Dominican real estate prospects?

[Investor]

Hello,

I am considering investing in the luxury condo market in the dominican.

Can anyone help shed some light on the dynamics of the market? Past rates of return, costs per square foot of beachfront property, political environment, key risks to be aware of, etc.

Thanks in advance.

[J D Sauser]

Originally Posted by Investor

Hello,

I am considering investing in the luxury condo market in the dominican.

Can anyone help shed some light on the dynamics of the market? Past rates of return, costs per square foot of beachfront property, political environment, key risks to be aware of, etc.

Thanks in advance.

Please share you definition of "luxury" condo market.

Are there any particular regions, developments or projects on your mind?

From what I see, being here, most rental returns quoted by developers and especially sellers and their agents here are merely projections not to say wishful thinking or fictional stories.
The only few I have found to make some consistent returns (after all deductions and maintenance), are living here (close to their properties), have bought them only a bottom price (takes time) or have built themselves and virtually manage the properties and the rentals themselves... many of which are not really into top of the line luxury properties.

Risks: This is a developing country with a still fairly young and also developing sort of democracy. The current government seems stable and respectful of property
(also, or shall I say, especially that of foreign investors). Yet corruption is not only rampant, but practiced in plain view at almost all levels.

Rental laws: Social thinking of past governments have led to a tradition of legal reasonings which heavily favor the lessee over the landlord's (lessor's) financial interests. You will find many stories about lessees having stopped paying and the landlord having fought up to two years to only get them out and to find it's place in a less than desirable condition. Here, high prices, luxury or what ever word you will prefer to use to define upper market, have not proven to be a protection from such situations.

Building qualities, design, planning and technologies: Building here is fairly simple and, as long a few basic rules are being followed the structures here have proven fairly stable and able to withstand hurricanes and the occasional seismic activities. Yet, wide spread bad planning, disrespect for basic physics laws, minimal common infrastructure as the climatic situation seem to show some tolls on many properties. Just humidity issues are so wide spread, they are accepted as a normal phenomenon by many. The resulting recurring maintenance cost this will generate can cut quite drastically into some optimistic return calculations.

Crime can be an issue, even in neighborhoods which look "nice".

The economy is fragile to put it nicely, even thou the present government has been quite adept at simulating (not stimulating) fairly stable monetary policies. While the USD/DOP rate has been maintained quite rigid, the US Dollar has taken a huge plunge on world markets and thus also puts a heavy weight on our Dollar-based economy.
We also produce too little, import way too much and are heavily oil dependent for all our energy needs which are not covered in a satisfactory manner so to allow a sound industrial development and progress at a competitive rate. Recent developments on the world markets raise some even bigger questions about this countries economic future... and with that it's relative political stability as the already huge gab between poverty and riches may put an even larger majority of it's citizens on the ugly side of the equation... altogether with a thin(ning?) middle class (when compared to other Latin American countries).

Still, some real luxury developments like La Romana's Casa de Campo and Punt Cana have proven to survive the times successfully enough to attract further big investments by international heavy weights furthering large developments like Cap Cana and most recently renewed interest around Luperon.
Yet again, most of these projects are specialized in SELLING, not renting... which should get us all thinking.

Bottom line, and in order to try not to paint a too pessimistic picture, I think the message is, yes, it can be done, but the prospecting investor needs to realize that very in depth due diligence is called for when investing into such a country and a lot of presence will be called for to protect the monies invested and it's returns.

... J-D.

[bart6]

each development has a different rental history, you need to find a place with a track record if you want something to bank on, of course you will pay a modest premium for the track record. risk is the proverbial handmaiden to reward.

[Investor]

Thanks for the detailed response…fantastic and much appreciated. I think that you have thoroughly outlined the risks of investing in a developing nation such as the DR.

By “luxury” condo market, I am attempting to describe the upper, upper end of the market by investing in a condo/hotel model such as that currently offered by Elliot/Maxim in Cofresi and Juan Dolio. Although I’m not completely sold on those specific projects, they are representative of the arrangement that I’m looking for. I believe that this route can help mitigate some of the risks that you described such as crime and construction and rental logistics. By investing in this vehicle I am undoubtedly sacrificing returns, but as a foreigner I am not prepared at this point for something more labour-intensive.

I also can’t fool myself into thinking of something like this as a short-term play nor as an income property – I see this as a lon-term growth play (with obvious tax advantages).

From a macroeconomic perspective, this is the risk that I’m looking to assume. While it can be easily debated, I believe that the US economy will ultimately rebound and I understand that this is a necessity for a country like the DR to thrive. I believe that a key aspect of a US rebound will be in their ability to recognize foreign growth prospects – a skill that they are sorely lacking. Companies that think globally and look for growth in emerging markets will have the best chances at success.

