3
Aug

Before buying real estate/property in Dominican Republic it is important to take some factors into account. In this article, we will see it as PRECAUTIONS to avoid pitfalls that everyone should take into account when considering to buy real estate (a house, apartment, land, villa, among others) in the Dominican Republic, as a result of the reasons detailed herein.

You should ask yourself the following,  What are the Pitfalls of buying property in the Dominican Republic and What should I take into consideration to start negotiations, make any payment, sign purchase or commitment documents for the purchase of real estate in Santo Domingo, Dominican Republic?.

These are the two most important questions you should ask yourself when initiating a purchase transaction or purchase commitment of a property. In short, it is always ideal to verify the property before making a purchase and in doing that, I assure you that you will avoid major worries and being deceived by acquiring a property that would trigger a variety of inconveniences for you. To that end, we would like to refer you to the following:

1. Certificate of Legal Status of the Property, this will show the status of liens and encumbrances that this property may have.

2. Tax Certification, this will indicate the Tax status of this Property.

3. Commercial Registry, if the purchase negotiation of the Property is done with a Partnership or Company. Otherwise, if the negotiation is done with a natural person, an identity card would be used instead.

4. Seller’s credit history (company and its legal representative).

Why is credit history important when buying a property?

This allows you to have an overview of the state of that individual or company, and to have an effective response in the event of a breach of contract or litigation. If you conduct business with an insolvent individual who is in a difficult economic situation (has a significant amount of debt, is non-compliant or has debts in collections), at the time of a potential claim your response will be based on that. At that point, you will have nothing to enforce, so there is nothing to lose. Therefore, even if you start a legal process, nothing will guarantee constraint for the payment or compensation (if applicable) of the amount in question.

The seller may and should provide these certifications, however, we suggest that you obtain them yourself as part of the property verification. Upon obtaining them, you will be able to validate that the information provided was correct. Unfortunately, these documents can be falsified, therefore, we suggest that you consult with a law firm specialized in real estate research in Santo Domingo, Dominican Republic before buying a real estate in the Dominican Republic.

In recent years, the real estate sector in the Dominican Republic, has been one of the industries with the biggest growth, with all kinds of market offers and needs adapted to all income levels. As a result, purchases and Real estate sales are constant, which creates an environment in which unlawful situations may arise, to the detriment of the buyer, such as:

• Acquiring or buying a property without knowing its legal status, with registered mortgages and privileges, i.e., loans that guarantee the property in question.

• Unpaid taxes payable to the General Directorate of Internal Taxes of the Dominican Republic. This is the Real Estate Property Tax (known in Spanish as IPI), regulated by Law 18-88

It is extremely important to know about this tax and its regulation. We would like to highlight a few relevant points:

• Concept: This is an annual tax applied to the total sum of the taxed real estate, which has been registered by individuals and Trusts.
• Rate: Percentage to pay.

1. Natural Persons: A rate of 1% is applied to the surplus value of (RD$7,710,158.20) of the encumbered assets.
2. Trusts: 1% of the total value of the encumbered assets.

This tax is paid in two (2) semi-annual installments, the deadline for the first installment is March 11th, and the second one is September 11th of each year.

• Buying a property off-plan, without certifying the existence of the construction company or developer, as well as the status of the main title.

The latter is very common, people often sell non-existing projects. Consequently, it is of the utmost importance for you to obtain a Commercial Registry Certificate from the construction company or developer of the project, through which you will be able to ascertain the following:

1. Is that construction company legitimate?

2. Who are their legal representatives, partners and shareholders?

3. What is the capital of this company? Will they be able to take responsibility in the event of non-compliance with the project or the sale?

Additionally, it is advisable to verify their history in the construction or real estate sector. An example of what to inquire would be to ask questions like the following: Have you carried out other projects previously? Where? What were the features of these projects?

After you have obtained all the necessary information and are sure of those little things, the next steps to take are the following:

1. Payment of Taxes for the Transfer of Real Estate, which is 3% of its value.
2. Title Transfer, before the corresponding Real Estate Jurisdiction . In other articles, we have expanded the topics of transferring or buying Real Estate in the Dominican Republic, if you are interested, you can access these articles through the following links:

–          Requirements to transfer real estate property in the Dominican Republic

–         How to transfer a Real Estate Property in Dominican Republic

–          Buying a House in Dominican Republic from Spain

 Key points and Recommendations:

• The broker or real estate agent is usually not in charge of overseeing the construction or development of a project, they are liaisons and are never supposed to receive direct payments. Moreover, contracts are not supposed to be signed with them, unless a power of attorney is verified and all the documentation in is order, you should work directly with the Property Owner for this step.

• It is important to know who you are buying from or selling to and their status, not only due to the aforementioned points, but also in compliance with the provisions of the Money Laundering Law act No. 155-17 which stipulates that you must know who you are buying from and selling to (due diligence), given that you will be liable to potential prosecution if any situation were to arise in relation to that party.

• You should aim to avoid any surprises, which is why verifying the property would be the best way to start the process of a real estate purchase.

These are the main recommendations that you should take into account, when considering to buy a property in the Dominican Republic. If you need more information, we invite you to reach out to us using the forms we have available here.

In our law firm Morillo Suriel – Attorneys at Law, we have a division specialized in Real Estate and Business Law, through which we can assist you with any questions or concerns that you may have regarding  the verification of real estate documentation in the Dominican Republic or verification of real estate properties. Our attorneys are available to assist you regardless of where you are located in Santo Domingo, Dominican Republic and the world, through our Online Consultation tool or in person at our firm.