Real Estate prices and thus business in exotic vacation and retirement locations like the DR, depend heavily on the drive coming from people abroad and for this reason on their countries' economies. If people abroad have money to spend, and especially if the RE market there is flying high, so that people can re-finance or sell and take in gains, chances are we here will get a cut of all the business this can generate, as long as what we offer is safe, secure and of a good quality price ratio. And the DR did, big time... which is what drove up prices so much in the last 2 to 4 years.
Right now, the picture based on above rationale looks bleak to put it mildly.
Additionally to that, people here seem to be somewhat slow in reading the signs on the walls... even if they come in
B I G letters. So, they keep prices high up and even if they haven't sold in 4 years, some will keep on increasing their asking prices so the keep up with something which has stopped long ago. An effect which threatens to further blow up a bubble.
Now, in the DR, like in many comparable markets, most each location acts very differently, as they seem to appeal to different nationalities and or age groups, yes even gender and especially social levels and interests. One can not compare RE in Sosua with Puerto Plata city or La Romana (Casa de Campo) with Santo Domingo or even Juan Dolio and Cap Cana with all the above... and so forth. So, I thing reactions to the market fluctuations abroad may affect each location differently and at different times.
I have now spent almost a month looking at villas and houses in Puerto Plata... intensively. My comments to follow here do not come as a recommendation to anyone, but I've come to the conclusion that in my case and for the location and type of property I am looking at, this is NOT to time to buy as I seem to see an over offering of target properties at prices way to high at the current time. That paired with the limited economy of a little town like Puerto Plata, and the issues abroad, leads me to believe that unless I can buy from a distressed seller at a heavy discount, I may stand a chance to find my property decrease in value in the next two or three years.
One also has to take into consideration the value of RE in other countries. For an example, I used to build, buy and sell RE in South East Florida from 1996 to 2001. A house I sold in 2001, in a very nice development of a nice community of West Palm Beach for around USD 150K, went up to USD 375K in 3004... now they are back to the 180's and on a depressed Dollar... in other words, in Euros it would be less than what we sold it for in 2001!!
Now, this is a nice 4 bed/3 1/2 bath, tarmac streets, low crime, nice schools, supermarkets nearby, 23.9999/7 electric power water and cable, etc home, in a country where you still stand a better chance of finding an appropriate income to pay of a AAA mortgage.
Meanwhile, similar properties in Puerto Plata... a small port town in a small under developed country plagued with crime, bad streets a low quality services can be found offered up to 3/4 hundred thousand Dollars.
London, Paris, Zurich, Munich, Miami, New York, Tokyo...
Do any of the DR's location, yes even big cities like Santo Domingo and Santiago fit into above list? Certainly not.
I love Puerto Plata, I have not been born here, I chose it, but yet I recognize the fact that it is not comparable to above cities for too many reasons to list.
Lets calcualate what we are looking at here: If you'd buy a home in Puerto Plata for, let's say, USD 400K and get a conservative mortgage locally for 3/4 or the value (300K) at 11% (that's considered cheap here for locals) over 20 years... guess what the monthly payments would be?
3000 USD! Now, it's is suggested that raw mortgage (no insurance etc) should not be more than 1/4 of the family income! In our example that would be USD 12K... every month. I presented this simple calculation to many of these would be sellers and pushed over a piece of paper and my pencil and asked them with a grin to write down just 100 families in Puerto Plata with a constant income of USD 12K or more each month... while I would give them a list of a good 200 homes currently being offered at similar prices at this location.
IT DOES NOT WORK OUT.
Well, so I'm then told by some wold be sellers, we can't calculate like that.
So, let's do the rent-income on capital calculation. Most of these would be 400K
villas de lujo (what is "lujo" anyway? Does it have running water, windows, lockable doors, is that it?) bring in in rent realistically? USD 1500.oo, really? Well, lets assume they could really get 15 hundred every month of the year... that would still only be 3.75% GROSS (you can deduct legal fees, maintenance, repairs, etc)... you are better off putting your money in a CD in Europe and enjoy your 6 to 7% without having tenant hassles.
But yet again, so I'm told, HERE in the DR I am not to calculate like that either... it's of bad taste :bunny:.
- So why should property here be more expensive than in quaint locations in Southern Florida or the Spanish Costas?
- What would warrant prices the local economy can impossilbe affoard in these quantities?
- Why would anybod "invest" in RE in a risk location for gross returns about half of a safe deposit in a strong currency?
I don't want to discourage anyone here, then
good deals and values are to be found in the DR, but buyers need to run the numbers and sellers will have to face the facts and accept that numbers is what RE boils down too, especially in a surrounding market situation which seems increasingly depressed.
Will RE agents and brokers still have business? You bet'cha! Even in a sell-sell-sell market... who does the selling... ?
As for me, I am back at looking for a place to rent 4 to 5 bedrooms, 4 bath, safe, good electricity and water for a year or two... J-D.