Investing in Real Estate in The Dominican Republic - A guide to buying property in DR

Buying Property in the Dominican republic as an investment or as a second home or retirement home is subject to certain Land registry laws and it is important to follow the required steps to ensure a smooth transaction.

The buying and selling of property in the Dominican Republic is subject to the Land Registry Law of the Dominican Republic. Pursuant to the law of the Dominican Republic, the first step in purchasing property in the Dominican Republic is the execution of a contract for sale between the buyer and seller.

In the Dominican Republic, it is a legal requirement that the contract for sale be signed in front of a notary public. In the Dominican Republic a notary public must have a law degree. The contract for sale sets forth the general terms and conditions of the sale — a description of the property being sold, the agreed upon sales price and other matters relating to the transaction. The buyer normally posts a deposit for the property that can be upwards to 10% of the total purchase price of the property in question.

Once the contract for sale is signed and notarized, the document is then taken to the Internal Revenue Office. At this juncture, a determination is made as to what taxes will be due and owing because of the sale. The appropriate taxes need to be paid in advance of the final conveyance of the property from the seller to the buyer.

Should the buyer chose to appoint a Power of Attorney, his or her representative will need to produce a Passport and/or ID card.

After the financing completely is arranged and all of the conditions set forth in the contract for sale have been realized, the contract for sale and a certificate of title (designating the buyer as the owner of the property) is then filed with the Title Registrar’s Office. After payment of tax, the Seller has to deposit the following documents at the corresponding Title Registry:

• Original of the Purchase and Sale Agreement
• Title Certificate of the property (Owners duplicate)
• Original documents evidencing tax payment
• Copy of Buyer’s and Seller’s identification card (Cédula de Identidad y Electoral or passport)

Taxes and Fees

The following are the costs you should include on top of the purchase price when buying property in The Dominican Republic.

Lawyers/Solicitor’s Fee:
Although it is not compulsory to engage a solicitor, if you are not familiar with the procedure you can appoint your own solicitor. Typical costs are around £500-£1000. ($1, 000 – $2,000)

Notary Fee:
The Notary is a public official who is present to officially certify that the Title Deeds have been exchanged and understood by the parties concerned. After the signing, the notary witnesses the payment, or an acknowledgement that the payment has been made, and this is incorporated in the Title Deeds of the property. Costs vary but allow between 1 - 1.5% of the property value.

Stamp Duty:
The Document Stamp Tax is 1.3% of the value of the property.

Transfer Tax:
The Transfer tax is 3.0% of the value of the property.

Registry Tax
Introduced in 2007 was a new 2% registry tax to create an indemnity fund to provide title insurance. Insurance is also available through private companies.

All property taxes are paid on the market value of the property as determined by the tax authorities, not on the purchase price. Buyers who wish to lessen the impact of transfer taxes have the option of using a loophole in the law which allows the contribution in kind of property into local corporations without paying transfer taxes.

Ongoing Costs

Running Costs
It is good advice to have your utility bills paid via automatic bank withdrawal.

Electricity, phone, internet, TV:
Household and general electrical service is delivered at 110 volts alternating at 60 Hz; electrically powered items from the United States work with no modifications. Your electricity bill is calculated on the total amount of Kwh of electricity you use. In regards to utilities, you can expect your monthly electric bill as a worst case to total about £125 per month with constant running of your air-conditioner (your bill may even be much less). Your telephone and high speed DSL Internet bill is likely to total about £75 and your monthly cable television bill about £30 ($60) - for roughly 90 channels, 14 or so in English (CNN, HBO, CINEMAX, The Movie Channel, BBC News, CNBC, CBS, ABC, The Disney Channel, etc.).

Fresh and Waste Water:
Your water bill is calculated on the total tons of water you have used. Cost recovery for water and sanitation is minimal. Average tariffs are moderate at 11 pence per cubic meter for water and 4 pence per cubic meter for sewerage. Collection rates are extremely low at only 28%. As a result of moderate tariffs and very low collection rates, according to a WHO estimate in 1998, households paid on average only 25 pence per month for water and 5 pence per month for sewerage.

Property Insurance:
Property insurance is recommended.

Capital Gains Tax:
Capital gains arising from the sale or transfer of property are taxed as income. The taxable gain is computed by deducting the acquisition cost as adjusted for inflation from the gross selling price or the market value. Capital gains earned by nonresident individuals are taxed at a flat rate of 30% for 2006.

The corporate tax rate, which is the applicable income tax rate for nonresident individuals, will be gradually decreased over the next couple of years. The tax rate would be 29% for 2007, 27% for 2008, and 25% for 2009.

