Airbnb properties and other short term rentals dominate DR real estate market

Airbnb block and residential block, separate”. This is how a real estate agency promotes an apartment project in the National District on Instagram. The separation modality is recent in the market to avoid cohabitation conflicts in the face of the boom in the Dominican Republic of investment in real estate for short rental purposes, a dynamic that neither the pandemic nor inflation has stopped.

“Right now, the vast majority of the real estate supply we have is short-rent or Airbnb (an international digital platform for renting properties by their hosts) oriented apartments. They are one- and two-bedroom apartments,” Alberto Bogaert, president of the Association of Real Estate Agents and Companies (AEI), which groups 92 companies and 722 agents, tells Diario Libre.

Bogaert estimates that short term rentals exceed 65% of the current real estate offer, especially in the National District, Punta Cana and Santiago, overlapping family homes. And it has led to the classification of properties as condo hotels, due to the fact that their purpose is for short stays.

The clients are foreign tourists and Dominicans living in other cities of their country, who prefer these furnished residences rather than a conventional hotel. Only between January-February 2022, the Central Bank reports that 27.4% of non-resident foreigners visiting the Dominican Republic stayed outside hotels (249,758 people), a percentage higher than the 20.1% registered in the same months of last year.

Among these other accommodations there are short term lodgings, although the Central Bank does not specify how many or by which platform. Given the “accelerated growth” of real estate tourism, as indicated by the Minister of Tourism, David Collado, at the beginning of April, the official already anticipated the government’s interest that this modality be regulated and contribute to the local treasury. At that time he announced that this would happen in the next 60 days.

He compared that there are already 53,000 rooms available for platforms such as Airbnb and others, when the private hotel sector has 83,000.

“The real estate sector I think was one of the sectors least hit by the pandemic. It had a pretty steep boom and growth,” Bogaert says. “Sales skyrocketed tremendously. There were companies and sellers, basically, that made record sales.”

Real estate tourism versus hotels
How many rooms does each one have?

The Minister of Tourism reported at the end of March that in the Dominican Republic there are:

83,000rooms
in the private hotel sector.

53,000rooms
available for platforms such as Airbnb and other real estate tourism platforms.

Works destined for housing continue to lead the area of saleable construction in the Greater Santo Domingo metropolitan area, representing 82.0 % of the total consigned in the Registry of Building Supply in the second half of 2021 (ROE 2-2021) published by the National Statistics Office. The percentage represents an increase of 16.8 % in relation to what was raised in the second half of 2019.

At the time of the ONE team’s visit to buildings of all types, 66.3 % of the saleable construction area was under execution.

Within that dynamism, the purchase of real estate for investment was also boosted, as an option for owners to get more bang for their buck during the health emergency. “With $5,000 you could separate a property, with $1,000 or $2,000. Before the pandemic, with 10 percent you could separate it,” explains the agent.

In the advertising of real estate projects, the term “Airbnb friendly” stands out. On the website of that platform there are apartments for rent per night in Ciudad Juan Bosch for US$28, others in Piantini for US$68; in Gurabo, Santiago, for US$49; and a unit two minutes from the beach in Punta Cana, for US$75.

A night in a hotel in Santo Domingo -of different categories- can go from US$26 to US$325, and in Punta Cana from US$28 to US$398, in places with or without beach.

The demand has even motivated real estate agencies to include in their plans to the public the rental and management of properties via Airbnb. Although there are other digital platforms for these same purposes, agents estimate that Airbnb accounts for 95% of the demand for this modality.

“This real estate tourism has grown at an accelerated rate. We firmly believe that it has to pay taxes and that they have to be regularized.”
David Collado
Minister of Tourism

When Bogaert was asked if the hoarding of offers for short term rentals does not represent in the country a competition for the offers of housing for conventional rentals, he answered: “That is an issue, yes, but this is also going to help to revalue the properties that have already been built for a while”.

“People used to want to move into a new tower, but now they have to look at the old ones: remodel them and move in. Because of the space issue, people are no longer building properties of 200 meters, of 250 meters, it is very rare.”

The cons: neighbors
Juan Chalas, one of the founders of the real estate agency Plusval, estimates that it generates more profits to have an apartment with short rent than with a conventional rental. He reports that the average occupancy in Airbnb accommodations is 18 to 20 days on average per month.

“It’s like hotel occupancy, but taken to the residential side,” he says.

