The DR and the Recession of 2008

[mido]

But still, most of the tourist beach resorts are owned 100% by foreign groups, mainly Spanish. Talking about the east coast, there are 2 or 3 resorts out of about 40, owned by a Dominican. At the moment hotels are 100% full and season is to be expected normal. Some tour reps told me that they expect a lot more European tourists this year because of the strong Euro so at least this year seems to be ok at the east coast. Real estate sales just continue as normal, also more Europeans again.

 

[alicious]

The D.R. is in a better position then many other places. Real Estate prices should come down in the D.R., but nothing like many other places. After all, we have had a great increase over the years and as is normal... an adjustment comes into play. Food, fuel and other items have and will increase... nothing new. Some adjustment in any market is expected. It becomes a question of to what degree?

So to all of you informed ppl who understand economics and all that (I am not in that category whatsoeveraranoid...

Do you all agree with this? More or less, but simply put, that Real Estate prices will come down (does this apply only to buying? or to rental prices as well). However food, fuel and other prices will rise?

 

[margaret]

True, yet who am I to state that...

Well korejdk I didn't think you were making it up. Here's one paper that mentions it's estimated that only 18 cents on the tourist dollar remains in the Eastern Caribbean.

http://www.sbaer.uca.edu/research/icsb/2004/Papers%20pdf/030.pdf

 

[NALs]

Thank you NALS for clearing that up. I didn't know that the Santo Domingo Hilton was run by Coral Hotels & Resorts as a franchise, but I knew that there were 4 Coral by Hilton hotels that were de-branded (when an agreement between the Hilton and Coral Hotels & Resorts expired) They are now run by Oasis Resorts & Hotels. And the Bahia Prinicipe resorts, are they also Dominican owned?

Those resorts are still owned by the Coral group, they simply have signed agreements with Globalia Hoteles, a Spanish company that owns the Oasis Hotels and Resorts company. They don't own any of the Coral properties, they simply manage those properties and use their names, but the properties are still owned by Coral Hotels and Resorts.

Don't know about Bahia Principe, but I suspect its all Spanish owned.

-NALs

 

[cobraboy]

Well korejdk I didn't think you were making it up. Here's one paper that mentions it's estimated that only 18 cents on the tourist dollar remains in the Eastern Caribbean.

http://www.sbaer.uca.edu/research/icsb/2004/Papers%20pdf/030.pdf

Margaret, I read the paper you linked, and found the phrase you mentioned, but there is no footnoted annotation where that statistic came from.

Logically, I don't see how that could be possibly true. Tourists-related businesses have to hire people, and use local vendors for their food, hard goods and soft goods, and pay local taxes. How could these expenditures possibly be only 18% net?

I'm not even sure of net profit would be 18%. That seems like a lot to me.

 

[NALs]

So to all of you informed ppl who understand economics and all that (I am not in that category whatsoeveraranoid...

Do you all agree with this? More or less, but simply put, that Real Estate prices will come down (does this apply only to buying? or to rental prices as well). However food, fuel and other prices will rise?

The price of fuel will rise because the price of a barrel of oil is rising, it surpassed US$100 recently. That, in turn, affects just about everything else that needs transportation, such as food and other products, because usually transportation costs are forwarded to the customer via higher prices.

Concerning real estate, much of the dynamism in Dominican real estate has to do with the fact that its influenced by both, local and foreign investors. The developments in tourist areas tend to be focused more on foreign investors whereas developments in non-tourist areas, namely Santo Domingo and Santiago, are focused more on local investors. Having said that, both components are quite active pretty much everywhere there is a boom in the DR.

In the foreign component, I suspect (key word) that its not dominated solely by Americans. As if that was not enough, the most dynamic part of Dominican real estate is the one being targeted to the affluent consumer group (Cap Cana, Roco Ki, several developments in Casa de Campo to name a few) and quite frankly, that is the group that will least feel the effects of a slowdown in the U.S. economy, at least in the short term.

If you take some time to review the situation in the United States, you will notice that despite the US real estate market going through rough moments, there are markets in the US that are still hot and booming. These places are booming because they are being fueled by foreign investors from Europe, Asia, and even Latin America and still have a relative low supply considering the ever increasing demand (the complete opposite of what occurred in Miami or Las Vegas). The most obvious example of this would be the Manhattan real estate market. This city-island seems to be on a world of its own. The rest of the US real estate markets are tumbling and shivering, but you would not even know it if you only focus on Manhattan because there its all going up and up.

Similarly, in the DR, although to a lesser extent, the hot places like Bavaro-Punta Cana are being fueled by foreign investors from all over the place, mostly Europe, North America, and increasingly Latin America. If American investors become more conservative in their investments abroad, it will lead to a slow down in the DR. However, given that the rest of the world seems to be doing well in the real estate department, its highly unlikely that the pessimism among American investors will spread to investors in Europe and/or Latin America, both of whom are quite active in the Dominican luxury real estate boom and in booms occurring elsewhere.

