Real Estate & Construction

Bricks & Water

Construction & Real Estate

The construction and real estate sectors of the Dominican Republic have been fueled sizably not only by a burgeoning tourism industry, but also by ongoing efforts to upgrade the utilities infrastructure in step with broader strategies of national development.

The property market is in full bloom due, in broad terms, to the DR’s sterling macroeconomic performance, where annual GDP growth reached 7% in 2015, by central bank figures. In 2016, too, first half growth printed at 7.4% YoY, made possible by construction activity. The economy is forecast rising by 4.5% in 2017. The construction sector appreciated by 12.2% in 9M2016, which, while robust, paled when compared to the 21.1% growth of 9M2015. And meanwhile, the DR’s Engineers, Architects and Surveyors Guild (CODIA) says more cheer is on the cards for 2017 owing to the government’s expected release of USD260.9 million dedicated to long-term real estate loans at low rates for low-cost housing.

The residential property market has enjoyed brisk business due to soaring tourist figures, lifted still further by the new cruise opportunities outlined in a separate tourism chapter. Suffice to say here that even during the global credit crunch of 2008-2009, tourism arrivals were rather stable, as roughly 3.98 million and 3.99 million stay-over tourist arrivals were respectively logged in those years. Six million are estimated to have arrived in 2016, predominantly from the US and Canada, but also from far and wide in South America and Europe. The government looks to host 10 million visitors annually by 2023. This will all require the construction of additional hotel, retail, and leisure facilities. The road systems, too, have been enhanced whereby all parts of the nation are now a two-hour drive apart, a remarkable boon for the foreign tourist, able to dip in both the Atlantic and Caribbean Sea over the weekend. Prominent projects specifically catering to the tourism industry have included Amber Cove, a plush new port of Carnival Cruise Lines that has added further scope to the nation’s offering. Additionally, a tourist village at Maimón, west of Puerto Plata, was opened back in 4Q2015. It helps, too, that Law 158-01 on Tourism Incentive stipulates that developers are spared all national and municipal taxes for a 10-year period, which includes the tax on the transfer of ownership to a property’s initial buyer.

Sweetening the Deal

Having visited, and been enchanted, by the DR, many foreigners continue to make the Caribbean paradise their home, enjoying the lack of restrictions to property buying. Around 80% of homes in the DR are detached houses, and residential prices also remain relatively cheaper than the remainder of the Caribbean, to the extent that as of 4Q2016 a new-build one-bedroom apartment close to the surf costs USD100,000 or less. Moreover, incentives aplenty make the commitment all the more appealing. These, for elderly foreigners or those planning to move to the DR for the long term, include tax-free receipt of pension income earned from foreign sources, as covered by Law 171-07 on Special Incentives for Pensioners and Persons of Independent Means. Foreign homebuyers also get a 50% exemption from property tax and a 50% exemption on mortgage taxes, if creditors are among the financial institutions regulated by local financial monetary legislation. The mortgage market is rather small, despite Law No. 189-11 of 2012 on Mortgage Market Development and Trusts, which extended tax incentives for establishing such trusts, henceforth deemed legal instruments. Local banks today provide mortgages normally of a 70-30% loan-to-value ratio, charging interest of around 8%. There is also exemption from property transfer taxes, providing considerable investment flexibility.
Naturally, where incentives are concerned, there is a consequence to over-egging the pudding, so to speak, namely higher, and hence more exclusive, property prices. These have risen by 10% annually since the global crisis, albeit in a rebound from historic lows. The super-luxury end of the equation sees prestigious property going for a minimum of USD5 million in the north and around USD9 million in the south according to sector data for 2016.

Playing the Landlord…

As ever, it is all about what investors enter the property market for in the first place. For the investor in property, good rental yields are to be had in the DR, as higher-end areas can generate annual net rental yields of 10%. One-bedroom apartments in Punta Cana can cost between USD150 and USD300 per month, while at the other end of the spectrum, a detached six-bedroom house, availing the tenant of 26 square miles of beachfront facilities, will relieve the tenant of USD96,000/month.

…And Paying the Realtor

Returning briefly to the less auspicious days of the global financial crisis, it is noteworthy that while house prices slumped 20-25% and new developments tanked by 70-80% on deflated confidence, foreclosures were rather rare given that most foreigners had made cash payments. Today, the capital, and largest city, Santo Domingo sees an average price of USD150,000 for a centrally located two- or three-bedroom home. Meanwhile, turning to the popular Puerto Plata, on the north coast, sector data points to a double-digit rise in apartment prices especially among larger properties. Thus, a 200 sqm apartment in a popular Puerto Plata neighborhood such as Sosua will set a buyer back approximately USD2,400/sqm. An oceanfront condominium in the central Cabarete area sees starting prices of around USD120,000, rising to around USD250,000 for a similar condo in a hotel-type project. A development of particular note is the east coast Cap Cana project comprising luxury residential and tourist mixed development to include hotels, oceanfront homes, and leisure facilities such as golf courses, as well as commercial establishments that together form a complete living environment.

