dominican republic

Dominican Republic Real Estate: An Investment Hedge

real estate article

In terms of the idea of finding some asset class to hold value in a world prone to monetary inflation (currency devaluation), the Dominican Republic is an ideal country to consider for this and we will tell you why.  First off, the Dominican Republic still offers some of the lowest real estate costs when compared to the rest of Caribbean.  Even if you compare real estate costs in Panama (which is technically Central America and not the Caribbean) per square foot or meter, you will usually get double for your money in the Dominican Republic.  For example, you might see a condo apartment advertised in Panama City for US$175,000 and you might see the same price for something similar in Santo Domingo, The Dominican Republic.  However, check the square footage of the Panamanian Condo and compare it to the size you are getting in Santo Domingo.  Chances are the Santo Domingo property will be anywhere from 30 to 50 percent larger and possibly have more amenities.  If you investigate real estate prices in Caribbean jurisdictions such as St. Martin, The Bahamas, St. Kitts (just to name a few), once again we think you are going to find a drastic difference in prices PLUS what you get for your money in the Dominican Republic in comparison with regards to size and amenities.

With regards to the health of the local real estate market, the banks in The Dominican Republic have always been very strict about lending practices, which is why there is no glut of foreclosures as has been the case in other countries (Spain, The United States).  You can certainly apply for a mortgage in the DR, but the expectation is anywhere from 20 to 30 percent down payment as a minimum. And the interest rates remain higher as they are not artificially manipulated but are true market rates.  Interest rate terms for mortgages can range from 9 up to 18 percent in Pesos, and these are adjustable rates.  So, the point is that because of this, buyers actually have to qualify for a mortgage in the Dominican Republic and it is very rare to see anyone walk away (the buyer has too much invested in the property, literally).  In short, for these reasons, we have not seen cheap money or sloppy business practices by the local banks in the Dominican Republic fueling a bubble as has been the case in other countries.  Any appreciation or activity in the local real estate market has been due to market demand, not foolish banking.

When investigating real estate options in the Dominican Republic, we can say there are really two distinct markets: the tourist market and the local market. Meaning, The Dominican Republic has always been a country known for tourism (although the main sectors of the economy also include banking, agriculture, telecommunications – which is to say tourism is not the only thing driving the economy).  With regards to the tourist market, we are talking about specifically homes or condominium apartments in beach front tourist areas of the country. With regards to the local market, we are referring to properties in Santo Domingo, Santiago and of the rest of the country.

In terms of the tourist areas, while many people may fall in love with the idea of living in a beach front setting, the fact of the matter is that real estate will usually cost more, and cost of living will be higher as well.  Part of the reason for daily living costs (such as food shopping) being higher is the fact that local permanent population tend to be small in comparison to tourists, and while there may be smaller convenience store businesses, usually you will not find the larger and less expensive supermarket chains represented.  And of course tourists staying in an all inclusive resort are not going to go food shopping or spend money on furniture (or other things).

Santo Domingo Real Estate - A Less Expensive Option

In contrast, urban areas such as Santo Domingo (the capital city and largest populated city with about 4 Million inhabitants) and Santiago (the second largest city) are going to offer a wide variety of shopping, medical care facilities, bi-lingual or English only private schools, and a number of other amenities as well.  With larger variety of buying options comes competition and lower prices.  As such, whether trying to find a good private bi-lingual school or the best price for tomatoes, cities such as Santo Domingo will offer a wide variety to choose from.

In terms of real estate options in Santo Domingo, again a wide variety also exists to fit any budget and we can say your will get more square footage for your money with a condo apartment in Santo Domingo than you will looking at something similar in a tourist area.  As an example, you can expect to pay about US$120,000 for a 1-bedroom 1,000 (or more) square foot apartment in a higher end more upscale area in Santo Domingo (with secure parking, 24 hour security, gym facilities for tenants, etc.).  For a 2 or 3-bedroom 1,500 to 2,000 square foot (or more) apartment in a more upscale building, you can expect to pay anywhere from about US$165,000 up to maybe US$230,000 all depending upon size, location and so on.  And if your budget is more modest, there are new apartments and single family homes to be found in the US$80,000 to US$120,000 range.  Likewise, you can find very nice single family homes similar to what you might find in a Florida private residential development for roughly US$250,000 to US$350,000 and condo penthouses of 3,000 square feet (or more) for perhaps US$300,000.  There is not enough space to highlight everything, but the point is when clients ask: Is there any affordable real estate in the Caribbean – our answer is YES, in The Dominican Republic.

Getting back to the investment point of view, we think it important to consider real estate as one asset class to consider, albeit one that is NOT correlated to the US or European stock markets, currencies, etc. in order for it to make sense.  In other words, the idea is to own an asset class that is somewhat isolated from the current and future problems that might exist in other markets, and one not dependent upon the future movements of the currencies or economy in such other countries as well.

Not to go off on a tangent, but there is one interesting phenomena taking place regarding new construction in Santo Domingo.  Which is to explain that 20 years it was almost impossible to find a new condominium apartment building with one bedroom units (builders just did not build them).  And previously the norm in The Dominican Republic was that young people graduated university but lived at home with parents until such time they did get married and could afford a 2 or 3 bedroom rental (with the long term view of owning rather than renting).  Today, what we are seeing is a larger number of new higher end buildings going up with one bedroom units and this tells me something.  It says to me that the younger single people are more likely to be able to afford and buy (or rent) a new one bedroom unit today, which means to me more affluence in the economy than what existed say 25 years ago.  In the United States today, just as a contrast, younger people are graduating university and cannot even find a job, and or regardless if they do, they are living with the parents. This represents a notable change from what was considered the norm 25 years ago. In brief, what is going on is that the United States is moving backwards economically speaking and the Dominican Republic is moving forward.  It is a small thing and something not obvious from the government statistics, but very telling none the less.

In summary, we still think buying real estate in a location such as Santo Domingo is a good idea because:

1. Real Estate costs are lower than many other jurisdictions in the Caribbean and thus more room for appreciation.

2. The Dominican Republic has an economy still growing and can be less dependent upon the United States or Europe, especially if it continues to develop it's cross border trader with countries such as Brazil and India.

3. A Real Estate purchase in The Dominican Republic can also act as a conduit towards the faster tract Investor Residency Process (allowing for citizenship application after 6 months).

4. Real Estate is a non financial asset and therefore not reportable under the current initiatives being pushed by the US (FATCA) and some European nations as well (GATCA).  In other words, if you wish to invest US$200,000 or more, real estate in the right market is a sound idea.