Will THIS Ruin The Dominican Republic Economy?

Welcome to the Grubernation Newsletter!

I share information, tactics and tips for moving abroad, living your dream and EVERYTHING in between.

In This Week’s Edition:

• Deep Dive Analysis on Abinader’s Fiscal Proposal

• Real Estate Conference Announcement

• Mass Haitian Deportations - What It Means

This weeks newsletter is brought to you by Colchones Naco! They are a Dominican owned and manufactured mattress company with stores in Punta Cana, Santo Domingo and Santiago who sell Sealy, Serta, Simmons and their own Naco Royal line.

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Will This New Fiscal Plan RUIN The Dominican Economy?

The Abinader administration released a NEW fiscal plan for 2025 this past week and it is stirring things up!!

Let me start with this - I’m NOT an economist nor do I pretend to be. This is ONLY a proposal and needs to be passed, it’s 3 days old as I write this and these are my INITIAL thoughts after talking to some connected folks locally and reviewing the 60 page plan (thanks AI translation software!). My opinion is subject to change as I learn more.

Lastly, lemme be clear - the president’s party is the majority in both houses of congress - if he wants it passed, it’ll pass!

That’s my take.

I’m going to answer 5 questions in this newsletter:

1. What has been proposed?

2. Why was it proposed?

3. What’s the impact on tourism?

4. What’s the impact on real estate investment?

5. Will it pass?

The Proposal

There are many facets to this fiscal plan, but I’ll break down the ‘Big 3’ as I see it.

• Increased tax on the sale of alcohol and ‘sugary drinks’

• Moving minimum salaries for public sector workers from RD$10,000 to RD$15,000/month plus other benefits

• Elimination of tax incentives for specific industries including tourism, film and textile manufacturing

Something interesting I learned is that there is currently a 10% tax on alcohol but that it’s not itemized on receipts. Instead, it’s included in the price of the drink itself. This proposal increases that to 11% plus adds an RD$840 tax per bottle that the restaurant or bar will pay (and of course transfer that cost to the consumer).

For the ‘sugary drinks’, the proposal is to tax anywhere from ½ to 1 peso per 100ml depending on the amount of sugar in the drink!!

Wanted to clean that up before moving on to the WHOPPER! Repealing tax incentives including CONFOTUR!!

CONFOTUR is a tax incentive program where developers can get approval to build a project under this law and waive the 3% transfer tax at sale and 15 years of property taxes.

Hotels benefit from this incentive as well as residential developers who can then sell apartments or houses approved for CONFOTUR to you and me and we also get those same benefits.

In addition, there are other facets such as cleaning up tax evasion by hiring additional agents and installing more modern tracking processes.

For now though, the above highlights the most talked about aspects of the proposal.

Why Was This Proposed? 

The simple answer is to increase tax revenue. This proposal would increase revenue by $122 billion USD per year. That’s a chunk!

But let’s take that a layer deeper.

There are three big things increasing tax revenue does from my perspective…

• It allows for investment in infrastructure projects

• It provides relief for the country’s debt burden

• It attracts additional international investment

At the base of all of though is moving the needle in one key metric…

Credit rating!

Countries and companies receive credit ratings from three major agencies - S&P, Moodys and Fitch

They have a range of ratings they give based on multiple factors and are broken into two main rating caterogies - ‘investment grade’ and ‘non-investment’ or ‘junk’ grade.

Last year, the Dominican Republic was upgraded by all three agencies into the ‘less vulnerable’ category which sits at the top of the ‘non investment grade’ category.

In order to move into the ‘adequate’ and ‘investment grade’ category, analysts including the International Monetary Fund (IMF) cited one key variable ..

The country needs to increase and stabilize it’s tax revenue! 

If and when the Dominican Republic jumps into the ‘investment grade’ category, the interest on their debt become much more favorable and international investors will be more apt to put their money in what’s considered a stable credit environment.

Let’s put some numbers to this ..

