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JANUARY 2005 |
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Once
again we turn the corner into a new calendar year and we can think of
no better time to take out our crystal ball for 2005. What is
ahead on the horizon economically, politically and even socially?
Your guess is as good as mine, but as always is the case, there are
some trends and events to keep an eye on which should offer at least a
glimpse or indication where things might be headed. With this
theme in mind, the following are some news stories and commentary
regarding trends and issues to watch out for in 2005.
.IN EUROPE, VIEWS, IMPACT OF DOLLAR VARY - By John Daniszewski, Times Staff Writer - December 31, 2004
.LONDON
-- Across Western Europe, manufacturers are bemoaning the rising value
of European currencies, saying it makes their exports less competitive.
Consumers, on the other hand, are happily opening their wallets for
U.S.-made products and Florida vacations, which look cheap on this side
of the Atlantic when calculated in pounds and euros. Although
European officials are complaining, he said, many academics see the
currency slide as a timely adjustment that could help the U.S. economy
avert a recession that would cause more pain in Europe later.
.http://www.latimes.com/news/nationworld/world/la-fg- eurocurrency31dec31,1,478683.story?ctrack=1&cset=true . 2004: BUSINESS YEAR IN REVIEW
- In the first of a two-part review of the year, World Business Report
asks if the greenback's days as the top global currency are
numbered? By Martin Webber, BBC World Business Report editor -
December 27, 2004
.For
much of 2004, the world has looked on as the US dollar dropped in value
against the euro and the pound. In the first of a two-part review
of the year, World Business Report asks if the greenback's days as the
top global currency are numbered? Concern about where the US
economy was heading led to a sharp fall in the value of the dollar,
heralding suggestions that the dollar is on the way out as the global
top currency. The last century saw the demise of gold as the
world's key store of value. It was replaced by the dollar as the asset
most central banks around the world wanted to hold. But since
April this year, the dollar has slid by 12% against the euro and by 10%
against the pound. Not surprisingly, tourists around the globe
are now regularly being asked for payment in euros rather than
dollars. Any country that spends beyond its means usually ends up
devaluing its currency, and the US continues to spend heavily on
foreign wars and tax cuts. Stephen Roche, who is chief economist
at the bankers Morgan Stanley, in New York, told World Business Report
that Americans had overspent other people's money. The US economy
continues to grow beyond its means. It has gone deeply into debt. I do
not think that this is a sustainable recipe for economic growth for the
world's dominant economy. We have demanded and asked more of the
world in the way of financing our own economic growth than any nation
has done in recorded history. Globalization cuts both ways and if
foreign investors ever - for what ever the reason - get tired of
investing in dollar denominated assets, then the US dollar cracks,
interest rates shoot up sharply and our asset dependent economy goes up
in smoke.
.http://news.bbc.co.uk/1/hi/business/4112649.stm . EDITORS NOTES:
The fact that the US Dollar has been dropping like a rock, and even
more aggressively after the US Presidential election as we predicted
previously, is no secret. What is very interesting however is the
fact that we are hearing now that this is being done deliberately to
avoid a US recession. This is something NOT touted in US based
media sources that Americans read or are hearing. In fact and on
the contrary, US officials seem to be telling US citizens that the US
economy is much better now, or at least is improving. However,
despite rhetoric to the contrary, it seems to us that the official
fiscal policy of the current US administration is inflation, or severe
devaluation of the currency as an alternative to other things
(devaluation of the currency is a direct result of inflation, or
printing more money than the economy can support).
.In
short, what is the net result? We suspect that the manufacturers
of many foreign goods (non US made products) will probably elect to
absorb some of the currency exchange loss and NOT increase prices for
products sold in the US, at least for the moment (which is what the US
Central Bank, also known as the Federal Reserve is counting on so US
consumers do not see any retail price hikes accordingly - and of course
as a result they can claim there is no inflation for US
consumers). Most notably are the Chinese however, who have a
policy of an artificial fixed exchange rate to the US Dollar, with the
goal of keeping Chinese products inexpensive (even at perhaps a
short-term cost or lower profit margin).
