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Dominican Republic Real Estate:  Investment And Inflation Hedge !

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As the US Dollar continues on what seems like an intended path to devaluation, even the most mundane items cost more these days.  Wheat, Sugar, Beef, Coffee, Cotton, Oil, Copper, and many other commodities that are priced or traded globally in US Dollars are more expensive today than just one year ago.  On the same token, salaries for the vast number of people have not gone up (Wall Street and Banking Executives excluded of course).  And in addition, real estate values in many parts of the United States have declined by as much as 25 percent or more in some markets, with no near term recovery in sight for many states (California and Nevada being  two notable problem states).   So, the question becomes: Where can you invest or convert your US Dollars without losing your shirt on the exchange rate or otherwise, get fair value for your money?  How can you protect yourself in an environment of currency devaluations and specifically US Dollar devaluation?
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Aside from such traditional inflation hedges such as gold or silver, real estate has also been one asset class that has tended to at least hold it's value during periods of currency devaluation  (currency devaluation or what is also known as inflation).  Of course, today's economic environment is a bit different than what has been experienced before, which is why we  might be seeing both inflation in consumables (higher prices for items such as food, and other consumer goods) with deflation in some asset classes, such as US based real estate.  However, not all real estate is created equal, which is why it is just as important what you pay as to where you buy.  In this regard, real estate in the Dominican Republic has held it's value, and has in fact increased in value whereby such values in countries like the US and Spain have declined.  In fact, real estate in many other emerging or developing markets can report the very same thing, and there is a reason for that.
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However, inflation or devaluation of a currency by the politicians is nothing new.  The Roman Emperors starting clipping coins, or better said, slowly but surely reducing the gold content of the Denari until such a point that it was nothing more than base metal.  It took them 500 years before the coins became worthless or junk in other words (without the gold or silver content).  Paper money used to be backed by gold or exchangeable into gold, until it too was taken off the gold standard altogether, and now it is, quite frankly nothing more than paper with fancy engravings on it.  That too is on the path of the Denari.  And since we are talking about the US Dollar in this case, one dollar printed in 1913 has almost lost 100 percent of its value in 100 years - progress over the Romans to be sure.
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If you hold paper, or money, then you must get an interest rate or return on your funds to at least equal the inflation or devaluation rate.  As of  2013, many private economists and number crushers put the current inflation rate in the United States at about 10 percent, with a prediction of 15 percent by the end of the decade (despite the official line from government bureaucrats that there is no inflation).  With the US Federal Reserve seemingly bent on devaluation of the currency via so-called Monetary Easing, keeping pace or treading water in regards to inflation by using traditional bank or savings deposits does not look like the answer.  
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Regardless, this is not meant to provide a synopsis of how politicians and other leaders defrauded the citizenry over the centuries (although a fascinating study of human history indeed), but rather to discuss some ideas to convert the paper money into something of worth, that will hold onto its value over the long-term.  Certainly owning gold fits the bill (and we are fans of gold to be sure).  However, aside from gold's use in jewelry and some commercial applications, it does have a fairly limited utility value to us in our everyday lives.  Real Estate, on the other hand, is another matter.  Which is to say, you can live on it, you can grow vegetables on it, you can rent it out to someone else to grow vegetables on it, and so on.  In other words, a utility or use, while you wait or while you hold onto it as a store of value.
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Property or land has historically appreciated anywhere from about 2 to 5 percent annually, with some periods of slow growth or a stagnant market setting in from time to time, and some periods of double digit growth as well - sometimes to the point of bubbles being created.  But, the main point to be noted is that real estate usually holds it value and acts as a hedge against inflation (along with gold, of course).  We say usually, as there are exceptions to everything, such as the current sub-prime nonsense in the US at the moment, which is wrecking havoc with the US real estate market and probably will skew the traditional calculations because of all that debt and leverage that is out there (the market was driven up by debt and leverage, so it is no surprise that these same two factors will make a correction that is much more dramatic and painful as well).
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However, since we are on this theme, it is worth mentioning that the Dominican Republic does not have these same kind of problems mainly because the local banks are very conservative in their lending practices.  In other words, while you can certainly apply for a mortgage with a local Dominican Bank, you can expect the bank to look for at least a 20 to 30 percent deposit, down payment or equity in the property.  In addition, current mortgage rates in Pesos are about 12 to 14 percent, which is considered a bargain as rates were in the 20 percent range previously.   Also, there is no such thing as a no documentation loan, so-called LIAR loans, or some similar kind of mortgage lending practice - - and some of the banks may ask for a local co-signer (regardless if you are a local person or foreigner applying) that can demonstrate solvency and local assets as well.  So, the main point is, if real estate has increased in value in the Dominican Republic over the years (which it has), such is NOT a result of cheap money or sloppy mortgage standards.
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Moving along with our general discussion,
the question becomes: If you are going to swap your paper money for something else, and presumably real estate for some portion of it - then where?  Good question.  The answer has to do with if whether or not the market where you are looking to buy is over-valued, under-valued or fairly valued at the moment.  In addition, if there has been increases lately, what has caused it.  Is cheap money or debt to blame, or are properties being purchased for cash?  Is it a case of supply and demand or something else?
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Real estate in some parts of the Dominican Republic, such as on the North Coast, Semana and Punta Cana had seen price increases of 20 percent or more annually in years past.  Will that continue to be the case?  If history is any guide, probably not or not indefinitely, at least not at that rate of appreciation indefinitely, but then again, much of that real estate has been purchased  for cash, so no debt bubble has been the cause either.  However, there still are bargains and fairly valued real estate or properties out there - you just need to know where to look.  Often enough, that means not following the crowds and staying away from where the current boom is.  The idea is to be the investor with some common sense and long-term vision, buying for fair value and holding it.  For example, if your grand-father bought twenty-five acres on the beach in Punta Cana 30 years ago, when there was nothing but noisy seagulls and weeds, he probably would have gotten the land dirt cheap.  He also proably would have never stopped hearing his wife, your grand-mother, tell him what an imbecile he was for buying a property in some banana republic.  Of course you, one of his grandchilren would most likely be laughing all the way to the Mercedes dealership, telling everyone along the way what a genious your grand-father was.  And so it goes.
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The key point in all of this is of course to make your real estate purchases in such a way that you are not over paying, or at least getting current value.  In this regard, once again, the Dominican Republic on average is still about 25 to 30 percent less expensive when you compare similar properties in the rest of the Caribbean.  As just one example, The Global Property Guide (a real estate guide from the UK) says that prime beach front property in the Dominican Republic sells at an average of US$2,000 a square meter, compared with US$10,400 in Barbados.  There is nothing wrong with Barbados, but it is worth 5 times the cost of similar, beautiful beach front property in the Dominican Republic?  We think not.
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Looking even further, the Dominican Republic has a large number of luxury condo's, single family homes, rural or farm land and undeveloped beach lots at prices that most middle class Americans and Europeans can afford.   Looking for a single family home?  Some of our clients have recently purchased homes in middle and upper middle class sections of Santo Domingo for prices ranging from about US$145,000 to US$220,000.  And these are what you would call homes, NOT garaged sized shacks that some real estate brokers in California are trying to convince you are worth US$500,000 or more.
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In summary, is there value for money when it comes to real estate in the Dominican Republic?  The answer is YES.  In addition, adding some fairly priced Caribbean real estate to your investment portfolio could also help protect your assets from the eroding nature of inflation as well.
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Dominican Republic Info 2013