Dominican Republic Real Estate Economic Outlook for Investors

Saturday, February 28, 2009

Punta Cana, Dominican Republic

The Dominican Republic Real Estate Market news is by no means a cause for celebration but it is not all bad news or gloomy either. Dominican Republic still remains among the most popular investment and second home destinations for United States, Canadian and European citizens. The country has successfully branded itself as a premiere destination and a tourism sector that is expected to continue growing. The countries hospitality, low cost of living and low property taxes still attracts investors and adventurous retirees who are looking for more affordable options with higher quality of life.

Minister of Tourism Francisco Javier Garcia said, “The Dominican Republic is a culturally rich and sophisticated tourism destination like no other. More global visitors are choosing the Dominican Republic for our unspoiled natural beauty, diversity and accessibility. With eight international airports and many seaports, visitors receive a warm and friendly Dominican welcome among magnificent hotels, world class golf courses, luxury marinas, amazing cultural and historic attractions, exciting nightlife and eco-tourism not found anywhere else. The Dominican Republic really has it all.”

However, the second largest Caribbean nation, has not been immune to the global economic crisis and it has been particularly sensitive to the the U.S. slowdown. After all, some 32 percent of tourists arriving into the country come from the United States, 19 percent from Canada and 40 percent from Europe according to the Central Bank of the Dominican Republic. The United States, Canada, Western Europe and Japan purchase the majority of Dominican Republic exports.  This makes the country overly sensitive to global economic winds.

The demand for Dominican Republic real estate has reacted badly to the financial crisis. As a real estate broker in the Punta Cana real estate market I have seen sales fall by 50 percent in 2008 as demand for homes decreased; however, prices have NOT dropped. What can be seen in the early months of 2009 is motivated developers and motivated sellers.  They are starting to make adjustments quickly and have become more flexible by offering incentives, and more favorable buying conditions for prospective buyers.  All offers are being considered.  This is a good time to take advantage of great opportunities in the Dominican Republic real estate market.

The construction industry, considered one of the activities of the economy that generates more jobs, has also fallen victim to the financial crisis.  New home construction underwent a resounding fall last year due to a lull in the demand, with only 50% of the number sold as compared to 2007, says a report by the company Constructora Cohisa, headed by Ramón Elías Hidalgo. Hidalgo said the 2009 outlook is not encouraging; however, banks have been aggressive in seeking to attract new customers for mortgage loans by lowering interest rates for builders and buyers.  Also, the Industry and Commerce Ministry announced that the country’s major cement makers will lower the price for a bag of their product. These are very favorable signs for the industry because construction companies will recover their operational margins, new developments will start, developments in process will be able to finish and the final price to the consumer will be lower.

The fundamentals of the tourist industry still remain strong. The Dominican Republic experienced a slight visitor increase in 2008 despite the international economic slowdown.  According to a recent report issued by the Dominican Republic Ministry of Tourism, arrivals increased slightly in 2008 with over 3.4 million guests choosing the Dominican Republic as their vacation destination. This is a 1.45 percent increase compared to the same period in 2007. Visits to the Dominican Republic from the United States remain steady, with more than one million arrivals for the fourth consecutive year. In addition, North American arrivals to the Dominican Republic exceeded those from Europe for the fourth successive year by approximately 24 percent.

According to the Central Bank of the Dominican Republic, hotel occupancy levels remain at 71 percent and have only fallen by 1.8 percent in 2008.  The most popular destination in the Dominican Republic for visitors continues to be Punta Cana on the East Coast, as its international airport received nearly 1.9 million resident and nonresident arrivals in 2008 and hotel occupancy of 78 percent. The second most visited airport is Las Americas International Airport in Santo Domingo with nearly 1 million arrivals, followed by Puerto Plata International Airport on the North Coast, El Cibao International Airport in the Central region, La Romana International Airport, also on the East Coast, El Catey International Airport on the Northeast Coast and La Isabela International Airport, also in Santo Domingo.

The DR-CAFTA trade deal, known as the Dominican Republic Central American Free Trade Agreement, began negotiations back in 2003, as Costa Rica, Nicaragua, Guatemala, Honduras and El Salvador began the process of a Central American trade deal with the United States. The Dominican Republic later entered the talks. All the signatory countries, except for Costa Rica, ratified and put in place their respective deals more than a year ago and as of January 1, 2009, Costa Rica’s formal entry to the DR-CAFTA was signed.  United States exports to the Dominican Republic and the five Central American countries hit a record US$22.4 billion in 2007. The director of the Dominican Republic Export and Investment Center (CEI-RD) said that foreign investment in the country up to September 2008 jumped to US$2.35 billion, or US$836.5 million more than the US$1.5 billion in the same period a year earlier. 2007 year’s total US$1.7 billion was also a record, attributed to the DR-CAFTA trade deal that took effect in 2007.

It is hard to predict the effect of the financial crisis on international real estate buyers. In general, it is expected that big bank financed developments will experience hard times as their fates are tied to the big financial institutions. However, individual investors, some of whom are looking to escape the unpredictable stock markets, may continue to buy real estate. Also, those who have seen their savings dwindle and baby boomers that are close to retirement age may consider international relocation in order to afford the lifestyle they hoped to have in their later years.

Long term prospects for Dominican Republic remain attractive. The government is stable and will receive an estimated $1.8 billion in loans from the World Bank, the Inter-American Development Bank and others to pay for projects related to education, health and energy. The government also expects to save $1.9 billion this year as a result of falling food, fuel and commodity prices. The country entered 2009 with a strong economy after small increases in remittances and tourist arrivals. GDP grew 5.3 percent last year, slightly higher than the average for Latin America. Remittances reached $3.1 billion, a 2.1 percent growth from 2007, while the number of tourist arrivals – nearly 4 million – grew 7 percent and generated $4.2 billion in revenue. President Leonel Fernandez also asked legislators, in a 12,700-word speech, to accept the results of a two-year constitutional revision project that includes changes to strengthen border security, protect the environment and alter the military’s constitutional status. The reform would guarantee “that under no circumstance the Dominican Republic will return to the dark days of dictatorship, abuse, trampling and arrogance of power.

The country has a wealth of natural resources, from beautiful beaches to pristine golf courses and breathe taking mountains, that attract a wide range of travelers. More importantly, it knows how to take care of its environment. 20 percent of the land is set aside for preservation, the Dominican Republic has taken a very systematic approach to ensure the natural beauty remains unspoiled. This dedication has led to the development of 83 protected areas including 19 national parks, 32 natural monuments, six reserves and two marine sanctuaries.

The Dominican Republic provides a plethora of natural diversity opportunities which connect visitors with the environment in sustainable ways, granting access to the unimaginable beauty of the land. No doubt tourism and related developments will continue to boom.  To avoid being a victim of its own success, the Dominican Republic Real Estate Market will need to perfect the fine art of balancing development against preservation in order to protect its natural diversity brand.

2 Responses to “Dominican Republic Real Estate Economic Outlook for Investors”

  1. Cathey Sutton Says:

    Hola, you have a awesome website very helpful. I’am looking to move to the Samana area fall 2010. I hope to get in touch as the time approches. Thank-you


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