Many individuals choose to form an offshore incorporated company in order to avoid capital gains taxes.

Net Wealth Tax (impuest al activo)
The net wealth tax was introduced in 2006. This tax is levied at a flat rate of 1% on the property’s market value. The net wealth tax is payable twice annually, every June and December.

Income Tax:
Gross rental income earned by nonresidents is taxed at a flat rate of 30%, the standard corporate tax rate for 2006. No deductions are allowed for rental income.

Property Tax:
Property taxes are based on the value of the property as determined by the government, usually at much less than market value. The property tax is levied annually at a rate of 1% of the government-determined property value exceeding DOP5 million (approx £80,000). Below the threshold amount, the property is not taxed.

Inheritance Tax:
There are no restrictions on foreigners inheriting title to real property in the Dominican Republic. Inheritance taxes have been recently lowered to 3% of the appraised value of the estate. If the beneficiary resides outside the Dominican Republic, inheritance taxes are subject to a 50% surcharge, raising the tax rate to 4.5%.

Mortgages
The cost of borrowing in the Dominican Republic is relatively high and it is recommended to raise finances in your home country.

• Available for existing and off-plan properties
• Available to local and foreign buyers
• Maximum 80% LTV
• Maximum term 20 years
• Minimum loan €40,000
• Maximum loan € 200,000
• Euros & Sterling only
• Rates from 5.90% fixed for 1 year in Euros or
6.90% fixed for 1 year in Sterling

Rates may vary, please check your local mortgage provider for up-to-date information.

Cautionary Notes
Whether you are buying property in England, the USA, or abroad there will always be potential risks. The Dominican Republic is no different. You need to consider the following questions:

• Does the property have good title?
• Does the owner actually own it?
• Is the land/property clear of outstanding debts?
• Has the building been constructed legally?
• Do you understand the contract of sale?

Investment Overview

Geography and Demographics of the Dominican Republic

Background

The government of the Dominincan Republic is based on that of the United States, thus the Dominican Republic takes place in a framework of a presidential representative democratic republic, whereby the President of the Dominican Republic is both head of state and head of government, and of a pluriform multi-party system. Executive power is exercised by the government. Legislative power is vested in both the government and the two chambers of the National Congress. The Judiciary is independent of the executive and the legislature.

Geography
The Dominican Republic is situated on the eastern part of the second largest island in the Greater Antilles, Hispaniola. The Dominican Republic shares the island roughly at a 2:1 ratio with Haiti. The whole country measures an area of 44,442 km² making it the second largest country in the Antilles after Cuba. The mainland has three mountain ranges; Cordillera Central (starting from Haiti towards east crossing the island), Cordillera Septentrional, and Cordillera Oriental in the East. In between the Central and Septentrional mountain ranges lies the rich and fertile Cibao valley. This major valley is home to the city of Santiago de los Caballeros and to most of the farming areas in the nation. The capital and greatest metropolitan area Santo Domingo is located at the southern shore.
The Dominican Republic has many rivers, including the navigable Soco, Higuamo, Romana (also known as ‘Rio Dulce’), Yaque del Norte, Yaque del Sur, Yuna River, Yuma, and Bajabonico. The two largest islands near shore are Saona Island in the southeast and Beata Island in the southwest. To the north, at a distance between 100 and 200 km, are three extensive, largely submerged banks, which geographically are a southeast continuation of the Bahamas: Navidad Bank,Silver Bank and Mouchoir Bank. Navidad Bank and Silver Bank have been officially claimed by the Dominican Republic.
The Dominican Republic is divided into 31 provinces. Additionally, the national capital, Santo Domingo, is contained within its own Distrito Nacional.

Demographics

• Population: 9,049,595 (July 2005 est.)
• Life expectancy:
• Female: 69.35 years
• Male: 65.98 years
• Average: 67.63 years
• Age structure:
• 0-14 years: 34% (male 1,505,964; female 1,438,809)
• 15-64 years: 61% (male 2,815,544; female 2,703,012)
• 65 years and over: 5% (male 226,372; female 260,333) (2005 est.)
• Population growth rate: 1.47% (2006 est.)
• Birth rate: 23.28 births/1,000 population (2005 est.)
• Death rate: 7.35 deaths/1,000 population (2005 est.)
• Net migration rate: 3.02 migrant(s)/1,000 population (2005 est.)
• Sex ratio:
• at birth: 1.05 male(s)/female
• under 15 years: 1.05 male(s)/female
• 15-64 years: 1.04 male(s)/female
• 65 years and over: 0.87 male(s)/female
• total population: 1.03 male(s)/female (2005 est.)
• Total fertility rate: 2.86 children born/woman (2005 est.)

