. This is a
fact. Real Estate agents will often "hike up" the selling price,
in order to cover the taxes that they know must be paid to transfer
title. Some will
go so far to tell you that there are no title transfer taxes or
property
taxes in the Dominican Republic. That sounds wonderful, but won't
you
be surprised when it comes time for you to sell your property five
years
later (thinking that you did not have to pay this when you made your
purchase). Believe it. You paid it, you just did not know
it. More correctly, it came out of the net settlement to the
seller, minus the broker's commission and anything else tacked
on.
..
We have heard of one broker telling
potential buyers the total costs for property transactions in the
Dominican Republic are 20%. I do not know what kind of calculator
this guy owns, but
5% + 7.48% = 12.48% (and remember that the 5% can be negotiated
down). In all honesty, there is no cap on real estate commissions
in the Dominican Republic, and some agents may in fact earn up to
40%. Just keep in
mind that title transfer taxes paid to the government are
non-negociable,
but real estate commission certainly is.
.
Life is Beach (or at least life can be
lived on a beach)
.
If this article has discouraged you
from buying a piece of Caribbean paradise, it was not meant to.
Opportunities and difficulties exist in every market. The key is
understanding the "rules" and the local culture. Most
foreign buyers have been
burned in other real estate markets, because they were easy targets,
and
because they did not know any better. Learn the rules and the tax
codes.
.
The truth is, the
Dominican Republic offers some the
least expensive real estate, and one of the largest percentages
of virgin beach front property in the entire Caribbean. Is the
title
transfer tax high in comparison to other places? Sure it is, but the
government
has to get tax revenue from some source. After all, considering
that
bank account and investment account interested is 100% tax free (on US
Dollar
accounts and certain types of peso investments), and that it is
possible
to own a home that might be 100% free from annual property taxes, the
Dominican
Republic is one of the best deals around..