.However,
aside from the Chinese as one exception, foreign manufacturers will not
take a loss forever and other commodities and or products probably will
increase in price going forward (oil as just one example). Oil
did drop back down to the US$40 range, but it did hit US$50 very
recently before that - AND the oil is running out according to many
noted geologists (not to mention a weaker US Dollar makes imported oil
more expensive simply because of the currency decline). Also, if
the US currency continues to tumble and US interest rates remain at
less than 4 percent, you will see an exodus of foreign capital from the
US (this has steadily already taken place) until such time that
interest rates go back up to compensate (the US Dollar has already lost
MORE than 10 percent of it's value versus the Euro, so 4 percent
interest rates do not make up for it). Of course higher interest
rates will for sure pull the US economy into recession, so it is a
double edged sword indeed.
.In
addition, market rumors that one of the biggest creditors to the US
(China) is looking to stop buying US Government Treasury Bonds and
instead buy gold - will add pressure as well. So, the bottom line
is we see higher interest rates in the US as inevitable (either to stem
the tide of foreign capital currency financing US deficits from
leaving, or as a simple economic result of inflation in general).
Bad news for anyone that does NOT have a fixed rate mortgage or that
has one of these floating rate interest only mortgage payment
plans. In summary - Keep an eye out for higher US mortgage and
other interest rates, higher gold prices, higher oil prices going
forward and the possible demise of the US Dollar as the world's safe
haven currency (perhaps the Chinese may be buying gold so they can let
the Yuan float freely as an international gold backed currency
alternative in the future). Sounds crazy, but in a capitalistic
economy controlled by a political dictatorship, as is the case in
China, they do have the economic will (China has made a whole lot of
money over the past twenty years) and political capacity to carry it
out.
.. CHINA: THE NEXT WORLD ECONOMIC SUPERPOWER? WILL THE THIRD-WORLD NATIONS BECOME THE NEW RICH? Sound
crazy does it not? It will seem so especially for Americans, who
have been educated and raised to believe that the US is the premier
nation on earth, both economically and politically, but this is part
and parcel of the problem as well. Americans will have a very
difficult time accepting a lifestyle decline in this regard, and in
fact it would seem that both the US political machinery and the US
consumer are in denial. However, as painful as it may be, the
numbers do not lie. Europeans will be facing some tough
situations also going forward, as the democratic social welfare states
of Europe find themselves unable to continue to pay for the varied and
very generous social welfare benefits in place there as well.
However, Europeans have learned to get by and live on less than their
American counterparts (less disposable income after taxes and no
so-called American Dream culture whereby it is expected the sky is the
limit economically speaking). So, is this a US only
phenomenon? The answer is no, but emotionally speaking, the
Europeans do not have the same mindset or difficulty in taking a step
back in terms of their own history.
.In
terms of investment opportunities and relocation ideas - keep a look
out for countries that have a net trade surplus (they export more than
they import). Also, keep an eye on growing economies where cost
of living and housing is still affordable (at least in terms of
European or North-American prices for the same kind of housing).
We have seen a tremendous upsurge in both Americans and Europeans who
are interested in expatriating, or better said, interested in living
somewhere else whereby they can maintain an upper middle class
lifestyle (somewhat of an increasingly difficult feat these days in the
so-called industrialized high tax countries). In fact, this is
one trend we think will continue as taxes are increased in their
previous country of residence AND as inflation has continued to push up
the cost of things like home ownership to unaffordable levels for many
of the middle class as well (although interesting enough, the middle
class in the US and Europe are quickly finding out that they can live
well elsewhere, which is causing a backlash from governments losing
such citizens and the resultant loss to tax revenue). We continue
to see high tax nations becoming even more aggressive to stop citizens
from either moving wealth abroad and or pursuing such things as tax
shelters, etc. Let us face facts. These governments could
really care less if the citizens leave (one less participant to pay off
from the social welfare state) but they DO care if the wealth and money
is exported out. In other words, they increasingly need the
money, and despite lack of attention in the news regarding the numbers
of people expatriating from high tax countries to low or no tax
nations, it would seem the existing numbers of middle class people
doing so has caught the attention of these governments. So, with
this in mind, watch out for more and more scrutiny and difficulty
getting your own money out going forward (possible new taxation on
foreign money wire transfers, new restrictions to move funds, etc.).
