By Joan Feliz Valoys
Special for El Inmobiliario
The confusion between capital gains and inflation
In the Dominican Republic, it's common for people to associate rising property prices with an increase in their real value. Many are excited to see that the apartment they bought a few years ago is now worth more on the market. However, the key question is: are we talking about capital gains or simply the effect of inflation?
Capital gains are the real increase in the value of a property due to external factors such as area development, infrastructure improvements, the construction of new access roads, or the arrival of high-end commercial and residential projects. In contrast, inflation is the generalized and sustained increase in the prices of goods and services in an economy.
Impact of inflation on real estate prices
In many cases in the Dominican Republic, the rise in property prices is not due to a genuine increase in the asset's value, but rather to the rising cost of construction materials, labor, and financing. This does not generate a real benefit for the owner, as the money they would receive from selling their property has lost purchasing power proportionally.
A clear example is the current situation in high-demand areas like the Central Business Park of Santo Domingo. An apartment purchased in 2020 for US$150,000 might now be valued at US$190,000. At first glance, it might seem to have gained US$40,000 in value, but considering that accumulated inflation has been significant during the same period, the property's real value has barely changed or may even have decreased compared to other investment opportunities. According to data from the Central Bank of the Dominican Republic, accumulated inflation between 2020 and 2023 has hovered around 21%, meaning that the purchasing power of money has decreased considerably during that time.
Areas with real added value in Santo Domingo
However, there are areas in Santo Domingo that are showing a real increase in property values. Areas like Santo Domingo East and Santo Domingo North have experienced sustained growth due to urban expansion and infrastructure improvements.
For example, the construction of the cable car and the expansion of Metro Line 2 have increased the attractiveness of these areas. A real estate study revealed that in Santo Domingo East, apartment prices have increased by 30% in the last five years, a growth rate that exceeds inflation and reflects genuine appreciation.
In Santo Domingo Norte, the development of affordable residential projects and their proximity to major commercial centers have led to a steady increase in property values. In areas like Villa Mella, real estate values have risen by 25% in the last four years, driven by improvements in roads and connectivity to the city center.
Capital gains in tourist destinations
The real estate market in tourist destinations has also shown signs of growth, albeit with a different dynamic. Places like Punta Cana, Samaná, and Las Terrenas have seen a considerable increase in property prices due to the development of new luxury hotel and residential projects.
According to a report by the Dominican Republic Hotel and Tourism Association (ASONAHORES), demand for second homes in Punta Cana has increased by 40% in the last five years, driving significant property values in the area. In Las Terrenas, property values have grown by 35% in the last decade, fueled by the boom in ecotourism and foreign investment.
Samaná, for its part, has seen a rebound in its real estate market with a 30% increase in beachfront property values over the last five years. Improved roads and connectivity with Santo Domingo have been key factors in this growth.
Considerations for investors and buyers
For investors and buyers, understanding the difference between appreciation and inflation is crucial before making decisions. A property with true appreciation is one that, even adjusted for inflation, has increased in value for tangible reasons. This is achieved through strategic locations, growing infrastructure, and favorable market conditions.
Conclusion
Not every price increase translates into real profit. To avoid confusion, buyers should carefully analyze the factors that drive a property's value. Only then can they ensure their investment truly grows over time and isn't simply an accounting illusion caused by inflation. Furthermore, the tourism market is presenting clear opportunities for capital gains, making it an attractive sector for both local and international investors.