Considering the extreme socialist shift in Latin America, the DR appears to be one of the best alternatives. I think that the growing presence of large firms such as Ritz-Carlton, Marriott, American Airlines, etc. helps speak to their shared views. When a cleaning lady at a resort makes more than a government-employed doctor (with a student debt), I can only hope that the government continues to recognize the importance of tourism.

Anyway, I also don’t want to sound to optimistic in nature either…factors like inflation scare the hell out of me. Your points are great and I appreciate this debate. It’s productive to weigh out both sides of the spectrum (and very hard to find when you speak with the sales representatives on the island).

The reputation of the builder is also a critical factor that I would need to consider.

Considering the risk/reward of what I’m thinking, what are your thoughts? If they are somewhat positive, what areas do you foresee as developing faster than others? The entry point at Punta Cana/Cap Cana is a little too steep, so I’m looking elsewhere, preferably on the south shore.

[AK74]

Originally Posted by J D Sauser

Please share you definition of "luxury" condo market.

Are there any particular regions, developments or projects on your mind?

From what I see, being here, most rental returns quoted by developers and especially sellers and their agents here are merely projections not to say wishful thinking or fictional stories.
The only few I have found to make some consistent returns (after all deductions and maintenance), are living here (close to their properties), have bought them only a bottom price (takes time) or have built themselves and virtually manage the properties and the rentals themselves... many of which are not really into top of the line luxury properties.

Risks: This is a developing country with a still fairly young and also developing sort of democracy. The current government seems stable and respectful of property
(also, or shall I say, especially that of foreign investors). Yet corruption is not only rampant, but practiced in plain view at almost all levels.

Rental laws: Social thinking of past governments have led to a tradition of legal reasonings which heavily favor the lessee over the landlord's (lessor's) financial interests. You will find many stories about lessees having stopped paying and the landlord having fought up to two years to only get them out and to find it's place in a less than desirable condition. Here, high prices, luxury or what ever word you will prefer to use to define upper market, have not proven to be a protection from such situations.

Building qualities, design, planning and technologies: Building here is fairly simple and, as long a few basic rules are being followed the structures here have proven fairly stable and able to withstand hurricanes and the occasional seismic activities. Yet, wide spread bad planning, disrespect for basic physics laws, minimal common infrastructure as the climatic situation seem to show some tolls on many properties. Just humidity issues are so wide spread, they are accepted as a normal phenomenon by many. The resulting recurring maintenance cost this will generate can cut quite drastically into some optimistic return calculations.

Crime can be an issue, even in neighborhoods which look "nice".

The economy is fragile to put it nicely, even thou the present government has been quite adept at simulating (not stimulating) fairly stable monetary policies. While the USD/DOP rate has been maintained quite rigid, the US Dollar has taken a huge plunge on world markets and thus also puts a heavy weight on our Dollar-based economy.
We also produce too little, import way too much and are heavily oil dependent for all our energy needs which are not covered in a satisfactory manner so to allow a sound industrial development and progress at a competitive rate. Recent developments on the world markets raise some even bigger questions about this countries economic future... and with that it's relative political stability as the already huge gab between poverty and riches may put an even larger majority of it's citizens on the ugly side of the equation... altogether with a thin(ning?) middle class (when compared to other Latin American countries).

Still, some real luxury developments like La Romana's Casa de Campo and Punt Cana have proven to survive the times successfully enough to attract further big investments by international heavy weights furthering large developments like Cap Cana and most recently renewed interest around Luperon.
Yet again, most of these projects are specialized in SELLING, not renting... which should get us all thinking.

Bottom line, and in order to try not to paint a too pessimistic picture, I think the message is, yes, it can be done, but the prospecting investor needs to realize that very in depth due diligence is called for when investing into such a country and a lot of presence will be called for to protect the monies invested and it's returns.

... J-D.

A higly intelligent and objective report - a fresh change in the sea of advertising (obvious or hidden). Needs to be printed out and kept in the desk of each potential future expat/investor considering Dominican Republic.

[STEVE G.]

Originally Posted by Investor

... The reputation of the builder is also a critical factor that I would need to consider.
Considering the risk/reward of what I’m thinking, what are your thoughts? If they are somewhat positive, what areas do you foresee as developing faster than others? The entry point at Punta Cana/Cap Cana is a little too steep, so I’m looking elsewhere, preferably on the south shore.

Did you consider Metro Group projects in Juan Dolio . Marbella by Metro for example is located right next to the mentioned Maxim/Sun Village in Juan Dolio . There are others similar projects like Aquabella Beach & Spa Condo , Aramis Marina & Yacht Club , Coconut Cay Beach etc , but unfortunately they are still just on plans and renders and not even started yet .

[Investor]

I haven't looked into those projects. Thanks for the tips!