• Countries in the ‘less vulnerable - non-investment grade’ category pay 8-10% in interest on debt

• Countries in the ‘adequate - investment grade’ category pay 3-5%

Making this more relatable…

Let’s say you have a 600 credit rating and a mortage at 9%, and you’re told if you make certain tough sacrafices you could get a 700 credit rating, cut your rate to 4.5% AND people would start wanting to give you more money that you can pay back at a much lower rate.

Your mortgage goes from $3000 down to $2000 a month and you take that extra $1000 a month and can redo the driveway, fix the sink in your bathroom, etc.

That’s the underlying motivation for the Dominican Republic with this proposal. 

Fund infrastructure projects, reduce the debt burden and attract additolnal money for future projects … all of which require your credit rating to increase.

And to increase your credit rating, you need to figure out a way to generate more tax income!

Impact on Tourism

If passed in it’s current form, I believe the impact on tourism in the near term would be minimal. 

Big statement I know, but let me explain!

Current projects completed with CONFOTUR, projects being developed and already approved for CONFOTUR, and projects applying for CONFOTUR before this would go into play (assuming that last group gets approved) would see no impact.

But even with other tax increases on alcohol which would be passed to the consumer, my analysis shows that the worst case on this proposal increases the cost to come to the Dominican Republic by 10% for a tourist.

Currently, the average mid-high tier all-inclusive trip to the Dominican for 2 people will cost about $3100. A 10% increase would bring that to $3400.

• In the Bahamas, the average is $4000-$5000

• In Jamaica, the average is $3400

• In Mexico, the Average is $2500

The Minister of Finance has dismissed any notion that this will negatively impact tourism. 

That’s a big bet by the current administration and a strong belief that the product they offer is that much more superior to the others.

And there’s some evidence for that.

Let’s test it by asking yourself this…

If you were faced with a trip for $3100 vs. $3400, would you not come? Would you go to another country? 

(Maybe you would, but…)

• The Bahamas are still more expensive

• Jamaica has a murder rate of 60/100,000 (vs. 12/100,000 in DR)

• Mexico has massive safety concerns with the cartels - even if only optics

For the low cost traveler, sure - they would look for the absolute best deal and that’s that.

But for the mid-high tier traveler, $300 in this example likely isn’t going to move the needle.

Also, the recently signed open skies agreement with the United States should create downward pressure on flight costs.

Just the announcement has allowed Arajet to set up operations in Punta Cana and they are currently offering roundtrip direct prices to Toronto at $250/person!! 

With more routes comes more competition and therefore a decrease in the base fare which represents half of the total ticket price.

A reduction in airfare could offset the increased cost of your all-inclusive vacation.

Is this what they government is thinking? Who knows haha.

But I’ll say this, if a guy who doesn’t speak Spanish can read, analyze, and discuss this proposal with some very connected people locally and come up with this conclusion, I’m sure an army of government paid economists figured this out and more!

Impact on Real Estate

This is where it gets really tricky! And again, just my take.

Development severely slows if this is approved as is.

Slowing development means less supply PLUS the existing supply is CONFOTUR approved (much of it at least). So that means that demand may spike, driving prices higher in the short term.

If development slows, does that mean people don’t want to buy here? Is CONFOTUR the real driver of all of this recent growth or is it one of many factors?

The vast majority of buyers in Punta Cana, from what I can see, are Dominican diaspora. They’re not necessarily investing for CONFOTUR, but they’ll take it! They’re investing for a piece of the growth of their homeland.

Then of course there are Canadians, Americans and Russians too - but many of them have never heard of CONFOTUR when they go to buy.

They come, they love it, they see a way to snow bird or use a property that costs way less than real estate in their US city or town as a vacation rental and they want to buy.

They they’re told about these tax breaks and it makes it even MORE attractive!

That said, growth potential gets capped in the future if CONFOTUR goes away. As the Dominican Republic grows and gets more footing in the world, it will start to attract more non-Dominican international investment.

But without CONFOTUR, this becomes less an investment market and more a lifestyle purchase market. 

That doesn’t mean it won’t or can’t thrive, but it eliminates a whole group of people that seek out and search the opportunities in the world where they get really good tax breaks with their purchase.

