Tourism boom fuels Dominican Republic's property market
Last Updated: November 29, 2015
The surge in the number of foreign property investors and tourists in the country has been pushing property prices up. In early-2015, the average price of residential properties in the country reached US$2,078 per square meter (sq. m.).
In Puerto Plata, located on the north coast, average apartment prices have increased by a whopping 23% in early 2014 from a year earlier, according to the latest Global Property Guide survey. Bigger apartments showed the highest price appreciation. A 200 square metre (sq. m) apartment in upscale neighborhoods of Puerto Plata, like Sosua, costs around US$2,426 per sq. m, up by 19% from a year earlier.
The same trend is evident for house prices in Puerto Plata, though the price appreciation is not that high. The average house price in Puerto Plata rose by 7% to US$1,689 per sq. m. in early-2014 from a year earlier.
Residential property prices in the country have been rising by an average of 10% every year after the global crisis, according to local real estate experts. In 2014, the total construction costs of houses rose by 3% from a year earlier, after an annual increase of 5%, based on figures from the Oficina National de Estadistica. However, in September 2015, housing construction costs fell by 2.3% from the same period last year, mainly due to a decline in the prices of construction materials.
In Santo Domingo, the country's capital, luxury developments have been increasing, especially along the coastal areas, making it the center of high-end residential properties. Luxury beach villas in or near the capital city are priced as high as US$7 million.
In the Cabarete area, the price of an oceanfront condominium in a central location starts at about US$120,000, while a similar condo in a hotel-style development is priced from around US$250,000, according to Sandy Parekh of Remax Coral Bay Realty.
On the other hand, a 6,000-sq. ft. oceanfront residential property would be typically priced between US$1,700 and US$2,500 per square meter (sq. m.), according to William Holden of Holden Sotheby's International Realty.
Despite the continued increase in demand, residential properties in the Dominican Republic have remained relatively affordable, and the country is still one of the least expensive housing markets in the Caribbean.
Though Dominican Republic has its own currency, the peso, most real estate listings and transactions are quoted in U.S. dollars.
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.
Developing the mortgage marketDominican Republic has currently a very small mortgage market. In an effort to buoy the real estate market, the government enacted Law No. 189-11, the Law on Mortgage Market Development and Trusts, in 2012. The said law provides several tax incentives and exemptions. Moreover, it also established the Trust as a legal instrument in the country's legal framework.
The new law is expected to promote the participation of the private sector in providing low-cost housing projects in the coming years, in an effort to meet the increasing demand.
"The implementation of the Law for Development of the Mortgage Market and Trust is expected to help boost the sector in the medium- and long-term, and to mitigate the increased housing deficit in the country," said Jorge Yanes of Fitch's Latin America Group.
Most property transactions in the Dominican Republic are done in cash. However in the last two years, mortgages offered by local banks have been increasing. Typically, the loan-to-value ratio is 70% of the appraised value of the property and the interest rates start at 8%.