-NALs

 

[NALs]

Margaret, I read the paper you linked, and found the phrase you mentioned, but there is no footnoted annotation where that statistic came from.

Logically, I don't see how that could be possibly true. Tourists-related businesses have to hire people, and use local vendors for their food, hard goods and soft goods, and pay local taxes. How could these expenditures possibly be only 18% net?

I'm not even sure of net profit would be 18%. That seems like a lot to me.

Cobraboy, notice that Margaret's source is for the eastern Caribbean. The tourism industry in the DR is not in the same predicament as the industries of the smaller islands in the region, mostly because the DR produces much of the food that is consumed in those resorts (and that helps keep costs low - other than Cuba, every other Caribbean country imports massive quantities of food to feed itself and then some to feed the tourists) and the DR has the cheapest labor force in the area, which again helps keep costs low.

This in turn makes Dominican resorts much more profitable than many of their counterparts and, the fact that the DR economy produces much of what the resorts consume, Dominican resorts are much more engaged in the local economy than are their counterparts in the smaller islands.

Comparing the eastern Caribbean to the Dominican Republic is like comparing apples to oranges. The tourist industry of some of those tiny islands in the Lesser Antilles are barely making ends meet. Thats certainly the case on the island of St. Vincent.

Apples and oranges.

-NALs

 

[cobraboy]

If you take some time to review the situation in the United States, you will notice that despite the US real estate market going through rough moments, there are markets in the US that are still hot and booming. These places are booming because they are being fueled by foreign investors from Europe, Asia, and even Latin America and still have a relative low supply considering the ever increasing demand (the complete opposite of what occurred in Miami or Las Vegas). The most obvious example of this would be the Manhattan real estate market. This city-island seems to be on a world of its own. The rest of the US real estate markets are tumbling and shivering, but you would not even know it if you only focus on Manhattan because there its all going up and up.

-NALs

Boom Times and recession are both functions of consumer behavior and the effect of the velocity of money. Slow down the velocity, and the economy "slows".

Consumer behavior is often difficult to predict, nor are the motives of those behaviors.

That being said, one must factor in that the US is in the midst of a major election cycle, and much of consumer behavior may be based on the good/bad news that the major political influencers dissiminate that really has no direct basis in reality, but more for political gain.

If one shouts "the sky is falling" loudly and often enough, many chickens will seek protection. Conversely, one has only to remember the urgent call by these same influencers to continue to act and spend money normally after the emotional crisis that 9/11 caused. Why? To stave off recession/depression.

I read a survey recently (I'll try to find it again and link it) that showed that although 89% of Americans feel confident and comfortable of their economic future, 67% thought others were probably in economic trouble. And currently, over 95% of Americans ARE making their mortgage payments on time. Interesting dichotomy, don't you think?

 

[cobraboy]

Cobraboy, notice that Margaret's source is for the eastern Caribbean. The tourism industry in the DR is not in the same predicament as the industries of the smaller islands in the region, mostly because the DR produces much of the food that is consumed in those resorts (and that helps keep costs low - other than Cuba, every other Caribbean country imports massive quantities of food to feed itself and then some to feed the tourists) and the DR has the cheapest labor force in the area, which again helps keep costs low.

This in turn makes Dominican resorts much more profitable than many of their counterparts and, the fact that the DR economy produces much of what the resorts consume, Dominican resorts are much more engaged in the local economy than are their counterparts in the smaller islands.

Comparing the eastern Caribbean to the Dominican Republic is like comparing apples to oranges. The tourist industry of some of those tiny islands in the Lesser Antilles are barely making ends meet. Thats certainly the case on the island of St. Vincent.

Apples and oranges.

-NALs

:cheeky:

I guess I know my business and economics better than my geography...

 

[NALs]

Consumer behavior is often difficult to predict, nor are the motives of those behaviors.

That being said, one must factor in that the US is in the midst of a major election cycle, and much of consumer behavior may be based on the good/bad news that the major political influencers dissiminate that really has no direct basis in reality, but more for political gain.

Certainly, the political machine is alive and kicking and will continue until elections in November.

I read a survey recently (I'll try to find it again and link it) that showed that although 89% of Americans feel confident and comfortable of their economic future, 67% thought others were probably in economic trouble. And currently, over 95% of Americans ARE making their mortgage payments on time. Interesting dichotomy, don't you think?

Well, the reality is that the real estate problems are mostly due to the sub-prime crisis and too much speculation in some markets. However, that is only a part of the entire picture, a relatively small part.

But, try to convince enough people. Most people can't see beyond what their eyes see and, quite frankly, what their eyes see is more illusion than reality, an illusion being perpetrated by certain groups for reasons they only know.

But, that is almost always the case, in good times as well as in bad.

