Tourists must fulfill the same requirements as Dominicans and legal foreign residents in the DR. The government, though, requires that the Title Registry Offices keep a record, for statistical purposes, of all purchases made by foreigners.
Is buying real estate in the DR risky?
The risk is small if the persons involved in the transaction (developer and real estate attorney) are reputable. The major risk is that you may be issued a title that does not reflect the liens and charges that may encumber the property, or that it may not reflect the real owner of the property. This can be avoided if you secure a reputable firm that will ensure that a title search gets done certifying the actual status of the property.
When purchasing property in the DR you should also be aware of the zoning, or lack of zoning, and who your neighbors are or could be in the future. Like with any property purchase decision, try to envision what factors that could lead your property to gain or lose value in years to come.
Today it is possible to reduce to a minimum your risk. US-based private companies offer title insurance on real estate purchases.
The companies provide title guaranty, escrow and closing services for buyers and sellers of residential and commercial property.
What are the taxes on real estate purchases?
If the purchase is done through a Savings and Loan Association (Asociación de Ahorros y Préstamos) total closing costs amount to approximately 2.5% of the purchase price, including legal fees. Interest rates on the loan, however, are incredibly high from a North American point of view: 18%+ per annum. Being a peso loan, however, you may end up paying less than at home depending on the rate of depreciation of the peso.
For a straight purchase from an individual to another, total closing costs come up to approximately 6% of the purchase price: approximately 5% for transfer taxes and 1% for legal fees.
What other taxes do real estate property pay in the DR?
Property taxes ("IVSS" taxes) are levied on sumptuous homes and unbuilt city lots. Unbuilt city lots of any value pay at an annual tax rate of 0.50% of appraised value. Sumptuous homes pay at a 0.25% p.a. tax rate. Any home worth more than RD$1,400,000 pesos (approx. US$85,000) is considered “sumptuous”for tax purposes. Homes worth less than RD$1,400,000 pesos and commercial buildings are exempt from property taxes. The government penalizes late payment with a 10% tax due for the first month and 4% for each subsequent month.
In practice, many property owners will not bother to pay the taxes on an annual basis. The tax department does not send out bills. The tax needs to be paid, though, for the property to be transferred to another owner.
How can I find out how much IVSS my property will pay?
Go to the local office of the “Dirección General de Impuestos Internos (DGII)” (Internal Revenue) with a copy of your certificate of title.
What documents will I need to purchase property in the DR?
What you need will vary with the institution and with the form of purchasing. The minimum you will need is: Two forms of official photo ID, one being your passport. If you plan to finance the property, some type of official document is required to disclose your income. This could be copies of last years income tax filing, a letter from your present employer on company letterhead (if you plan to move and work in the DR, get a letter of intent from your prospective new employer, noting start date, length of employment and salary); documents of other sources of income; savings and checking statements; outstanding debts and proof of on time payments. You should bring anything you can to prove your solvency. You will also need to show plans of the house/building you wish to build or copies of the title of the property you wish to buy. It’s not much different from buying property in the
US.
How is land measured in the DR?
Officially, the metric system should be used in all real estate transactions, the hectare (10,000 m2 = 2.47 acres) being the basic unit. However, the “tarea”, a unit of measurement from colonial times equivalent to 628.86 m2 is still widely used. An acre is equivalent to approximately 0.4 hectares or 4004 m2 or 6.4 tareas.
Other land measurements are:
1 M sq = 10.795 sq ft ,1 Tarea =629 m2, 6.433 Tareas=1 acre, 15.89 Tareas= 1 Hectare, 1 Hectare = 2.47 acres , 1acre=43, 560 sq ft
Who pays the vendor/seller commission?
Usually the vendor/seller pays the commission. But there are many occasions when the seller will stipulate that his price is a net price and therefore the buyer will in effect compensate the real estate broker for his work.
To transfer the title from one individual to the next, there are transfer taxes. The buyer/purchaser pays approximately 5% of the declared value.
The custom is that the lawyer for the buyer makes the contract and thus the buyer pays for that, sometimes the seller wants a lawyer to represent his interests so he will have to pay too.
What are the interest rates on a mortgage loan?
The lowest real estate interest rate that can be secured at present is 18%. Interest rates had climbed to 22% in 2001, but made their way down in mid 2001.
What is a normal down payment?
Most loans and savings banks will finance up to 80% of the loan. In the past, despite the high interest rates, purchasers of real estate have had the advantage of the devaluing peso, so in the long run their real interest rate has been much lower. While you will pay less financing the property abroad, in the long run if you take out a long mortgage locally you may end up paying less.
If you are not financing through a loans and savings bank, you may be asked to make a bigger down payment.
Are there any taxes on renting real estate property?
The tax reform implemented in January 2001 establishes a 20% withholding tax on rental payments. Also, commercial rentals are subject to a 12% ITBIS tax.
What are the advantages of forming a Dominican company to purchase property?
The main advantage to forming a Dominican company are that you will not be personally liable for debts or problems incurred during the operation of the business. A second very important reason to incorporate is to avoid the application of Dominican rules of inheritance to your Dominican properties. Inheritance of real property in the Dominican Republic is governed by Dominican law which provides for "forced heirship": part of the estate must go to certain heirs by law. For example, a foreigner with a child must reserve 50% of the estate to that child despite the existence of a will or of the law of his country of residence. A third advantage is to avoid having to put up a bond in case you (a foreigner) have to sue in the DR.
What are the chances I will lose the money invested with devaluation?
Over the years real estate investments have proven to be good business for many. In many areas, such as Casa de Campo, where values in foreign currency have never gone down, only up. In other areas, the values have stabilized, or in some, you will be lucky to get back what you invested. Whether your investment gains will depend on how you have financed it (if you can get a loan in pesos you will probably gain more), or if the area where you invest gains or loses worth as it becomes more developed. This is no different anywhere else in the world.
Should I rent or buy?
If you have plans to live in the country for a short term, consider renting. This gives you the flexibility of changing where you are living.
The usual well-intentioned advice is that if you are not familiar with the area or the Dominican Republic, you should first rent. If you will be staying permanently or will be residing for more than three years in the country, you should find a short term rental and then find a property for purchase. This is primarily because rentals in the DR are many times the same as what a monthly mortgage would cost.
Keep in mind that if you buy and then have to leave the country, there is always the option of putting purchased property on the rental market. Properties in tourism rental areas offer the advantage of management pools that will secure short term rentals on a continuous basis. This is a practice that helps pay for the mortgage.
If you are not renting as part of a tourism development management pool, caution should be taken when choosing a tenant as rental laws are overtly in favor of the tenant.
What is the usual commission realtors charge?
Realtors commission is usually 5%-10%. This is negotiable.
I want to rent and have been asked for a guarantor who is legally liable for paying my rent in the DR. If I am a new arrival and don’t know anyone how can I get around this?
Sometimes making a six-month security deposit will work. In tourist areas, property owners will be more flexible because most of the newly arrivers will of course not have local guarantors. In Santo Domingo, it is difficult to rent without a guarantor.
Can foreigners qualify for a mortgage loan from a loans and savings institution? What will be required in order to qualify?
Yes, foreigners can obtain loans. However, most savings and loan will require residency status.
What other channels of lending are there available to foreigners and/or Dominicans? Are there builders that will finance? Many sellers will offer financing on the sale of their properties. In some subdivisions, the owner will offer financing both for lot purchase and home construction.