.WHY 2005 WILL BE WORTH TURNING UP FOR - Analysis By Evan Davis, BBC News economics editor, December 17, 2004
Now
we have faithfully reported all the individual developments through the
year, in growth, currencies, energy and housing. But they were
not isolated phenomena, dropping like meteors out of the sky, on an
unsuspecting planet. No, they were all different parts of one simple
story. That story relates to the aftermath of the dot.com era,
when interest rates were sent to new lows around the world, to
stimulate spending and growth. Those low rates worked, and 2004
can be best understood as the year their effects reached a peak. World
growth was on a high, cheap borrowing kept houses in demand, so prices
reached a peak, and all the activity stimulated around the world, kept
oil in demand too, with a consequent $50 barrel. In the US, the
public - ably assisted by their Federal Reserve and their tax-cutting
President - kept on spending. And the rest of the world - keen to sell
- kept on lending them the money to do it. And it was in 2004, as
American spending and borrowing looked manifestly unsustainable, the
rest of the world decided to be more careful about sending money in
that direction, and the dollar consequently fell. Clearly, the
big issue is whether the fall from the 2004 peak will be akin to a
gentle drift down a children's slide; or whether it will be like the
accidental plunge off the top of a climbing frame on to a concrete
playground. Or, more specifically, on the international front,
will we see the dollar collapse? And in the UK, will house prices do
so? And in either case, would that have tumultuous effects on the real
economy? But likely outcomes are not the same as certain ones,
and we do have to face the possibility that the world will face a more
serious disruption: possibly, the dollar falling substantially to
reduce US imports, with US inflation consequently picking up, interest
rates soaring, and spending collapsing, with ripples occurring around
everywhere. Certainly, the scale of the adjustment to be made in
the world is huge: the US trade deficit soaks up two per cent of
everything the world outside the US produces. Getting that back in
balance without a big shock or two would be an achievement
indeed. In addition to that global risk, we have a risk in the UK
that house prices will tumble, and consumer spending will tumble with
it.
.http://news.bbc.co.uk/1/hi/business/4078873.stm . RECORD YEAR FOR CHILEAN COPPER - BBC News, December 29, 2004
.Chile's
copper industry has registered record earnings of $14.2bn in 2004, the
governmental Chilean Copper Commission (Cochilco) has reported.
Strong demand from China's fast-growing economy and high prices have
fuelled production, said Cochilco vice president Patricio Cartagena.
.http://news.bbc.co.uk/1/hi/business/4132065.stm . CHINA DRIVES SURGE IN ZINC PRICE - BBC News, December 30, 2004 . The
price of zinc has hit a seven-year high, driven up by runaway demand
from China, which has become a net importer. China consumes about
one-fifth of the world's zinc, and analysts estimate the demand will
rise 11-18% in 2005.
.http://news.bbc.co.uk/1/hi/business/4134963.stm . BRAZIL'S TRADE SURPLUS IS BIGGEST EVER - By ALAN CLENDENNING, AP Business Writer, January 3, 2005 . SAO
PAULO, Brazil (AP) -- Brazil racked up its biggest trade surplus in
history last year, but the country's export boom of everything from
soybeans to automobiles is expected to ease in 2005. South
America's largest economy sent $96.5 billion of goods abroad in 2004
while importing $62.8 billion, giving Brazil a trade surplus of $33.7
billion that eclipsed the previous record of $24.8 billion set in
2003. The export increase was fueled in part by rising worldwide
demand for commodities like iron ore, sugar and soy - all produced in
Brazil - but experts expect that high commodity prices will retreat
somewhat in 2005.
.FUNDS: WHERE A PRIVATIZED RETIREMENT SYSTEM IS MORE THAN AN IDEA - By Alan Clendenning, Associated Press, December 31, 2004 . Instead
of paying social security taxes and wondering whether the government
will ever pay promised retirement benefits, Chilean workers bankroll
their own retirements and manage their nest eggs.