Public perception in anything is almost always off the mark.

But, perception is everything.

If people think something smells funny, even if its as sweet as roses, they will react cautiously and I think that is what is currently being created.

Personally, I don't think the sky is falling, but then again, I usually notice things that most people fail to see, except in hindsight.

-NALs

 

[korejdk]

Almost all "foreign" hotel chains in the DR are being operated by Dominican companies. Take, for example, the Hilton Santo Domingo. You probably think that hotel is being operated completely by the Hilton company, right? Wrong! The Hilton Santo Domingo is operated by Coral Hotels and Resorts, a company that was started, is based, and continues to be owned by a Dominican family. The Hilton doesn't even own the building they occupy at the Malecon Center complex.

Many of the other "foreign" hotel chains are nothing more than franchises owned and managed by Dominican families and businesses. Another good example would be the Wyndham resorts. All of them in the DR are operated by the Viva Resorts company, a purely Dominican owned and based corporation. Then, of course, there are the Dominican hotel chains that also operate under their original name like the Occidental Hotels and Resorts company.

The same holds true for other "foreign" companies in other sectors of the economy, whether its fast food (ie. Wendy's, McDonald's, etc) or services or anything else.

-NALs

Wake up people ! Google SPV !

 

[cobraboy]

Wake up people ! Google SPV !

SPV? I did. What is SPV?

 

[NALs]

SPV? I did. What is SPV?

Never mind.

The constant mockery tends to make some people a bit more cynical than usual, at least when it comes to interpreting other people's comments.

Go on...

-NALs

 

[korejdk]

SPV? I did. What is SPV?

When a corporation, call it the sponsor of the SPV, wants to achieve a particular purpose, for example, funding, by isolating an activity, asset or operation from the rest of the sponsor's business, it hives off such asset, activity or operation into the vehicle by forming it as a special purpose vehicle. This isolation is important for external investors whose interest is backed by such hived-off assets,etc., but who are not affected by the generic business risks of the entity of the originating entity. Thus SPVs are housing devices - they house the assets etc transferred by the originating entity in a legal outfit, which is legally distanced from the originator, and yet self-substained as not to be treated as the baby of the originator.
By its very nature, an SPV must be distanced from the sponsor both in terms of management and ownership.

 

[cobraboy]

When a corporation, call it the sponsor of the SPV, wants to achieve a particular purpose, for example, funding, by isolating an activity, asset or operation from the rest of the sponsor's business, it hives off such asset, activity or operation into the vehicle by forming it as a special purpose vehicle. This isolation is important for external investors whose interest is backed by such hived-off assets,etc., but who are not affected by the generic business risks of the entity of the originating entity. Thus SPVs are housing devices - they house the assets etc transferred by the originating entity in a legal outfit, which is legally distanced from the originator, and yet self-substained as not to be treated as the baby of the originator.
By its very nature, an SPV must be distanced from the sponsor both in terms of management and ownership.

Dude, dude,dude...

WTF does "SPV" stand for?

Is that like a holding company?

 

[korejdk]

special purpose vehicle

 

[NALs]

special purpose vehicle

Is this part of some wild conspiracy theory?

-NALs

 

[cobraboy]

special purpose vehicle

You must be European.

I now understand. I've never heard of that term before. SPE, yes.

Similar corporate structures have been around for years, it's nothing new. They are very common for a variety of tax and ownership reasons. I never called it that, but I just formed one a couple of months ago.

There is nothing inherently wrong, illegal or immoral for wanting to limit financial and legal liability, and develop a structure that allows ease of divestiture. Governing bodies have allowed such structures for many years.

I don't see what your point is re: SPV's within the context of this thread. Proxy owners?

 

[margaret]

SPVs

Are you trying to say that SPVs are used in the tourism sector protecting one company from risks and taxation with the other assuming the risks?

Are you trying to say that the DR would be an excellent location to set up SPVs similar to the Cayman Islands?

I found another source that stated that in Punta Cana only 10 cents on the tourist dollar remains in the country. Thank you NALS for pointing out that the tourist enclave in the DR doesn't import food for the hotels as they do in the eastern Carribean and that the local economy benefits more. I appreciate your response.

 

[cobraboy]

Are you trying to say that SPVs are used in the tourism sector protecting one company from risks and taxation with the other assuming the risks?

Are you trying to say that the DR would be an excellent location to set up SPVs similar to the Cayman Islands?

I found another source that stated that in Punta Cana only 10 cents on the tourist dollar remains in the country. Thank you NALS for pointing out that the tourist enclave in the DR doesn't import food for the hotels as they do in the eastern Carribean and that the local economy benefits more. I appreciate your response.

My small brain has a difficult time wrapping around those type of statistics. I'm not doubting you found it at all. I'd just like to see the statistical case study for where those folks get those numbers. They just don't make sense to me.

But remember, the capital for a project stays in the DR forever.