Market in Depth

Puerto Rico’s property market remains depressed, amidst continued economic woes

August 02, 2017

Demand continues to fall, amidst continued economic woes, massive debt, and population loss. During the year to end-Q1 2017, the seasonally-adjusted purchase-only house price index fell by 5.01% (6.96% inflation-adjusted), compared to a y-o-y decline of 6.25% a year earlier, according to the Federal Housing Finance Agency (FHFA). On a quarterly basis, house prices dropped 1.03% (-1.62% inflation-adjusted) in Q1 2017.

In April 2017, the total number of houses sold in Puerto Rico fell by 4.6% to 893 units from the same period last year, according to the Puerto Rico Planning Board. Sales of newly-built housing units fell 28%.

The total value of real estate loans outstanding fell 4% to US$22.67 billion in 2016, after y-o-y declines of 12% in 2015, 2% in 2014 and another 12% in 2013, according to the Government Development Bank (GDB).

Puerto Rico house pricesResidential construction activity remains weak. In2016, the value of residential construction was US$609.8 million, up 2.8% from a year earlier but far below the peak of US$2.33 billion recorded in 2007.

“The real estate in Puerto Rico has not recovered and continues to go down,” said Joanna Rolston of

Analysis of Puerto Rico Residential Property Market »

Rental Yields

Rental incomes in San Juan, Puerto Rico are good

Average rental yields on apartments in San Juan, Puerto Rico, are again slightly down on last year, at 7.1% on 2 bedroom apartments, and 7.3% on 3 bedroom apartments.

This year, like last year, we were unable to gather sufficient data on apartments in coastal areas of Puerto Rico such as Condado, Miramar and Dorado, but two years ago they had much lower rental returns at 3.8%.

Round trip transaction costs, i.e., the costs of buying and selling a property, are very low in Puerto Rico. See Property transaction costs analysis for Puerto Rico and Puerto Rico transaction costs compared to other counties.

Read Rental Yields »

Taxes and Costs

Taxes may be high

Rental Income: Nonresidents earning rental income effectively connected with business are taxed at progressive rates. Income-generating expenses are deductible when computing taxable income.

Capital Gains: Capital gains taxes are imposed at a flat rate of 29% for nonresidents.

Inheritance: Inheritance taxes are levied on the net asset’s value, and imposed at progressive rates from 18% to 50%.

Residents: Residents are taxed on their worldwide income at progressive rates.

Read Taxes and Costs »

Buying Guide

Buying costs are low to moderate in Puerto Rico

Roundtrip transaction costs range from 6% to 10.50% of property value. The real estate agent's fee, at around 4% - 6%, accounts for the greater part of the costs. Maximum notary fee allowable is 1% of the property value for the first US$500,000 plus 0.5% of the amount in excess of $500,000.

Read Buying Guide »

Landlord and Tenant

The law is pro-tenant

Rent: Rents and rent increases can be freely negotiated. The tenant must pay the rent on time and the landlord must maintain the property for the tenant’s use.

Tenant Security: Expiration of rental agreement, non-payment of rent, breach of contract, and misuse of the premises are grounds for eviction in Puerto Rico. The renewal of the contract is one year for yearly rental agreements and one month for monthly rental agreements.

Read Landlord and Tenant »


Puerto Rico continues to struggle

Puerto Rico real gnpHistorically, Puerto Rico’s economy has closely mirrored trends in the United States. However the latest economic downturn has been more intense and has lingered longer in Puerto Rico.

Puerto Rico’s recession began in the fourth quarter of 2006.  GDP has grown very little or declined over the past eight years, contracting every year from 2007 to 2016, with an exception in 2012 when the economy grew slightly by 0.5%.

There’s been high unemployment, massive emigration, and a near-catastrophic national debt crisis and credit rating downgrades.In 2016, Puerto Rico’s real GNP growth was -1.1%., after falling 0.7% in 2015, 1.8% in 2014 and 0.1% in 2013, according to GDB.

Puerto Rico has lost about 20% of its jobs since 2007. The population has shrunk by about 10% in the past decade. The poverty rate is now at 45%. And public health and retirement systems are now insolvent.

Puerto Ricofiled for the equivalent of bankruptcy protection in May 2017, unable to pay its massive debt or provide its citizens effective services. With US$70 billion in debt and US$50 billion in pension liabilities, Puerto Rico’s bankruptcy filing is the biggest in the history of the United States.

Puerto Rico UnemploymentThe housing market has suffered tremendously.  After huge annual house price increases in the early 2000s, the housing market came crashing down in 2008. Prices have dropped 30% (37% inflation-adjusted) from Q1 2008 to Q1 2017.

Many Puerto Ricans have been forced to sell at a loss, given the high unemployment rate – at an average of 15.3% in 2009, 16.4% in 2010, and 15.9% in 2011. While unemployment has fallen, gradually reaching 11.5% in April 2017, it remainsfar above the United States’ 4.4% jobless rate.

The loss of net worth among Puerto Ricans from the drop in real estate prices is close to USD30 billion, according to economic consulting firm EstudiosTecnicos’s director, Jose Villamil.

Hundreds of thousands of Puerto Ricans have been forced to migrate to the United States, according to the Census Bureau’s Community Survey. From 2010 to 2016, Puerto Rico’s population was reduced by about 310,000, the largest migration wave since the 1950s, when close to 500,000 Puerto Ricans migrated to the mainland. As a result, Puerto Rico’s population dropped by about 8.3% to 3.4

Aside from migration, the island suffers from an ageing population and a declining birth rate. In 2016, there were just 31,000 births (9.1 births per 1,000 population), sharply down from 47,000 births (12.4 births per 1,000 population) in 2007, according to the Instituto de Estadisticas de Puerto Rico.

Puerto Rico’s banking sector is also in crisis, with nonperforming loans at elevated levels.  Most of the problem is in the housing market, which accounts for about 2/3 of total loans, according to Scotia Bank. At the start of 2006, before the crisis, the prime interest rate was at 7.26%. It fell to 3.25% in 2009 and interest remain very low, but despite this around 80,000 families have been unable to refinance their loans and risk losing their homes.

To remedy the situation many new initiatives have been introduced, including tax incentives and other housing stimulus measures. But demand, though now gradually rising, remains far below pre-crisis levels, and residential construction remains depressed.

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