.http://www.iht.com/articles/2004/12/30/yourmoney/mfunds31.html . EDITORS NOTES:
Once again, who is exporting more than they are importing? Who is
a net debtor nation and who is a net lender nation? Who will have
a problem in the next 15 years and beyond in terms of social welfare
liabilities either because of simple population demographics (a nation
with more old people than young people for example) or because of
finances (they cannot afford it). You do not need an advanced
university degree to figure it out.
.MORE AGRRESSIVE TAX COLLECTION IN 2005:
.INVESTMENT ADVISOR WARNS ABOUT PERILS OF OFFSHORE ACCOUNTS - By David Kravets - ASSOCIATED PRESS - December 6, 2004
.SAN
FRANCISCO - Jerome Schneider once was the enemy of the Internal Revenue
Service, by his own account, having helped about 100 wealthy Americans
hide millions of dollars in illegal overseas tax havens. Now
awaiting sentencing for money laundering, he's become one of the
agency's most valuable assets. When agents raided his Vancouver,
British Columbia offices in 2001, they took hundreds of files from his
clients, who are named in court documents. They include physicians,
dentists, entrepreneurs, computer technicians and retirees from across
the country.
.http://www.signonsandiego.com/news/nation/20041206-0022-ca- taxcheat.html . TREASURY, IRS TO ISSUE NEW RULES ON TAX SHELTERS:
Dec. 9, 2004 (Associated Press) -- Stepping up its war on tax shelters,
the U.S. Treasury Department and the Internal Revenue Service plan to
announce revised ethical standards for lawyers, accountants and other
tax advisers.
.The
new standards attempt to discourage people from designing and peddling
shelters that have no apparent purpose other than to dodge taxes. IRS
officials are focusing on tax professionals, since that's where
taxpayers - both wealthy individuals and businesses - typically hear
about shelter ideas in the first place. The rules take aim in
particular at a widely used tool in selling complex tax shelters:
vaguely worded "opinion letters" that are written by lawyers and
accountants and used to assure investors a transaction is legitimate.
Many investors assume, often wrongly, that an opinion letter -
especially one written on the stationery of a blue-chip firm - will
protect them against stiff financial penalties in case the IRS decides
to attack a shelter. The government has gone to court to
challenge shelters - but with mixed results. This summer, it scored a
major victory in a federal district court case involving a hedge fund.
But more recently, it has lost a few shelter-related cases, sparking
speculation that Congress may step in next year with new legislation
designed to provide broad anti-abuse rules.
.http://accounting.smartpros.com/x46158.xml . EDITORS NOTE:
The bottom line is that taxpayers are now being told that a private
opinion letter from a qualified accountant or tax attorney is useless
(although it is almost impossible to get such an opinion letter from
the IRS, but that is another matter). So, you cannot stand by any
advice (written or otherwise) because the tax authorities will
disregard it and fine you, jail you, whatever. In addition, it
would seem the new modus operandi is to also fine and jail the person
or company offering any assistance in terms of a so-called tax shelter,
although they seem to have a particular zest for anything offshore or
non-domestic. Why is that? Is it that ALL accountants and
legal professionals are crooked or do not understand the tax
code? Or, is it the case that raiding client files of tax
accountants and attorneys has become the new tax collection
method? Also, is true that so many people all of a sudden are tax
cheats? If so, why then is this the case? If not (if the
percentage of people basically the same as always), then why the
stepped up zeal to violate the professional relationship privilege that
existed before? Perhaps one of the answers can be found with the
following news article.
.HO, HO, HO - THE IRS HAS A GIFT FOR YOU - Alternative Minimum Tax net widens - By John Byczkowski - Enquirer staff writer - December 12, 2004 . It's
soon to be income tax season. You are entering the Alternative Minimum
Tax Zone. For a growing number of taxpayers, the AMT strips away your
tax deductions and leaves you paying higher taxes. Bring your
income but leave most of your deductions behind - your state taxes,
your city income taxes and your real estate taxes. They'll do you no
good. Leave your spouse and kids behind, too. All rules are different
in the Zone: Up is down, left is right, the future is now.