Getting it Built

The DR’s construction sector has been responsible for generating 7% of GDP over recent years. Yet the bulk of construction projects has catered to the more lucrative high-end market. In consequence, the nation has been faced with a chronic shortage of low- to middle-income accommodation, accounting for today’s approximate housing deficit of 600,000 units. Add to this the very real effects of natural disasters in this part of the world, and the government has hitched itself to the private sector in expanding social housing stock, earmarking the annual building of 40,000 new homes until 2023.

Leveraging Local SMEs

State involvement in the construction sector, then, seeks to kill two birds with the proverbial stone, by providing affordable accommodation, the building of which benefits the nation’s SMEs. Eliseo Christopher is the President of the Dominican Confederation of Small and Medium-sized Construction Companies (COPYMECON). The organization is a unified platform for construction sector associations, federations, and chambers, the members of which are themselves organizations established by construction SMEs nationwide. He explained specifically how “Law 189-11 (would) enable companies to do projects that until now only two or three big groups were skilled or well-financed enough to do.” The firm at the time of interview was “working on Alto Rivera, the first project, and building 2,400 habitable units, which will directly employ 87 SMEs and indirectly involve another 80 or 90 companies.” He envisages a situation where SMEs are able to establish their own trusts and thrive in their own territory “to boost the economic development in each area of the country (resulting in a drop in the cost of the housing units and a drop of the housing deficit).”

As far as building costs go, rising housing prices have not really had an impact as a result of recently declining construction material prices. Sector figures of the National Statistical Office reveal that as of September 2016, total house construction costs had climbed 1.6% YoY, having fallen 0.9% in 2015, and risen by 3% and 5.1% in 2014 and 2013, respectively. Central Bank data indicates that government investment in public works rose 43.7% YoY in 2015. This huge growth spurt may be attributed to state investments in key megaprojects. Among these we may list the Duarte Corridor highway scheme, and the renovation of important avenues in the capital, as well as Santo Domingo’s second Metro line and the provision of an additional 10,000 new classrooms in step with the national education drive. And, according to ADOCEM, the DR’s cement association, cement sales year to December had climbed 8.15% YoY to 4.3 million tons. And sure enough, the association attributed this sterling performance to government schemes as well as local industrial demand.

Keeping it Green

The DR already flies its environmental credentials high throughout its tourism industry. Yet construction in other sectors is following suit slowly, but surely. This is vital, too, as the nation works to relieve its energy deficit and make interrupted supply a thing of the past. Large retail and commercial spaces are huge energy consumers. It follows, then, that Santo Domingo’s first LEED-certified building, Ágora Mall, is an encouraging example of green planning. The mall received LEED Silver under the Building Design and Construction (BD+C) rating system for Core and Shell work, as tenants are left to undertake their own design. Meanwhile, in a TBY interview, Luis Armando Flores Aguirre, the General Manager of Grupo Roble, Dominican Republic spoke of Intercontinental Hotel, a notable project in Santo Domingo. “We are talking of approximately 32,000sqm of construction (featuring 227 rooms, where the hotel) will be connected to the Roble Corporate Center office building.” More significantly yet, “we will be the first office tower to be LEED certified (by) the US Green Building Council.”

Back in 4Q2014, industry, too, stepped into the renewables arena as the DR operations of Mexican building materials giant Cemex brought operations online at a 1.5MW solar energy complex as part of its renewable commitment; its first such plant in the Caribbean. The facility, comprising 5,040 panels, had an annual capacity of 2.2MkWhr/yr of energy directed to Cemex’s cement plant in San Pedro de Macoris. And in 3Q2016, the multinational obtained an International Finance Corporation (IFC) loan of roughly EUR106 million in support of sustainable investment programs in emerging markets.

And on the more modest, yet cumulatively significant residential scale, with at least partial sunshine availability for around 300 days of the year, photo-voltaic solutions are an increasingly popular alternative electricity source. In many DR homes today solar panels heat water and power pool pumps and water pressure systems.

The fundamentally significant tourism sector will continue to fuel construction demand, while the sheer splendor of the natural environment will sustain the residential appeal of the DR. And meanwhile, the government has its hands full in catering to the less well-off citizen seeking a home.

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