Nationality:
noun: Dominican(s)
adjective: Dominican
Ethnic groups: Mixed 73%, White 16%, Black 11%.
Religions: Roman Catholic 95%, other 5%
Languages: Spanish (official); French and Haitian Creole spoken by Haitians, English is mostly spoken by the upper class Dominican populations, also by British, American and other English-speaking immigrants that are permanent residents.

Economic Overview

Economy
The Dominican Republic is a lower-middle income developing country primarily dependent on agriculture, trade, and services, especially tourism. Although the service sector has recently overtaken agriculture as the leading employer of Dominicans (due principally to growth in tourism and Free Trade Zones), agriculture remains the most important sector in terms of domestic consumption and is in second place (behind mining) in terms of export earnings. Tourism accounts for more than $1 billion in annual earnings. Free Trade Zone earnings and tourism are the fastest-growing export sectors. According to a 1999 International Monetary Fund report, remittances from Dominican Americans, are estimated to be about $1.5 billion per year. Most of these funds are used to cover basic household needs such as shelter, food, clothing, health care and education. Secondarily, remittances have financed small businesses and other productive activities.

GDP growth and inflation
Following economic turmoil in the late 1980s and 1990, during which the GDP fell by up to 5% and consumer price inflation reached an unprecedented 100%, the Dominican Republic entered a period of moderate growth and declining inflation until 2002 after which the economy entered a recession, after the second commercial bank of the country collapsed, caused by a major fraud. GDP dropped by 1% in 2003 while inflation ballooned by over 27%.

Despite a widening merchandise trade deficit, tourism earnings and remittances have helped build foreign exchange reserves. The Dominican Republic is current on foreign private debt, and has agreed to pay arrears of about $130 million to the U.S. Department of Agriculture’s Commodity Credit Corporation.

According to the 2005 Annual Report of the United Nations Subcommittee on Human Development in the Dominican Republic, the country is ranked #71 in the world for resource availability, # 94 for human development.

In the Trimestrial period of Jan-May 2007 the Dominican Economy experienced an exceptional growth of 9.1% in it’s GDP slightly lower than last years period by 1%. DR-CAFTA(trade agreement) and Foreign Investment have given great opportunities to the Dominican economy and inflation now stands at a respectable 3.3%

Interest rates
The monetary authorities recently moved towards the interest rate as its indirect monetary policy instrument, namely through issuing central bank paper (certificados de participacion), with prices determined at auction. It is recommended to raise finance in the UK.

Unemployment
The latest figures suggest an unemployment rate of around 16%.

Currency
The Dominican peso is the national currency of the country, although US dollars (USD) are acceptable in most tourist sites. The peso was worth the same as the USD at one time, but has recently decreased in value. The exchange rate in 1993 was 14.00 pesos per USD and 16.00 pesos in 2000, but it jumped to 53.00 pesos per USD in 2003 . In 2004, the exchange rate was back down to around 31.00 pesos per USD.

The U.S. dollar is implicated in almost all commercial transactions of the Dominican Republic, supporting the theory that the devaluation of the peso in relation to the dollar in 2005 is the result of the international currency market; On February 2005, 1.32 USD = one € = 29 DR pesos; in October 2005, 1.19 USD = one € = 32 DR pesos. The International Monetary Fund revealed a growth of 7.6% over the inflation index for 2006, which implies that the national currency of the Dominican Republic could finish the year with an average basis between 32.70 and touching the 40 pesos per dollar roof. Another factor that has an impact on the currency exchange market of the Dominican Republic is the fluctuation of the U.S. dollar on the international currency market. As of June 2007 the value of the peso is 1 USD=0.7506 EUR=32.302 DOP Clearly, the current low value of the dollar compared to the pound is having a beneficial impact on British investors.

IMF
Resumption of a badly needed IMF loan, slowed by government repurchase of electrical power plants, is basic to the restoration of social and economic stability. In mid-2004 re-elected President Fernandez promised belt-tightening reform. His administration has passed tax reform and arranged a $600 million IMF standby arrangement in March 2005 to ease the country’s fiscal situation, and the Republic’s economy continues to grow at a respectable rate.