He calculates that renting a two-bedroom apartment, unfurnished, for a year can leave in return $600 or $700 a month in rent. But if that same apartment is rented under the Airbnb platform, it will require an additional investment to furnish it of about $15,000 or $20,000, but would leave a return of $1,100 and $1,200. He projects that the furniture expense would be recouped in two to three years.

But short rent has one element working against it: neighbors. When the units are acquired for investment in a family building, complaints can be generated that affect coexistence, for example, in the use of common areas and security issues, due to the lack of knowledge of the temporary tenant’s profile.

In a building of 17 apartments in Alma Rosa I, in Santo Domingo East, a Dominican resident in the United States acquired a unit in 2020, during the pandemic. Soon after, neighbors began to get annoyed by the coming and going of strangers every week, who were also having noisy parties late into the night.

They found out later that the new owner was promoting his apartment on the Airbnb platform and complained to him. Eventually the tension calmed down, even though the families are still at odds.

“We tried to see if it was possible to take legal action so that he could not do it (rent through Airbnb), but one of the owners, who is a lawyer, was investigating, and said that there is not something at the level of law with which one can limit it,” says Rafael Rodríguez, member of the Board of Residents of the residential complex.

Law 5038 on Condominiums is 63 years old and does not prevent short rentals in family residences. In response, AEI reports that there are complexes that prohibit it internally in their units.

Two years ago, Puerto Rico updated its legislation on the matter -which was 62 years old- and established that short-term leases (less than 90 consecutive days) may not be prohibited, unless there is an express prohibition in the master deed or in the bylaws or that establishes a minimum lease term.

“Ideally, if a tower is going to be built, it should be for one purpose only: if it is for investment, it is for investment; if it is for housing, it is for housing.”
Juan Chalas
Founder of Plusval real estate agency

Rodríguez recognizes that short term rentals are profitable, although he is aware of the security risk that families analyze and that there are those who fear that their properties will lose value as a permanent residence. He calculates that, if his neighbor’s apartment is rented for a full month, via Airbnb, the owner earns the equivalent of three months’ conventional rent, which for that unit is around 15,000-20,000 pesos per month.

To avoid conflicts, the construction sector has opted to raise new projects with specific divisions, either in the same complex: for residential and for short rentals, being for the latter preferably one and two bedrooms.

“If you mix those two environments, it can cause problems,” acknowledges agent Chalas. “Ideally, if a tower is going to be built, it should be for one purpose only: if it is for investment, it is for investment; if it is for housing, it is for housing.”

A regulation with flats
“The safest investment is in real estate,” says Chalas. “And if you add Airbnb, which is a global market, you are reaching the whole world. Since you put your property on Airbnb, your property is seen in Holland, in Switzerland”.

Because of this boom, the Minister of Tourism, David Collado, expressed in the first week of April the government’s interest in regulating the short term rental modality through digital platforms at the same time as continuing to promote it.

“I think we must continue to promote it, but I am also convinced that it must be regularized and that they have to pay taxes,” Collado said at the time.

“If you, to one of the main lines of the construction sector, which is the construction destined for Airbnb, you come and charge a leonine tax, let’s say, or an uncommon tax, it can affect the development of that sector that contributes so much to the economy.”
Alberto Bogaert
President of the Association of Real Estate Agents and Companies.

Bogaert attributes the interest in the regulation to “a complaint mainly from hoteliers”. “They understand that it is affecting their business, but the reality is that, if we are not careful, as a government, to do something very conscious, it can hurt a very productive sector for the economy”.

The president of the Association of Hotels and Tourism of the Dominican Republic (Asonahores), Rafael Blanco Tejera, has indicated that the regulation would be the same that is required in any hotel, that is to say, that the interest is that the short term rentals comply with their fiscal obligations and the obligations and guarantees of security on the part of Tourism.

When a user rents an apartment via platforms such as Airbnb, he/she does not contribute to the Dominican tax authorities. The profit goes to the owner (also administrators, if any) and to the digital company.

“We are not closed,” says Bogaert. “I understand that they should set some kind of tax, there is no problem because that generates an income.” However, he considers that “we have to be careful”.

He analyzes that the money that is generated by an Airbnb rental, “stays in the Dominican Republic”. “It is money that is put into circulation quickly, because for you to have an Airbnb operation, you have to hire a staff.”

The construction sector was among the three sectors that contributed the most to the Dominican Republic’s Gross Domestic Product (GDP) last year.

“If you, to one of the main lines of the construction sector – which is the construction destined for Airbnb – you come and charge a leonine tax, let’s say, or an uncommon tax, it can affect the development of that sector that contributes so much to the economy,” says Bogaert.

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