Congress created the first minimum tax in 1970 to make sure the
highest-income taxpayers have to pay something no matter how many
deductions and shelters they use. But the AMT system hasn't been
modified significantly in nearly 20 years, and that's the
problem. While regular tax brackets are adjusted for inflation,
the AMT limits are not. Because inflation means a $75,000 income
is in a lower tax bracket than it used to be, more and more taxpayers
are falling under the AMT's umbrella. A CBO report last year said
this tax system isn't completely effective in making sure the rich pay
taxes. In 2001, 1,100 taxpayers with incomes above $500,000 paid taxes
only because of the AMT but another 900 still paid no taxes at
all. Instead, Holtz-Eakin said, the AMT is hitting people further
down, people who might think of themselves as not the really rich.
They're paying the rich person's tax. Just three years ago, 1.5
million taxpayers paid the AMT. For 2004, the number will be closer to
3 million, and by 2006, the CBO estimates, it will be 14 million.
By 2010, as many as 20 percent of all taxpayers - and 40 percent of
married couples filing jointly - might be subject to the AMT, the CBO
says. A study by the Tax Policy Center in Washington, D.C., said that
by 2010, half of all AMT payers will make less than $100,000 (and
qualify for the higher and more restrictive AMT tax).
.http://news.enquirer.com/apps/pbcs.dll/article?AID=/20041212/BIZ01/4 12120339/1076/BIZ . EDITORS NOTES:
According to H&R Block, Most people aren't affected by the AMT -
hence the lack of awareness. An estimated 2.1 million taxpayers were
affected in 2001, but that number is expected to rise to 30
million-plus in 2010. How do you know you are subject to these
higher taxes? You must crunch the numbers to be sure, but YOU
should be concerned if any of the following applies to you:
.You
are single and earn between (or more) US$35,750 to US$40,250. You
are a Married Couple earning from (or more) US$49,000 to
US$58,000. You have a large number of itemized deductions.
You have children and or have a large number of personal deductions.
.http://hrblock.com/taxes/fast_facts/articles/amt_feature.html . EDITORS NOTES:
In the USA, you are considered wealthy if you are a married couple
earning a joint household income in excess of US$50,000 (according to
the IRS, just in case you did not know, YOU are wealthy). Break
out the champagne and celebrate. How does it feel to be rich?
.READERS WRITE IN:
.
.
Dear
John - I am interested to know if the 15% import duty on all goods that
Hipolito put into effect DEC. 2003 is still in effect. I know this last
newsletter indicated that all imports have actually come down (except
in the stores due to greed). Did I miss it somewhere that the 15% duty
was discarded? The following is just a comment about some of my
observations over the last 5+ years. I have been coming to the DR
since 1999 and until the US economic crisis took my business by the
throat I have spent many days in the DR. As a matter of fact from June
2002 to June 2003 I spent 165 days there (not continuous). The reason I
mention this is that I spend a lot of time inland with my Dominican
friends. These are not the middle-class that travel to the U.S. and try
to emanate the lifestyle. These are the real basic Dominicans that have
practically had their backs broken by the collapse of their economy.
They tell me how difficult it is to survive. For example a Green
Plantin used to cost 2 pesos and now is 10. Rice is now 18 pesos per
pound and a motor conch (motor bike driver) used to charge 5 pesos and
now charges 10 to 20 for the same ride, and many families travel with
this mode of transportation and even send their kids to school daily
using this method. Well I think this speaks for itself. Of course most
of the population does not have the $25 U.S. monthly to send their kids
to school, plus they need at least $2500 to 3000 Pesos just to buy the
school supplies and uniform (a requirement). This may seem like peanuts
to foreigners but when your salary has never increased ($2,000 Pesos
per month and that's a good salary, not a factory worker in the free
zone) and prices have increased so, life becomes extremely difficult.
