Buying an apartment off-plan is an investment in the future. The buyer secures a price upfront, and the developer obtains the cash flow needed to complete the project. However, in the Dominican market, characterized by constantly fluctuating prices for materials, supplies, and labor, the volatility of construction costs becomes an unavoidable factor.
In the Dominican Republic, the sustained rise in costs in the sector has sparked debate on a key question: can the price change after the contract is signed? The answer is yes. So how should this adjustment be made to ensure it is technically sound, legally valid, and economically fair?
The most objective mechanism for justifying these adjustments is the Direct Housing Construction Cost Index (ICDV), published by the National Statistics Office, which is the official authority. However, its application has generated controversy and complaints to the consumer protection agency (Proconsumidor), as well as debates about the contractual balance between developers and buyers.
The challenge lies in determining how, when, and to which inputs and what proportion of the price this adjustment should be applied. Should the total value of the unit be indexed? Only the portion corresponding to construction? Should the developer absorb an initial portion of the increases? What happens when the project is already partially completed?
The ICDV measures the variation in materials, labor, and equipment.
Note: This measures direct costsand does not include land, financial expenses, marketing, or the developer's profit. Therefore, indexation requires a clear understanding of the technical principles of cost variation adjustments and the proper use of the ICDV (Index of Cost Variation).
For example, to calculate adjustments for cost variation using the ICDV, in the construction companies of our corporate holding company EM+A Group (EM MARTINEZ Engineering Mod and Architecture and XTRIBA Inmobiliaria) we apply the technical indexing formula that compares the base ICDV at the time of signing with the ICDV in force at the cut-off period.
This allows us to guarantee developers and buyers reduced and/or eliminated conflicts and strengthened trust and transparency in the face of inevitable adjustments due to price volatility.
Applying the ICDV protects the developer's margin, prevents project decapitalization, reduces financial risk, provides objective technical support, and builds trust between the parties.
Shared responsibility in price adjustments: Should the builder assume part of the increase?
From a technical and contractual balance perspective, not all of the inflationary impact should be automatically passed on to the buyer.
In more balanced professional practice, some real estate projects stipulate that the builder or developer assumes an initial percentage of the increases, generally between 5% and 10%, before passing on adjustments to the agreed price, thus creating an absorption band that protects the buyer against moderate market variations and avoids immediate increases due to slight fluctuations in the index.
The technical justification for this criterion rests on several foundations:
First, everyprofessionally structured construction budget incorporates contingency margins intended to absorb normal price variations in materials, labor, or subcontracts.
Moderate price increases are part of the inherent business risk of the construction industry. Passing them on entirely to the client, even when they are marginal, means completely outsourcing a risk that is part of the business.
Second, the developer has greater negotiating power with suppliers, purchasing in bulk, and planning for advance acquisitions. This allows them to partially mitigate initial variations without compromising the project's viability.
Third, and no less important, remember that the builder is building for someone else. Although they assume the financial and operational risk during construction, the final owner of the property is the buyer, who will be the beneficiary of the finished product, its future appreciation, and its use.
In that sense, the project is not an asset that the developer retains for himself, but a work executed for a third party who will obtain the definitive patrimonial benefit.
This reality introduces a principle of economic co-responsibility: if the buyer will be the owner and final beneficiary, it is reasonable that they participate in the extraordinary and real increases in costs that exceed normal market forecasts.
But that participation must be activated when the variations exceed a previously defined threshold.
Therefore, when the increase exceeds the agreed absorption percentage, the proportion of the adjustment must be applied to the buyer, exclusively on the part of the price corresponding to the construction and on the outstanding balance to be executed.
However, the ICDV adjustment is a technical, not automatic, mechanism. It is a tool that, when properly applied, distributes the effects of cost variations in purchase and sale agreements in a balanced way.
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