Hello,
I am considering investing in the luxury condo market in the dominican.
Can anyone help shed some light on the dynamics of the market? Past rates of return, costs per square foot of beachfront property, political environment, key risks to be aware of, etc.
Thanks in advance.
Please share you definition of "luxury" condo market.
Are there any particular regions, developments or projects on your mind?
From what I see, being here, most rental returns quoted by developers and especially sellers and their agents here are merely projections not to say wishful thinking or fictional stories.
The only few I have found to make some consistent returns (after all deductions and maintenance), are living here (close to their properties), have bought them only a bottom price (takes time) or have built themselves and virtually manage the properties and the rentals themselves... many of which are not really into top of the line luxury properties.
Risks: This is a developing country with a still fairly young and also developing sort of democracy. The current government seems stable and respectful of property
(also, or shall I say, especially that of foreign investors). Yet corruption is not only rampant, but practiced in plain view at almost all levels.
Rental laws: Social thinking of past governments have led to a tradition of legal reasonings which heavily favor the lessee over the landlord's (lessor's) financial interests. You will find many stories about lessees having stopped paying and the landlord having fought up to two years to only get them out and to find it's place in a less than desirable condition. Here, high prices, luxury or what ever word you will prefer to use to define upper market, have not proven to be a protection from such situations.
Building qualities, design, planning and technologies: Building here is fairly simple and, as long a few basic rules are being followed the structures here have proven fairly stable and able to withstand hurricanes and the occasional seismic activities. Yet, wide spread bad planning, disrespect for basic physics laws, minimal common infrastructure as the climatic situation seem to show some tolls on many properties. Just humidity issues are so wide spread, they are accepted as a normal phenomenon by many. The resulting recurring maintenance cost this will generate can cut quite drastically into some optimistic return calculations.
Crime can be an issue, even in neighborhoods which look "nice".
The economy is fragile to put it nicely, even thou the present government has been quite adept at simulating (not s
timulating) fairly stable monetary policies. While the USD/DOP rate has been maintained quite rigid, the US Dollar has taken a huge plunge on world markets and thus also puts a heavy weight on our Dollar-based economy.
We also produce too little, import way too much and are heavily oil dependent for all our energy needs which are not covered in a satisfactory manner so to allow a sound industrial development and progress at a competitive rate. Recent developments on the world markets raise some even bigger questions about this countries economic future... and with that it's relative political stability as the already huge gab between poverty and riches may put an even larger majority of it's citizens on the ugly side of the equation... altogether with a thin(ning?) middle class (when compared to other Latin American countries).
Still, some real luxury developments like La Romana's Casa de Campo and Punt Cana have proven to survive the times successfully enough to attract further big investments by international heavy weights furthering large developments like Cap Cana and most recently renewed interest around Luperon.
Yet again, most of these projects are specialized in SELLING, not renting... which should get us all thinking.
Bottom line, and in order to try not to paint a too pessimistic picture, I think the message is, yes, it can be done, but the prospecting investor needs to realize that very in depth due diligence is called for when investing into such a country and a lot of presence will be called for to protect the monies invested and it's returns.
... J-D.
