Foreign homebuyers are back in the Dominican Republic
Lalaine C. Delmendo | April 16, 2022
“Investors and people who could afford second homes here were buying like crazy,” said Melquis Segura of Santo Domingo-based property firm ApartamentosRD. This statement is backed by Sergio Llach, the chief executive of Dominican Republic Sotheby's International Realty, who claims that the housing market is accelerating due to pent-up demand and foreign buyers are flooding in to the country.
Before the pandemic, the Dominican Republic's residential property market has been growing rapidly, thanks to robust tourism growth and the arrival of luxury international and boutique hotels, coupled with strong economic fundamentals.
“Tourists come for the surfing and the windsurfing, and many of them end up buying homes here too,” says Josefina Covents of the Cabarete-based agency Josefina Covents y Asoc. This is also supported by Llach, who noted that many of the homebuyers were regular visitors to the country. “The people who buy in the Dominican Republic have been here at least 10 times before,” Llach said. “They're confident in what they want.”
There are no restrictions on foreigners' buying property.
Aside from its reputation as a tax haven and long stretches of sandy white beaches and a balmy temperature, foreign homebuyers are attracted because property is still a bargain, relative to the rest of the Caribbean. A newly-built one-bedroom apartment near a beach can be bought for just US$150,000 or less.
Foreign property investment is also encouraged by incentives, which according to the country's tourism office, include:
- Tax-free receipt of pension income from foreign sources, including moving belongings to the country, is guaranteed (Law 171-07 on Special Incentives for Pensioners and Persons of Independent Means).
- Foreign buyers receive a 50% exemption from property tax
- Exemption from taxes on dividends and interest income, generated within the country or overseas
- Foreign buyers receive a 50% exemption from taxes on mortgages, when the creditors are financial institutions regulated by Dominican financial monetary law
- Exemption from payment of taxes for household and personal items
- Exemption from taxes on property transfers
- Partial exemption on vehicle taxes
- Developers are relieved of all national and municipal taxes for ten years, including the tax on the transfer of ownership to the first purchaser of a property, by Law 158-01 on Tourism Incentive.
“Over the past five years, an expanding tourism industry, a stable economy and friendly tax laws have brought a wave of international buyers to this Caribbean nation of about 11 million residents,” said Sydney Franklin of The New York Times.
However, the Dominican Republic is not your usual Caribbean fantasy 'unspoiled virgin island paradise'. It has almost 11 million people spread over a mountainous 48,072 sq km, and the social problems include a vast gap between rich and poor, and the highest possibility in the world of death from handguns, though the situation has improved dramatically over the past decade.
There has been an amazing increase in wealth, with the country's average per capita GDP increasing by more than three times from just US$2,460 in 2003 to US$8,500 in 2021, according to the International Monetary Fund (IMF). Moreover, the national poverty rate dropped sharply to 21% in 2019 from more than 40% a decade ago. However, the poverty rate increased to 23.9% in 2021 due to the adverse impact of the Covid-19 pandemic, according to the World Bank.
Also, it has great attractions for the adventurous traveler. “There's the natural beauty of the landscape. The country is very green, different shades of green,” says Monique Frings of Dominican-realty.com. “It has the highest mountain in the Caribbean and a small salt water lake. There are miles and miles of beaches and nobody comes. It is still very open.”
The Dominican Republic offers good rental yields, with some areas registering net rental yields as high as 10% annually, according to some local real estate experts.
Foreigners are further encouraged by a strong economy, stable government, an improving infrastructure, and easy access via its three international airports. In 2021, the economy grew strongly by 12.3% from a year earlier, according to the World Bank, fully offsetting the 6.7% contraction seen in 2020. Before the pandemic, the Dominican Republic has been growing by an annual average of 5.3% in 2000 to 2019
Investment properties in Dominican Republic - Puerto Plata is buoyant
Average apartment prices in Puerto Plata have increased by a whopping 23%, according to the latest Global Property Guide survey. Bigger apartments showed the highest price appreciation. Last year, a 200 square metre (sq. m) apartment cost around US$2,042 per sq. m. This figure has jumped by 19% and now it costs around US$2,426 per sq. m to buy a 200-sq. m apartment in upscale neighborhoods of Puerto Plata, like Sosua.
The same trend is evident for house prices in Puerto Plata, though the price appreciation is not that high. Last year, the average house price in Puerto Plata was US$1,578 per sq. m. This has slightly increased to US$1,689 per sq. m. now.
Taxes are high in the Dominican Republic
Rental Income: Nonresident foreigners earning rental income in the Dominican Republic are liable to tax at the corporate rate of 27% for 2015.
Capital Gains: Capital gains realized by nonresidents tax is levied at a flat rate of 27%.
Inheritance: Inheritance taxes are levied at a flat rate of 3% for properties.
Residents: Residents are taxed on their worldwide income and some kinds of investment income derived from abroad at progressive rates, from 0% to 25%.
Moderate costs in the Dominican Republic but beware of fraud
Roundtrip transaction costs are around 9.55% to 15.30% of property value. The agent’s commission of 5% to 10% of the property value accounts for the greater part of the costs and is usually paid by the seller.
Buyers must be vigilant. There is much history of fraud by real estate agents in the country, and little protection is offered to the buyer. Any knowledge of Spanish must be shown off. Real estate agents tend to offer higher prices to foreigners, especially when their services are employed in English.
Rent control favors tenants
The law is strongly pro-tenant.
Rent Control: Rents are strictly controlled in the Dominican Republic. The maximum monthly rent is fixed at 1% of the rental property’s value. The tenant can request the Rent Control Authority to reduce the rent if it exceeds the maximum rate.
Tenant Eviction: It is not easy to evict a tenant even when the owner decides to use the property for personal reasons. A hearing must be conducted and the tenant is usually given months, or even years, to look for an alternative dwelling that he can afford.
Strong economic growthIn 2021, the economy grew strongly by 12.3% from a year earlier, according to the World Bank, fully offsetting the 6.7% contraction seen in 2020 during the onset of the Covid-19 pandemic. According to the World Bank, the strong rebound was “supported by a solid policy response to COVID-19, including fiscal, macroprudential and supervisory policies, and monetary easing.”
Before the pandemic, the Dominican Republic had been growing robustly, with an annual average GDP growth of 5.3% in 2000 to 2019.
“Tourism, remittances, foreign direct investment, mining revenues, free-trade zones, and telecommunications have helped make the DR the second fastest growing economy in LAC over the last decade, and as of 2019 the country was on track to realize its ambition of achieving high-income status by 2030,” said the World Bank.
Unemployment was estimated at 7.4% in 2021, slightly up from an annual average of 7.1% in 2010 to 2020. The jobless rate is expected to fall to 6.6% this year, according to the International Monetary Fund (IMF).
Inflation stood at 9.1% in March 2022, the highest level since June 2021, according to the Banco Central Republica Dominica.