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Be Careful with Pre-Construction Condos

Investing in pre construction condo projects in the Dominican Republic can be a very profitable venture – if you buy into the right project!. There are good investment opportunities for sure, but there are also lots of projects that I wouldn’t recommend as an investment due to a combination of different factors such as pricing, location, and reputation / track record of the developer.

On one hand, the real estate market here is booming, which is good news overall for us investors. New construction has exploded. There are lots of projects pre selling right now, everywhere in the country! In the vast majority of cases, construction hasn’t even started.

On the other hand, you can easily be fooled by sophisticated and effective marketing campaigns. Most of the projects look amazing on paper! You see beautiful renderings. Pricing looks attractive (especially compared to pricing in major North American cities). They would all leverage the amazing lifestyle the country has to offer, so it’s not really much of a differentiator among projects!

From my experience researching and vetting many of these projects for Investors, I can tell you it’s not easy to find a project that truly checks all (or most) of the boxes. Lots of potholes and red flags that need to be properly cleared before making an investment decision!

So how can you separate the wheat from the chaff when you want to invest in a pre-construction condo?  To me, it’s about assessing the following factors / criteria for each project. These are the “boxes” that you want to check, as many as possible, even better if you can check them all.

Location:

Unless the project is placed in an excellent location (already developed or developing fast), I think there is a good chance that increased supply can outpace future demand for vacation rentals. Which means occupancy and nightly rates could be very low. I strongly recommend purchasing pre-construction only on a premium / proven location that can compete effectively for guests when there is so much offer around (which will be the case here during the low season).

Reputation of Builder:

Making sure the builder has a proven track record is a must here! Look for a builder that has projects already built, and make sure you are comfortable with their build quality / finishes. There are many fly by night ventures here trying to capitalize on this golden opportunity. Many don’t have enough experience building in the DR. This is a big risk you want to avoid as much as possible. I’ve heard of too many horror stories unfortunately.

Timelines:

The stated construction and completion timelines can be just a wish, and actual project completion can easily be delayed for a while. I’ve seen many projects delayed for 2 years or more! Most projects don’t yet have all the paperwork ready to start construction by the time pre-sales start. Project approval by different government organizations here can take time, especially when they are as overwhelmed as they are now with so much going on. So how do you mitigate this? I am only buying into (or recommending) projects that have already broken ground and where you see construction progressing. So basically  projects where all paperwork is ready (otherwise they wouldn’t start building). You will also know pretty accurately when the project will be completed, which would likely be 12-18 months the most for projects that started recently.

Tax benefits:

Here in the DR there is a very interesting tax saving opportunity if the project is “Confotur” approved. As an end buyer in one such project, you are exempt from paying land transfer tax, and exempt from paying property taxes for a period of 10 to 15 years (depending on project). So this can be very interesting, but you’ll find it mainly in large projects.

Pricing:

Here in the Dominican Republic, the main reference for pricing is the price per square meter. It’s simply asking price divided by planned area (in square meters). This is for covered areas, excluding balconies or terraces. You should be comparing the price per square meter with the asking or sold price of resale condos that are truly comparable and recently built in the same area. Not easy since you can’t pull comparables as we are used to in North America, but directionally this is what we need. The big opportunity exists on good projects that are selling at price per square meter that is lower than resale prices. Some will meet this criteria. These can be great opportunities since you are almost guaranteed (if the market is stable) to build some equity at completion.

Payment structure:

The vast majority of the projects will require a reservation, an initial payment when construction starts, 2 or 3 payments during construction, and a final payment at completion. The best opportunities are the ones where you are required to pay based on construction milestones (and not just based on set dates, which believe it or not that’s how it works for the majority of projects), and those in which the final payment (at completion) is relatively large. There are some developers that are able to offer bridge financing until completion. They may ask for 30% at construction start, but no more until completion. This helps of course for financial planning, but it also opens the opportunity to get local financing (some local banks are open to lend up to 70% LTV to Canadians or US citizens).

Sergio Manzur

Sergio Manzur

Investment Specialist

+1 (905) 699-1180 –  Phone/Whatsapp
sergio@drproperties.ca

If you need advice on investing in the Dominican Republic, please contact me! I’m standing by to help you find an investment property.

For more information, visit our Investor’s Page

Good luck out there!

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