The dynamism of the real estate market largely depends on trusts, because they support cooperation between developers, investors and buyers. It’s a legal process that offers transparency for all parties while mitigating the risks inherent to an investment. Its purpose is for projects to be executed correctly and for there to be effective management of the allocated funds, as long as, by Law, it is not contrary to morality.
Having laid all this out, it’s time to define the concepts.
What Is a Real Estate Trust?
Before giving an answer, to understand this concept it’s important to know the parties that make up this legal agreement:
- The settlor or developer (fideicomitente): is the party that establishes the asset. For example, the builder in a housing project.
- The trustee (fiduciario): is the administrator of the assets received from the settlor, for the benefit of the beneficiary. They administer them in accordance with the instructions of the established contract.
- The beneficiary (fideicomisario): as the name indicates, is the beneficiary of the trust. In the case of the builder, this would be the buyers or investors in the homes.
After getting to know all the parties involved, it’s time to explain what a real estate trust is. It’s the legal agreement through which the settlor transfers the administration of an asset to a trustee so that they manage it for the benefit of the beneficiary. The trustee acts as the neutral party in charge of ensuring the deal complies with the legal agreements set out in the contract. Its regulation in the Dominican Republic is done through Law 189-11 on the Development of the Mortgage Market and the Trust, which was created as a legal framework to boost the mortgage market.
Why Is a Real Estate Trust So Important?
The relevance of this legal agreement lies in the legal certainty it provides. The real estate market is based on the trust that the beneficiary, as an investor, has in the project proposed by the settlor, especially in those that have not yet been built.
From the buyer’s perspective, the real estate trust guarantees that the funds they contributed as an investor are indeed being used for the construction of the project. The money is being managed by the neutral party and not directly by the builder, who only disburses the money to the extent that the goals established in the project are met.
From the seller’s perspective, their reputation is built on the transparency they offer. This will attract investors who trust the diligence of the neutral party.
These are some advantages of the trust for the investor:
- Transparency and control: the trustee oversees the execution of the project and manages the resources.
- Investor protection: the trust estate (both the asset and the funds) is legally separated from the settlor’s estate. This is advantageous if, for example, a builder has financial problems, since the project cannot be seized. This allows the agreement to continue, protecting both parties.
- Regulation: Law 189-11 promotes the formalization and completion of projects, which means the project has passed rigorous controls before being approved.
In this video we point out some benefits of investing through a trustee and the security of investing in a project with a trust versus one without.
How to Know if a Project Has a Trust
Before making an investment in a project, it’s essential to know exactly whether it has a trust. Here are steps to follow:
- Request a copy of the trust contract from the builder.
- Verify the existence of the trustee at the Superintendency of Banks of the Dominican Republic.
- Confirm the existence of the DGII registration. You can request it from the builder to verify its status.
- Verify directly with the trustee.
All this information should be easy to request from the construction company. Their cooperation will be a good first sign for evaluating the authenticity of the project.
Can You Finance a Property Under a Trust in the Dominican Republic?
The short answer is yes. Banks in the country know (and participate in) the trust. They offer mortgages to investors because they take into account the project’s viability: once it’s completed, the property belongs to the buyer, the trust is liquidated and the asset becomes the bank’s mortgage collateral. In other words, it’s in the bank’s interest as a financial institution for the project to be completed, which makes it viable to grant the mortgage loan.
However, even though it offers conveniences, it’s important to keep some considerations in mind before making the investment:
- Review the trustee’s reputation, evaluating the status of the projects they’ve done in the past.
- Confirm that the contract terms are transparent, easy to understand and favorable in terms of payment conditions, delivery deadlines, and that there are clear penalties for breach by the builder.
- Demand the project progress reports.
In the Dominican Republic, the trust is the seal of guarantee of the most serious and secure real estate projects. Now that you understand how to protect your investment, the next step is to find the ideal project that offers you this peace of mind.
Let our team of experts give you personalized advice. We’ll filter for you the most reliable and profitable projects operating under this protective figure. Your safe investment starts with good guidance.