Investing In Property In Las Terrenas, Dominican Republic

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What You Need To Know Before Buying Property In The Dominican Republic

A decade ago, the Las Terrenas, Dominican Republic, real estate market was the Wild West.

Roads in this part of this country were rugged and dirt, and the property they led to was sold with or without title, with or without access, with or without the necessary permits, by the owner or maybe not…

No one kept track of property sales in any formal way. At one point, construction permits existed for more than the total land area of the country.

That was the reality on the ground in this remarkably beautiful corner of the Caribbean 10 years ago. Today?

Today, the scam artists are fewer on the ground (though you still need a good attorney to help protect your interests), and the Caribbean bargain-hunter should have this coastal town on his radar. It’s more accessible and better-serviced than ever, thanks to a new international airport, a new hospital, and the now-paved highway connecting the region to capital city Santo Domingo.

This Samaná-Santo Domingo highway leads directly to Las Terrenas and has reduced the drive time from the capital from up to six hours to two. Its advent in 2009 increased traffic to town in a noticeable way and has also helped to lower the cost of living, as more goods are now more readily available.

All this development is not accidental. The country’s Dominican Liberation Party (PLD), in power for the past dozen years, has specifically targeted Las Terrenas for investment.

Former PLD President Leonel Fernández had a long-term plan for the Samaná Peninsula and Las Terrenas in particular. During his two terms, he saw the Santo Domingo-Samaná highway laid and launched a massive marketing campaign to package Las Terrenas as the “St. Tropez of the Caribbean,” investing the country’s money and his own in the area.

He built, among other things, El Catey, the small international airport that offers domestic flights as well as direct access to Canada and the United States and that has meant bigger numbers of foreign visitors and foreign investors.

In fact, much of Las Terrenas is owned by foreigners, mostly European, who have a big stake and therefore a big interest in how development plays out.

Meantime, Fernández’s wife, Margarita Cedeño de Fernández, is the current vice president to incumbent PLD President Danilo Medina, meaning a continuity of leadership and of attention for the Samaná region.

Change comes slowly in this part of the world, but the sustained focus on this region has been important—for infrastructure, for health care, for education, and for the real estate market.

As I said, a decade ago, the property market here was about as unregulated as a property market can be. Then, about six years ago, the government got serious about cleaning things up, coming down hard on developers who were playing by their own rules.

One important agenda was to make sure all construction was up to hurricane standards. What officials found when they began looking closely caused them to completely overhaul the relevant building codes.

A second important agenda was to clean up titles. Corruption in this sector of the government had been widespread. Recorded history of land ownership was a mess. The systemic overhaul the government carried out resulted in the halt of work on many buildings and developments. Some developers rectified errors and carried on, but some buildings had to be torn down. Starting from scratch was the only way to salvage the value of the land. Many buildings fingered were abandoned. Decaying developments in varying states of non-completion dot the peninsula.

Now all development and construction are subjected to a rigorous permitting system that breaks the process down into stages. You can’t move on to a next step until the permit for the proper conclusion of the previous step is in hand. Each step is managed independently, reducing the possibility for corruption.

That is not to say that corruption has been 100% wiped out. It’d be naïve to think that. Things have been reined in, though, so that this is no longer a concern for the average buyer. The occasional opportunistic official might ask for a “facilitation fee,” but a refusal is accepted without negative consequences. Maybe someone else will try asking for a little something on the side, but a second refusal gets the message across and word spreads: This one won’t pay.

Be warned, though, that if you pay once, you are forever labelled a payer… and that news travels fast.

Long-time expats with property purchase and house construction experience in Las Terrenas report that, when they arrived, land investment was still a scary thing. You could expect a shakedown around every corner. Everyone did whatever they could get away with, and it was hard to know the “right” way to do anything.

Those I’ve spoken with who’ve bought more recently report a more straightforward and comfortable purchase process.

Back in 2005, when we began paying attention to this market, we recommended Las Terrenas as a capital appreciation play. Prices were cheap, and the product on offer was as good as it can get from an investment point of view—white-sand Caribbean shores.

Indeed, appreciation followed, as much as 25% per year for four years running.

Today, Las Terrenas is still a buy but for different reasons. While capital appreciation is likely to continue (though nothing like 25% per year), the strong and increasing demand from tourists, who have a much easier time of it making their way here these days, means today’s investor should buy for rental yield.

Las Terrenas boasts long stretches of sandy coastline. One of the nicest things about them is that they’re not lined with hotels or massive condo developments. Height restrictions keep buildings at the beach to three and four stories, no higher. And, despite a lot of construction over the past dozen years, demand still outpaces the builders.

One developer I met with recently reports that one of his clients is getting double-digit net yields out of her beachfront condo. Although she hasn’t shown him her financial statements, he estimates her returns in the 12% range based on her high occupancy and what he knows the nightly rates to be.

In this case, the owner is doing her own rental management, finding renters through property rental websites like VRBO and Airbnb.

If she used a rental management group, she’d be paying 10% to them (the going market rate), meaning she would still be seeing double-digit returns.

New projects currently under construction make similar projections. Depending on unit sizes and the variables you use for nightly rates and annual occupancies, developers are projecting net yields from 4.8% to 8.4%. That upper end of 8.4% is projected based on an occupancy rate of only 60%. Put in some additional effort personally to increase occupancy (like the lady I mentioned above), and you could increase your returns.

Prices for beachfront units are US$2,000 to US$2,500 a square meter.

Away from the beach, you can find new construction apartments for less. Outside town, you can buy for as little as US$1,000 a square meter. This for new construction with great ocean views and just a few minutes from the beach.

In addition to solid rental returns, you can also get financing in the Dominican Republic as a nonresident foreigner. You’ll have to jump through some hoops, but financing is possible and available. Depending on the bank and your personal financial situation, you could expect a 50% to 70% loan to value from a bank with a 20- to 30-year amortization.

As in most countries outside North America, your age can limit the term. If you’re 70 years old, you likely will need a younger co-signer to get a loan. If you’re 60, the bank may offer you no longer than a 15-year term.

Interest rates aren’t what you’re used to in Europe or the United States. Expect rates in the 7% to 8% range. Even with higher rates and shorter terms, though, you should be able to achieve breakeven cash flow with the right property.

Kat Kalashian

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About Author

Kat Kalashian

Kat has grown up around the world, living in the United States, Ireland, France, and Panama and has traveled extensively. Upon graduation from university in the United States, she wasted no time in moving abroad again. She has lived in Panama full-time for four years, now working as Managing Editor for Live and Invest Overseas.