.I
have read emails of expatriates complaining about how expensive it is
to live there and that it is like living in New York City and it is
quickly becoming as expensive as living in Tokyo. I don't have any pity
for these complainers. They're living in a tropical paradise that has
not yet been spoiled by High Rise condos on the beach with all the
world famous hotels there. I am sure that will change in the next 10
years but for the time being, enjoy what you have NOW! Maybe these
complainers should stop buying the products that they bought back home
and learn to eat the Dominican basics (much healthier and no chemicals
or hormones or vitamins added). I was there this last September with a
friend who was never there before. He couldn't believe the difference
in the taste of the food. All he does is rave to everyone here how
great everything was there, especially the real Dominicans he met
through me and would have never met in a tourist town. In
conclusion all I can say is "Love it or Leave it, but better to Live it!
.EDITORS REPLY:
Thank you for the letter and let me say that you are correct in many
things that you mentioned. In regards to taxation, there was an
effort under the previous government administration to increase import
taxes, but that was bitterly challenged in the courts soon thereafter
as being unconstitutional (the way it was brought about).
However, since many of these taxes are in reality pegged to the US
Dollar - Peso exchange rate, these amounts have come down considering
the exchange rate has been reduced by almost 100 percent (from 52 Pesos
to US$1 down to about 30 at the moment). The problem is that
while in theory (and in practice), the costs of imported goods has gone
down for the stores or importers, the prices shown to consumers has not
(or certainly not in tandem).
.It
is of course true that the economic policies of the previous government
have greatly and deeply affected many Dominicans in terms of cost of
living, etc. As we did mentioned in previous newsletters, cost of
living has gone up yet salaries have not kept pace (as they never do
when the government inflates the local currency, or devalues it, which
is the same thing). Interesting enough this looks like a problem
effecting Americans in terms of US Dollars at the moment, although
obviously not so severe so quick (the Dominican economy is much smaller
and such things have a quicker and more noticeable effect). In
any event, it is also true that countries like the Dominican Republic,
especially when it comes to housing (usually the largest expense for
most consumers) remains to be very affordable in comparison to costs
for similar housing elsewhere. In addition, yes it is true, that
the reason many foreigners do decide to retire to or relocate to the
Dominican Republic is that costs for many, many things are still much
cheaper than what they are in the US or Europe. So, I guess it is
fair to say that in terms of costs, it really all depends upon what
your point of reference is (how much money you have and what similar
things would cost back home as a percentage of your own personal income
or outright cost). The local Dominican middle-class has been
severely set back, where as the foreigners (especially those with Euros
or British Pounds) will find costs for some things on par with costs
back home (imported consumer goods) but will probably still find
housing and salaries a bargain in comparison to both their native
country and even many other jurisdictions in the Caribbean.
.In
Reply To Previous Information About the Linux desktop computer
operating system we spoke of in the last newsletter, This Reader Sends
in the Following:
.WRT Linux vs. Microsoft, one of the most devastating and civil independent critiques of Microsoft and its software regime was delivered by DR. EDGAR DAVID VILLANUEVA NUÑEZ, Congressman of the Republica of Perú, in response to Microsoft proposals for Peruvian government adoption of its products. When the Senator's letter was translated and published on the web, he achieved hero status in the Open Source community. Microsoft is not known to have uttered a response. . http://linuxtoday.com/news_story.php3?ltsn=2002-05-06-012-26-OS- SM-LL . This is a later interview with the Senator regarding wide spread reactions to his critique:
.http://linuxtoday.com/news_story.php3?ltsn=2002-05-20-006-26-IN-LF- PB . Another Reader Writes: . Hi
John - I left the DR in July 2003 to come back to Argentina and have
watched with dismay as Hipolito cut my apartment value and my 2 lots in
Cuidad Modelo in half. Thank God Leonel is back. Regarding
your readers question about Argentina, feel free to send him my email
address, I have been down here off and on for 18 years. The
Argentine banks are a joke and the government is worse. If you
run a US Dollar based business (exporting Argentine products or the
tourism industry) then you would do well here. Of course, these
two industries died under the 1 to 1 exchange rate for ten years and
there is no reason to expect the government here to learn from their
mistakes. They have not done so yet.
