How Hurricanes Are Changing Puerto Rico’s Real Estate Market

By Joelle Anselmo

This article is reproduced with permission from The Escape Home, a newsletter for second home owners and those who wish. Subscribe here. (c) 2022. All rights reserved.

In recent years, the Caribbean island of Puerto Rico has been hit by some of the strongest and most devastating hurricanes – and this is changing the real estate market across the island.

Hurricane Fiona, which made landfall in Puerto Rico on Sept. 13, was the 18th tropical storm or major hurricane to ravage US territory in the past 10 years. One of the deadliest was Hurricane Maria in 2017, which devastated the island, killing hundreds of residents and leaving about $90 billion in damage, according to the National Oceanic and Atmospheric Administration.

Fiona, which also hit other places in the Caribbean, was a weaker storm than Maria, but still managed to flood cities, collapse bridges and leave millions without power. Hurricanes are not the only danger. Puerto Rico is in a tectonically active region where earthquakes have occurred for centuries. The last earthquake to cause serious damage occurred two years ago.

You might think this story would be enough to turn away vacation home buyers.

While some natives have left the island in recent years, Puerto Rico – like Florida – remains a popular place to buy a vacation home, but only in certain areas. Estate agents say buying activity is mostly concentrated on the north coast, which has been less frequently hit by the hazards than the south coast. The favorable tax treatment, booming vacation home rental market and of course the island’s natural beauty also continue to attract buyers and visitors.

“It’s a paradise,” says Linda Ruiz, a longtime Puerto Rican resident who once owned a vacation home in Rio Grande, located at the eastern end of the North Coast Valley. It is popular for its lavish golf courses and the El Yunque rainforest. Ruiz, who currently lives in Guaynabo, said hurricane fears were a bit overblown. “Hurricane season only lasts a few months and up north we don’t get hit as often,” she says.

Miguel Ortiz is a real estate broker and owner of Universal Properties in Hatillo. “I don’t have a lot of people…buying properties down south,” he says. “I have people from the south (who) buy houses in the north of the island, because they are worried. Not only worried about hurricanes, but also about earthquakes,” he says.

Ortiz says most of his vacation home buyers come from New York, California and Florida. In addition to Rio Grande, other popular locations for these shoppers include Rincón, a laid-back beach town known as the “city of beautiful sunsets”; Isabela, known for hiking and surfing; Aguada, where Christopher Columbus landed; Dorado, considered one of the most luxurious towns on the island; and San Juan, the urban center of the island with abundant nightlife and cultural activities.

Christina Rivera, owner of Lifestyle Designers Real Estate, says the amenities offered at the North Shore’s many high-end resorts and increased security are also distinguishing factors for buyers. Another attraction is the fact that mainland Americans do not need a passport to travel to Puerto Rico.

“The majority of people where they live speak very good English, the weather is a big attraction, the beach,” Rivera says.

Holiday rents

According to a spokesperson for Discover Puerto Rico, the island set records last year for lodging revenue, tax collection and people employed in the tourism industry. The vacation home rental market, aided by platforms such as Airbnb and VRBO, was a major contributor to the market.

Meanwhile, spending by Airbnb customers in Puerto Rico totaled $1.7 billion (excluding accommodation spending), equivalent to 23.4% of all direct tourism activity on the island, according to a study. conducted in July by Oxford Economics.

According to Ortiz, it’s not uncommon for owners of vacation rental properties to receive $4,000 a month in rental income.

A tax haven?

Over the past decade or so, the Puerto Rican government has passed several economic incentive laws for the development of Puerto Rico, some of which include Law 20 and Law 22, which provide certain tax benefits to affluent newcomers who invest in properties and become bona faithful inhabitants of the territory. The rules are complicated, but in some cases people can significantly reduce or even eliminate US federal taxes, including taxes on rental income, which has helped fuel the vacation home rental market.

At the same time, some local municipalities are raising taxes on the sale of million-dollar homes and on income from vacation home rentals. “I think it’s unfair because you already pay a resort tax to the Puerto Rico government to have an Airbnb,” Rivera says.

Despite rising taxes and increasing extreme weather conditions, the influx of potential buyers has not slowed.

Edwin Santos, a San Juan realtor who manages Airbnb properties, expects demand for vacation homes to remain stable. And Puerto Ricans, he says, have learned to pick up and recover quickly from disasters.

“I think over time we have learned to take care of ourselves and not depend on what the government can do for us,” he said. “We protect our properties.”

This article is reproduced with permission from The Escape Home, a newsletter for second home owners and those who wish. Subscribe here. (c) 2022. All rights reserved.

-Joelle Anselme

 

(END) Dow Jones Newswire

10-25-22 1308ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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