This is what bugs me though .. 

If the plan is to increase tax revenue and closing off CONFOTUR is the pathway, and you can’t take away already approved CONFOTUR projects .. then you’re relying on developers just ignoring the removal of CONFOTUR and to build at the rate they are now!

But the likelihood is developers shop other countries who will offer them better tax incentives, and development slows or even stops!

If that happens, then there’s no additional tax revenue anyway! 

In fact, there’s less becasue you can’t tax the alcohol, for example, for a hotel that doesn’t exist!!

Will It Pass?

Like I said above, if the President really wants this, it’ll pass.

The Modern Revolution Party controls the presidency along with both houses of Congress and this vote would require only a simple majority (50% or more).

Let’s just say they have the numbers.

A fiscal reform bill intended to increase tax revenue, improve credit rating, reduce the debt burden and fund infrastructure WILL pass and it should.

But I believe, emphasis on BELIEVE that it will pass in a modified form. 

The initial proposal, in my opinion, is ‘Trumpian’ in nature.

In ‘The Art of the Deal’, Trump advocates for making big demands to shift the balance of power. In other words, if you want 50, don’t ask for 70 .. ask for 100, be ok with 50, but understand you may land at 70! (The numbers are meaningless hypotheticals to illustrate the point).

What I believe will happen is a modification of CONFOTUR and the other tax incentive restructures proposed. 

• Maybe it’s 10 years no property tax vs 15

• Maybe its paying a 1% transfer tax under CONFOTUR instead of 0% (full transfer tax is 3%)

Or maybe it’s something completely different.

The Dominican Republic knows it’s a stand out nation, it knows it’s economy and tourism sector in particular are booming, it does NOT want to stifle that .. but they also are correct to want to improve their credit rating, adjust their debt terms, attract more low interest capital and fund infrastructure.

If it passes in its current form, it slows the train down a bit for future development.

If it passes in a modified form, I think it has ZERO negative impact.

But let me say this from my perspective ..

I’m glad I locked in at $170,000 for my condo! 

Less supply with the same demand means increased prices .. and I don’t see current demand subsiding.

I still see this as a highly investable place for future appreciation and growth ESPECIALLY Punta Cana becasue of the airport and infrastructure already in place. 

One More Thought

This will be a MAJOR test for this administration.

Are you the same old leopard or have you changed your spots?

The knee jerk on increased tax revenue to fund infrastructure is ‘that money will just line politicians pockets’.

In every country, that happens - let’s not pretend the US doesn’t have the same issue. 

But oversight and whistleblower policies in the US make it less likely.

That said, if Abinader wants to leave a legacy, and be able to show the roads, bridges, trains, airports built on the back of his policies, then he’s going to have to disprove skeptics who for generations have seen corruption stifle growth!

We’ll see what happens.

I’m Attending an Investment Conference in Punta Cana!

I’m excited to announce that I’ll be a presenter at the Retire and Invest Real Estate Conference in Punta Cana May 2-3, 2025!

This conference is for people who are wanting to get more info and clarity on investing in, moving to, or retiring in Dominican Republic.

It’s funny - I was actually putting plans in place to do this type of conference myself before hearing about this!

I’d rather someone else do the work, and I just get to show up haha.

Here’s the details:

• Early bird pricing is in place

• $297/person or $497/couple

• Includes access to the entire conference and all sessions

• Also includes 1-on-1 consultations with local experts, access to an online membership site and presentation recordings

• Lastly, the law firm hosting will give you $500 off their legal services as an attendee!!

• Regular price is $495/person and $795/couple (FYI)

Here’s a link for you to review and reserve.

I plan on attending the ENTIRE conference (hey, they gave me a free ticket in exchange for speaking .. not gonna let it go to waste!) so I’ll be available to meet and chat!

Mass Hatian Deportation Has Begun!  

The Dominican government announced it will be targeting up to 10,000 deportations per week to reduce what they call an ‘excess’ of migrants in the country.

I broke it all down with my thoughts in this video.

That’s it for this week! Would love to hear what you think. Until next time…