Why do I place the Dominican Republic at the top of my list?

The Dominican Republic: Possibly the Best Kept Secret  in  Latin America for Investors!

Many investors have come to me asking about investment opportunities in Latin America. Why do I place the Dominican Republic at the top of my list?  Why not Honduras, Costa Rica or a number of other places that have sparked some interest in the past? 

To answer this question, let us make some basic assumptions regarding what an investor is looking for.

First of all, most investors want to invest in a country that offers a stable & democratic government.Second, they want to know that they have some protection under law and that they will not be taken advantage of simply because they are foreign investors (I refer to past incidents that have taken place with foreign retirees that have purchased property in Costa Rica and elsewhere). In addition, most investors want a situation whereby they can buy into a market at affordable prices. It makes sense to invest into a growing market that offers the potential for long term return. Why would you invest someplace or in something that is over-priced?

Even when we add fixed income investments into our discussion, such as commercial paper and time deposits, it stands to reason that investors will seek out those investments offering the best rate of return. The Dominican Republic offers both fixed income and growth investors these things and much more. 

Why is the Dominican Republic a secret and how can investors profit?

“The Dominican Republic last year (1997) had one of the highest growth rates and lowest inflation rates in the Western Hemisphere.Since 1991, the country’s economy has grown at an annual rate of 5% or more, inflation has fallen and remains below 10%” 

Forbes Magazine, September 21, 1998

Well, for one thing, it is not a secret among savvy European investors. Spanish, Italian and German investors have been quietly buying real estate and have been investing in general for some time now.  For the American investor however, it remains an unknown destination.

With less than 16% of the total tourists coming from the US, the Dominican Republic remains an undiscovered market.

That will change as the Dominican government looks to increase advertising and awareness. But until everyone else makes the discovery, wise investors have a window of opportunity to act and take advantage right now.To be sure, we can classify the Dominican Republic as an “emerging market”. But the fact of the matter remains that it is a market that is emerging very quickly and in the right direction.

While legislation had been passed to create the Stock Exchange in 1989, in reality it has only been operating since 1991. This means that the market is new, and the idea of both an equity and capital market is just coming into consciousness. Due to the fact that most companies do not wish to sell shares to the public (this is a common theme among family owned Latin-American companies), the majority of activity has been in the capital and fixed income markets. Due to the desire to keep companies privately held, the real current opportunities are in commercial paper, bonds and longer term Hotel or real estate related investments. That will change in the future as more companies look to both stock and bond offerings for capital, and not the banking sector.

You will not find a Merrill Lynch or Dean Witter office in Santo Domingo.But what you will find are true opportunities for the small investor to earn some attractive returns in a market that most Americans are not even aware of.

This means that investors interested in investing, living or retiring in the Dominican Republic have an ideal opportunity right now to participate in real estate investments for both long-term growth and benefit from high current monthly income through a number of bond and commercial paper offerings.

Although they are unfamiliar names to U.S. investors, many of these companies issuing fixed income instruments are well capitalized and are well run local companies.

Some are the top corporations in the country.“High profits exist in under-capitalized or unknown markets”

Many investors do not realize that money, like everything else in life, has a cost. We all understand that car companies increase the price of new and best selling models. We also understand that toy stores increase the price of popular children’s toys when the demand outweighs the supply at Christmas-time. Money, or more correctly interest rates, works the same way. When sufficient or excess capital is present in the economy, interest rates or the cost of money goes down. When money is needed or in short supply, interest rates or the cost of money goes up.

This is the current situation in the Dominican Republic. The country is entering into a growth phase and capital, especially dollars, is sought after. For this reason, US dollar interest rates remain much higher than in the US. The truth of the matter is, because of the new publicly traded capital markets that have come about with the creation of the Stock Exchange, interest rates have actually come down from five or six years ago. This is a natural progression in a developing market. With that said, rates still remain very attractive when compared to the current 4.5% money market rates or bond rates in the US. 

Generally speaking, what is the future for the Dominican Republic?

All one has to do is look at the new housing construction and perhaps more importantly, the new infrastructure. The Government is actively developing new highway systems and has recently completed an express tunnel running directly through the capital of Santo Domingo. Plans are being discussed for a Monorail system in the capital as well. 

What do these things indicate for the forward thinking investor? For me, it points to a country moving ahead. Any country that is investing into its infrastructure and moving ahead with pro-investment legislation is a country worth adding to your investment list. Timing is everything and now is the time!  As the economy grows and as more investment enters into the country, the opportunities at the ground floor will start to disappear. Interest rates will come down eventually and capital will start shifting to equities. For the moment, the capital markets are the place to focus.

Action Plan for Investors:

Take advantage of the higher interest rates available right now in the money markets.  Whenever possible, try to lock in some higher yields with 3, 5 and 10 year bonds whenever possible (Dominican companies do not like to issue long term debt, so finding longer term bonds can be difficult).

Look into real estate as a long-term investment. A square meter selling for 1,000 pesos four years ago is now going for 5,000 or 6,000 pesos per square meter today in some areas of the capital-Santo Domingo. In my opinion, building construction going on today is just a tip on the iceberg.  Investment into up and coming developments and tertiary neighborhoods will bring rewards later on. With just 16% of the tourists coming from the US, you had better believe that opportunities exist in tourism and hotels once more of that market is penetrated.

Get ready for new equity or bond offerings as the government continues to privatize the public sector and as more companies warm up to the idea of selling shares to the public. Look for opportunities in Energy (electricity), Banking, Telecommunications and Free Zone Manufacturing.

A Sample of recent offerings in Pesos and US Dollars from the Stock Exchange & Private Placement Markets:
 

Issue Date Maturity  Type Rate of Interest Company  Currency
3/20/98 60 to 180 days  Commercial Paper  16% Servinvest,Inc Peso
11/19/98  60 to 180 days  Commercial Paper 22 %  Tokio Motors  Peso
11/27/98 60 to 180 days Commercial Paper  22%  Helados Bon Peso
  90 to 180 days Commercial Paper 23%  Reid & Co. Peso
  3 to 5 years Bonds  11.50% Hotel Embassy US $
  90 to 180 days Commercial Paper 25%  Consorcio Moya-Jorge Peso

Should you require us to provide you with advisory as to where and how to invest, please do not hesitate to contact us at:

vsantana@paramountproperties.com.do

Kindest regards,

Virgilio Santana Ripoll

About paramountproperties

Your Real Estate and Insurance Advisor...

Posted on 3 September, 2010, in actualidad, Finance, Investment, Real Estate Tips, Rep. Dom. and tagged , , , , , , , , . Bookmark the permalink. Leave a comment.

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