Dominican Republic's housing market robust despite pandemic
Lalaine C. Delmendo | October 30, 2020
“What I'm hearing now is an uptick in inquiries about the second home market,” said Anders Bogebjerg, owner of local real estate firm Group Palmera. “Interest really hasn't slowed down with COVID. A lot of people are asking, especially from New York Area and Florida.”
Barbara Warren of Noval Properties said that the pandemic actually did the contrary. “There has been a boom in residential [investment] due to the [coronavirus pandemic] and the fear of large crowds,” Warren revealed. “There has been a significant uptick in sales of turnkey-ready properties.”
These claims were supported by Lucien Echavarria, director at the Ministry of Tourism of the Dominican Republic. “Interest in real estate in the Dominican Republic, particularly Punta Cana, remains high because smart investors know the DR is the type of destination travelers are looking for now,” said Echavarria. “It is close and has a strong, stable government.”
The Dominican Republic's residential property market has grown rapidly in recent years, 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. 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.
However, the Dominican Republic is not your usual Caribbean fantasy 'unspoiled virgin island paradise'. It has more than 10.4 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$8,600 in 2019, one of the highest in the region, according to the International Monetary Fund (IMF). Moreover, the national poverty rate dropped sharply from 41.2% to 30.5% in the past five years.
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 2019, the economy grew by a healthy 5.1% from a year earlier, following expansions of 7% in 2018, 4.7% in 2017, 6.7% in 2016, 6.9% in 2015, 7.1% in 2014 and 4.9% in 2013. However due to the pandemic, the economy is projected to contract this year by 6% before bouncing back with a 4% growth in 2021, according to the IMF.
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.
Economic contraction, rising unemploymentIn 2019, the economy grew by a healthy 5.1% from a year earlier, following expansions of 7% in 2018, 4.7% in 2017, 6.7% in 2016, 6.9% in 2015, 7.1% in 2014 and 4.9% in 2013, according to the International Monetary Fund (IMF).
Even during the global crisis, foreclosures did not significantly impact the country’s housing market, because most foreigners pay in cash. While house prices fell after the 2008 global financial crisis, “it never fell as much as other parts of the Caribbean and the world,” said William Holden of Holden Sotheby's International Realty.
However economic activity has been falling since March 2020 due to the pandemic. The economy is projected to contract this year by about 6%, before bouncing back with a 4% growth in 2021, based on IMF estimates.
Nationwide unemployment rate is expected to surge to 16% this year, sharply up from just 6.2% in 2019, according to the IMF.