. So
any plans for Argentina business should be short term 4 to 5 year with
2-year payback on investment. Never know what will happen
here. The less labor the better, very strong unions that will
break you real fast. You fire somebody and you have to pay for
his wife, kids, mother in law (very heavily protected work
force). If you have dollars, or if retired and can pick up your
SS check at the embassy, then it is a great place to live. Cheap,
good food, wine, culture, women, etc. Only problem is security as
robberies are plentiful.
.EDITORS REPLY:
Thank you for the letter and information. While I did not find
Argentina and especially Buenos Aires to be any worse than any other
major American or European city (in terms of cleanliness, crime, etc.)
I have heard that burglaries were on the rise. Although, once
again, I have to say I enjoyed Buenos Aires and the entire country very
much and never had a problem. In fact, I found the people to be
very friendly and helpful to tourists (or at least in my case).
However, based upon my experiences with some business infrastructure I
would also tend to agree that the best foreigner suited to relocation
is a retiree (with a pension and liquid assets held elsewhere) or
someone involved with export and tourism, as you correctly
mentioned. Other than that, I like the place and I do like the
Argentine people very much (despite being told differently before I
visited). As I have said many times before, no country is
perfect, but depending upon what your particular needs and wants are,
some countries such as Argentina may fit the bill. It all depends
upon you personally.
.. Another Reader Writes: . Hi
John - I have been an avid reader of your newsletter for years and
truly enjoy it. Thanks. My husband is originally Dominican
and I am American. We live in Scottsdale, AZ. We are
interested in buying a Villa at Casa de Campo. This is so we can
have an investment property and also a place to enjoy in the DR.
Casa de Campo will rent it out for you and yearly the investment is
approximately 8% besides the equity in the property. I have been
watching the market closely there for the last three years and it has
continuously been on the upswing.
.EDITORS REPLY:
Real Estate in general in the Dominican Republic has steadily gone up,
but of course some prices are outside of the norm. Some people
marketing to foreigners are asking ridiculous prices and they think the
foreigners do not know any better or will find the price a bargain in
comparison to say Miami, Chicago, etc. In some respect this is
true, but of course unfair in that just because a home or apartment is
offered for a price less than form something similar in Miami (for
example), this in and of itself does not mean the price is in line with
the true local market prices in the Dominican Republic. So, the
key is to forget about making a comparison to what the same dwelling
would cost in another country, but rather make a comparison of other
similar kinds of dwellings within the Dominican Republic. Only
then can you determine if the property is reasonably priced or not (in
terms of the local market). Many foreigners do make these same
kinds of mistakes elsewhere (Honduras, Nicaragua, etc.) too.
Meaning that they overpay for a local property only to find they cannot
sell it later on (unless they find a another foreigner to sell it to
that thinks it is a bargain in comparison to another country,
etc.). If you overpay for a property, this is not the seller's
fault. They are trying to get the most money that they can, as
you would if you were selling property. You, however, must use
some common sense and evaluate the local market prices when you buy.
.With
that said, you CAN still find very affordable upper middle class or
upper scale apartments or homes starting at US$80,000 on up (the
average in Santo Domingo is probably about US$125,000 right now for a
luxury apartment or upper middle class home). However, with that
said, tourist areas always will be more expensive and small townhouse
condos in Punta Cana (for example) have been offered at US$165,000 -
which is outrageous in comparison to what you would pay for a similar
dwelling not in a tourist area (in the Dominican Republic).
.In
any event, there seems to be a somewhat strong market in terms of
foreigners who want a resort or beachfront property in the Caribbean,
so as long as that is the case, there is growth potential. In
addition, they say the golden rule for real estate is location,
location and location. So, properties on or very close to the
beach will command higher prices than similar properties located
elsewhere. The question for anyone is: Is this property
worth the price being asked? For some people it will be and for
others not. Again, not to return to what we mentioned earlier,
but it is true that one must consider the actual local real estate
market to determine if something is a bargain or fairly priced.
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