Dominican Republic

New Incentives for Affordable Housing

August, 2011

Background:

In July 2011 the Government of the Dominican Republic passed a new law 189-11 (To Develop the Mortgage Market and Real Estate Trusts) containing a series of measures that are designed to stimulate the affordable housing sector in the country.  Prior to this new law there were no specific government policies or incentives to assist this sector of the economy.

According to United Nation figures the housing deficit in the Dominican Republic in 2010 was over 1.1 million houses (in quantitative and qualitative numbers) growing at a rate of over 20 thousand houses per year over the next five years.    The majority of this deficit is concentrated in several urban areas like Santo Domingo, Santiago and San Cristobal but the problem is endemic across the country of close to 10 Million people.

Highlights of the new Law:

1) Mortgages:

-The new law provides a number of fundamental provisions for the development and integration of a solid and efficient mortgage market in the D.R.

-Also the law will improve the regulatory  and supervisory institutions for the mortgage sector in the D.R. 

 2) Local Private Pension Funds:

-The Law will allow Dominican private pension funds which currently have $1.6 Billion to invest in investment funds (including real estate housing funds).

-Pension funds will also be permitted to invest in mortgage vehicles.

3) Affordable Housing Tax Measures:

-For new housing construction, the new law provides a number of tax free incentives to encourage the sector which effectively will reduce the cost of the housing to the end buyer.  These measures will be applied to houses below 2,000.000 Dominican Pesos (approx. $54,000.00) to be adjusted annually for inflation.

-Each new affordable housing project to take advantage of the tax exemptions must be approved by the Instituto Nacional de la Vivenda (INVI).  The tax savings for developers must be passed on to the end buyer of the housing.

-The following are the 100% tax exemptions that will apply to projects established for the development of Affordable Housing Projects.

-The profit and dividends on capital invested.

-Bank transfers and charges for check deposits

- Business and land ownership

- Construction taxes, real estate transfer taxes and real estate operations registration 

-Import duties on equipment, construction materials including ITBIS.

     4)    Registered Savings Accounts for Housing Purchases

-The new law also provides for any person to open a Registered savings account with local banks for monthly deposits towards a down payment for house purchases.   These accounts can only be used for housing purchases and will accumulate interest.

-The owner of the account will decide the monthly deposit amount which cannot exceed 30% of his/her salary.

-Employers will be obligated to deduct the monthly payment from an employee’s salary to the Housing Savings Account.

-The down payments made by the buyer for housing covered by the law accumulated in the registered savings account will be exempt from all taxes.