By Joan Feliz Valoys
Special for El Inmobiliario
In response to the growing challenges facing the Dominican real estate market, the Dominican Republic's Internal Revenue Service (DGII) has increased the price ceiling for classifying low-cost housing. This adjustment reflects the government's effort to adapt to inflation, high construction costs, and the growing housing deficit, seeking to protect Dominican families' access to decent housing.
The new limit will allow more projects to qualify for the tax benefits established by Law 189-11, such as exemption from the ITBIS (Value Added Tax) and transfer tax on the first purchase. But beyond the numbers, this measure has profound implications for both developers and families dreaming of their first home.
Low-cost housing, a segment in danger
In recent years, affordable housing has become a dying breed. According to figures from the Central Bank, the Direct Housing Construction Cost Index (ICDV) experienced an increase of over 16% between 2021 and 2023, driven by rises in essential materials such as cement (which increased by up to 15% in some periods), steel, and concrete. Furthermore, labor costs have grown significantly due to wage adjustments and accumulated inflation.
This has made it increasingly difficult for developers to keep their projects within the price limits set by the DGII for low-cost housing. As a result, many have abandoned this segment to focus on more profitable projects targeting higher income brackets, leaving middle- and low-income families with fewer options in the market.
An alarming outlook
The housing deficit remains one of the country's main social challenges. According to a report by the Ministry of Economy, Planning and Development (MEPyD), more than 1.2 million Dominican families face some type of housing-related problem. This deficit includes not only a lack of housing but also the precarious living conditions of a large portion of the population.
In addition, according to the 2022 National Household Survey (ENHOGAR), approximately 74% of Dominicans acquire their homes through mortgage loans. However, for low- and middle-income families, access to this financing remains limited due to high interest rates and significant upfront costs.
Specific benefits of the measure
The increase in the price limit for classifying low-cost housing brings positive impacts on several fronts:
1. Greater viability for developers:
• Real estate projects that were previously on the verge of not qualifying for tax benefits will now have more room to adapt to the new price range. This incentivizes developers to reinvest in housing aimed at low- and middle-income families.
• By increasing the supply of low-cost projects, job creation in the construction sector, which is a key driver of the national economy, is also encouraged.
2. Greater access for buyers:
• Families will have access to more housing options that will now qualify as low-cost, facilitating access to incentives such as the 3% exemption from transfer tax and ITBIS on the first sale.
• This saving can represent tens of thousands of pesos for buyers, easing the economic burden of acquiring a home.
• In addition, with more options available, families will have greater opportunities to find a home that meets their needs and budget.
Market lessons: Is this measure sufficient?
While this adjustment is an important step, it does not definitively address the housing access problem. The crisis in construction costs, limited access to mortgage credit, and the lack of more comprehensive policies remain significant barriers.
Some developers have proposed alternatives that could complement this measure, such as:
• Targeted subsidy programs: The Government could offer direct incentives to reduce the costs of essential building materials, which would help lower the final prices of homes.
• More accessible trusts: Expand trusts to include smaller projects and support developers working in rural areas or with lower profit margins.
• Innovation in construction: Promote the use of more efficient and sustainable construction technologies, such as modular or prefabricated housing, which can reduce production costs.
The long-term challenge
Low-cost housing is more than just a segment of the real estate market; it is essential for ensuring the well-being of Dominican families and building a more equitable society. However, if rising construction costs are not addressed structurally, this category risks disappearing, even with periodic adjustments to its price ceiling.
It is crucial that the government and the private sector work together to ensure that affordable housing remains a reality. This involves not only fiscal measures, but also the creation of sustainable urbanization policies that facilitate access to land and basic services.
Conclusion
The recent adjustment to the classification of low-cost housing is a strategic response to a constantly evolving market. While it doesn't solve all the challenges, it provides much-needed relief for both developers and families seeking access to decent housing.
As construction costs continue to rise and the housing deficit persists, it will be essential to implement more ambitious policies that not only revitalize private investment but also guarantee that the right to housing is accessible to all Dominicans. Because at the end of the day, a home is not just a place to live, but a foundation for the development and stability of thousands of families across the country.
Author: Joan Feliz Valoys, MBA, digital marketing specialist, operations manager of Incaribe construction company with more than 10 years of experience in the construction and tourism sector.
