I am not a real estate guru but I do know that real estate in the DR represents one of the best investment opportunities at the moment. There are various factors that make the current situation in the DR an attractive real estate paradise, not the least of which is the economic situation....let me explain. First off, during economic turmoil, as the DR is currently experiencing, prices in general do not change at the same pace of devaluation or currency depreciation. In other words, although inflation has increased by 67% over the last year or so, general price changes do not reflect this reality. The fact of the matter is that there is a lag (time latency) from the time that a drastic devaluation takes place and the time when all prices level-off to reflect the new pricing reality. This time lag represents a great opportunity for real estate investors. For instance, over a year ago I became interested in buying a condo in Santiago for Ps 900,000 or US$52k which I was planning to finance via a 401k loan. Although the condo looked attractive, I still thought that I could get it for less $$. Over the next 12 months I continued to monitor the price of the apartment, particularly in light of the decaying exchange rate...so at 17/1 it was worth $52k....at 21/1 it was worth $42....at 35/1 it was worth $25k....during this time, I continued to call my broker to make sure that the condo was still being listed at the Peso price...and he confirmed that it was. Immediately when I saw that the exchange rate went to Ps 35 per US$1, I jumped in and bought a property that was worth US$52k a year ago for US$25k....which made me very happy.
This is obviously one case of many...and I may have been very lucky as well but the concept of latency does exist and real estate opportunities do exist. Now, the reality is that the DR economic deterioration also has something to do with the continued price depreciation of the condo (in US$) over that same period. However, I still think that real estate prices should not be penalized with the full blunt of the economic downturn. For one thing, real estate rentals which should be part of the complete real estate valuation equation tend to do well in a high interest environment....a phenomenon that currently exists in the DR. Presumably, in a high interest environment, buying a piece of property and paying for a mortgage becomes more difficult thus forcing people to rent more and buy less. The reverse is also the case....in a low interest environment, as is the case in the US, more people buy and less people rent (inverse relationship). This being said, the DR represents the perfect real estate environment for real estate investors, specially if one is able to finance that purchase by borrowing in the US instead of the local market.
Another thing to keep in mind about the DR is that close to 20% (or more) of the Dominican population lives outside of the country...mostly in the US. This portion of the population has an enormous economic power (relative to the locals) and play a very important role in the economic development of the country. I do not have the stats but it feels that every Dominican has a brother, cousin or someone that has migrated to the States and that can always provide a helping hand in times of crisis...which I think this one of those situations. Although economist do not focus on this type of transcendental economic assistance, I believe it will be a critical component of the Dominican turnaround. From this US influence/dependency perspective, no other Latin American country benefits from that association more than the DR....and this is only the start of it. If we believe that the US economy will some day come back....then, by default, one should invest in the DR...specially in real estate.