Trade/current accounts
For more than 20 years prior to 1961, the Dominican Republic had no internal or external debt. In 1961, however, about US $70 million was taken out of the country by the Trujillo family and others. Political instability induced further net outflows of private capital throughout the 1960s. The nation’s current accounts position worsened during the 1970s, as trade deficits grew. Declines in export earnings in the 1980s brought shortages of foreign exchange. Large increases in imports and a sharp drop in commodity exports pushed the merchandise trade deficit to over $1.6 billion by the end of 1992, and $1.4 billion in 1998. Tourism (now the country’s largest foreign exchange earner), expatriate remittances, and earnings from the free trade zones help to finance the trade deficit. Foreign direct investment during the early 2000’s remains high

Politics
The President is Leonel Antonio Fernández Reyna. He took office on 16 August 2004. The Vice President is Rafael Albuquerque de Castro (since 16 August 2004). The president is both the Chief of State and the head of government. The president appoints the cabinet, executes laws passed by the legislative branch, and is commander in chief of the armed forces.The President and Vice President are elected on the same ticket by popular vote for four-year terms, elections are held in years evenly divisible by four.

External relations
The Dominican Republic has a close relationship with the United States and with the other states of the inter-American system. It has accredited diplomatic missions in most Western Hemisphere countries and in principal European capitals. Newly elected president of Haiti Rene Preval made a working visit to Santo Domingo in March 2006, reciprocating Leonel Fernndez’s call on the Interim Government of Haiti in December 2005. The Dominican Government has regularly appealed for international support for its island neighbor.

There is a sizeable Haitian migrant community in the Dominican Republic, many of whom lack residence permits and citizenship documentation. The Dominican Republic belongs to the United Nations and many of its specialized and related agencies, including the World Bank, International Labor Organization, International Atomic Energy Agency, and International Civil Aviation Organization. It is a member of the OAS and of the Inter-American Development Bank.

The U.S. has a strong interest in a democratic, stable, and economically healthy Dominican Republic. The country’s standing as the largest Caribbean economy, second-largest country in terms of population and land mass, with large bilateral trade with the United States, and its proximity to the United States and other smaller Caribbean nations make the Dominican Republic an important partner in hemispheric affairs. The Embassy estimates that 60,000 U.S. citizens live in the Dominican Republic; many are dual nationals. An important element of the relationship between the two countries is the fact that more than 1 million individuals of Dominican origin reside in the United States, most of them in the metropolitan Northeast and some in Florida.

U.S. relations with the Dominican Republic are excellent, and the U.S. has been an outspoken supporter of that country’s democratic and economic development. The Dominican Government has been supportive of many U.S. initiatives in the United Nations and related agencies. The two governments cooperate in the fight against the traffic in illegal substances. The Dominican Republic has worked closely with U.S. law enforcement officials on issues such as the extradition of fugitives and measures to hinder illegal migration.

The United States supports the Fernndez’ administration’s efforts to improve Dominican competitiveness, to attract foreign private investment, to fight corruption, and to modernize the tax system. Bilateral trade is important to both countries. U.S. firms, mostly manufacturers of apparel, footwear, and light electronics, account for much of the foreign private investment in the Dominican Republic.

Tourism
It is estimated that more than 4 million tourists will visit the Dominican republic in 2007, more than double the amount of visitors in 1996. Tourism is fast becoming the major source of income in the Dominican Republic, accounting for over 25% of the country’s GDP. There was a time when the Dominican Republic was the “budget destination” in the Caribbean, but although there are still bargains to be had, the country is increasingly attracting the five star guest.

Property acquisition by foreigners in The Dominican Republic

Residential Real Estate Market

Overview
There are no restrictions on foreign ownership of real estate in the Dominican Republic, and foreign investors have been buying property there for many years. The recent government initiatives to improve the infrastructure are attracting not only the multinationals, but the private investor also. In fact, Foreign real-estate investment in the Dominican Republic, particularly from the United States is soaring. Factors for this Dominican fever are varied. Some of the reasons range from there being a number of very popular Dominican baseball stars, the country’s democratic government which encourages foreign dollars, new and upgraded airports with better service from the U.S. and an abundance of positive international press. Hollywood’s elite, U.S. politicians as well as Wall Street investors are just a few of the groups that are taking advantage of the current situation.

Residential real estate
The residential housing market in the Dominican Republic is relatively undeveloped at the moment. The recently introduced government tax for title insurance purposes will almost certainly increase the level of confidence in the market. With the USA market expected to coast or decline during the foreseeable future, American investors are already making solid commitments in the Dominican Republic. Increases in the cost of property and popularity are difficult to predict exactly, but clearly, this market is only now beginning it’s cycle. Certainly, compared to the rest of the Caribbean, the Dominican Republic looks set to out-perform them by a significant margin. Many resorts are claiming occupancy in excess of 85%. Its only a matter of time before prices increase to parity with other the Caribbean isles.