By TBY | Dominican Republic | Aug 31, 2014
The Bigger Picture
The country’s robust demographic growth over the past 20 years also contributes to real estate demand, with over 35% of the country’s population aged below 18. The Dominican Republic’s positive […]
The country’s robust demographic growth over the past 20 years also contributes to real estate demand, with over 35% of the country’s population aged below 18. The Dominican Republic’s positive fertility rate indicates that the youth component is only set to grow and create an increased need for housing for the upcoming generation for at least a decade to come. In response to this need, the administration of President Danilo Medina is committed to reducing the current deficit of affordable housing, while also providing for the country’s future needs.
Given the huge volume of real estate development taking place, as well as a growing volume of international investor demand, practices in the sector are improving in step. According to Omar Ramos, President of EHS Prevencion, this is having a positive impact on standards in construction operations, “The need to be competitive and the opening of the Dominican Republic — Central America Free Trade Agreement (CAFTA-DR) to other markets, led us to create safety standards that our leaders assumed as a challenge, but that today are a reality. The factoring in of safety measures in this area both promotes loss reduction and fosters greater investment increasing profitability.”
THEY CAME, THEY SAW, THEY BOUGHT
For the past decade, the rapid increase in tourist numbers and development of the Dominican Republic’s resort regions, perhaps best known for areas such as Punta Cana and Casa de Campo, has attracted international home-buyers to the country. The majority comes from the US, but increasing numbers of Canadians, Western Europeans, and Russians have also entered the market. Factors drawing them to the country include the desire to own holiday properties in a tropical paradise, aided by a favorable legal structure for foreign ownership, and despite the sustained rise in luxury housing prices. The latter makes such an investment a lucrative one. According to propertywire.com, nearly 20% of the wealth of ultra high-net worth individuals is invested in property. This phenomenon, whereby the high net-worth segment has entered into the global property market that banks have shied away from, has increased markedly since 2008.
The trend has kept the Dominican Republic’s property market buoyant as even a brief visit to the country reveals. Numerous real estate companies cater to this demand and billboards advertising high-end property in an array of languages are visible nationwide. Even Sotheby’s International Realty set up shop in 1Q2013 to meet demand from its international high- net-worth clientele.
Over the past decade, dramatic improvements in land regulation and legal framework for the sector has improved business conditions for consultants, real estate agents and potential property owners alike. Reforms to mortgage and foreign ownership regulations have also helped to facilitate the rise of foreign investment in Dominican Republic property, as has the ease of acquiring residency in the country. This has in turn stimulated the luxury boom. Homes in prestigious coastal areas can be priced anywhere from $6 million for an impressive villa with a private beach to $60,000 for a modest condo.
However, it is not just a story of foreign speculation driving demand. The luxury Puerto Bahia project in Samaná Peninsula, catering to yachting enthusiasts, demonstrates this. Juan Bancalari, President of Puerto Bahia told TBY that, “As per the owners of the housing properties in Puerto Bahia, around 70% to 75% of them are Dominican citizens. We believe that the overall number of foreign buyers will soon increase, as international air connections have expanded considerably over the past few years, and we are seeing many more foreign arrivals.”
NOT JUST FOR THE MEGA RICH
The story of Dominican real estate is not just one of beachside mansions. According to Habitat for Humanity, there is a national deficiency of 600,000 housing units for lower-income earners. Of this figure, 55% represents the need to upgrade from low-quality housing, rather than outright homelessness. Much of this problem has been exacerbated by hurricanes and tropical storms over the past decade, which have damaged or destroyed homes.
The government has vowed to address this issue and is currently able to build 15,000 homes per year through its programs. President Medina has vowed to increase government construction of affordable housing to rectify the problem with an annual construction target of 40,000 units. The government’s stated goal is to have built 400,000 homes by the year 2023—enough to significantly impact the nationwide shortfall.
The government is aiming to achieve this ambitious increase in construction figures through public-private partnerships. This is largely done through the framework of the 2012 Real Estate and Development Trust Law, whereby incentives are offered to private construction firms through this legislation. Companies embarking on low-cost housing projects coordinate their efforts with the National Housing Institute in order to reap the benefits of the program.
Testament to the results of this program in 3Q2013, construction company Cemex broke ground on the construction of 186 affordable units in the province of San Pedro de Macori. This project—certified by the National Housing Project—will be a completely modern, sustainable, and integrated complex offering amenities, sports facilities, commercial space, a sewerage treatment plant, and solar energy to power common areas.