Most people find the status of Puerto Rico in relation to the United States confusing. Residents of the island don't seem to know exactly what they want either. During a 1998 referendum, when Puerto Ricans were offered the choice between becoming a US state, gaining independence, or sticking with their current arrangement, a majority of them voted 'none of the above'.
One sure thing is that Puerto Rico is a U.S. territory, as such it has similar real estate transaction and property rights that protect investments. Being a densely populated island automatically means land is a limited resource. "Puerto Rico is 100 miles by 25 miles and is occupied by four million people," said Jose Marti, owner of Marti Realty. "By logical deduction, land is scarce." Therefore, it tends to appreciate in price.
About Puerto Rico
The archipelago of Puerto Rico is located in the Caribbean between the Virgin Islands and the Dominican Republic. Until Christopher Columbus arrived in 1493, the island was inhabited by Amerindian tribes. Soon after the arrival of Columbus, the island was colonized by the Spanish. Jump a few hundred years forward, the United States invades the island in 1898, forcing the Spanish out and squashing Puerto Rican's hope of independence.
Puerto Rico is now defined as a "non-incorporated territory" of the United States. It has its own Constitution, which was approved in 1952. It has also been electing its governors democratically since 1948. People born on the island are U.S. citizens. They can vote in presidential elections but not while residing on the island and federal laws extend their reach to the territory. Puerto Rico has no senators in congress. It's one member of the House can only vote in Committees and not on the general floor.
As for Puerto Ricans, despite their ambivalence during the 1998 referendum, there is no in doubt that they love their homeland and see it as the special and unique place it is. They have even nicknamed it a "Isla del Encanto" - the island of enchantment. Unsurprisingly, they think of themselves as a separate cultural entity from the United States. Yet, many emigrate to the mainland in pursuit of the American dream; more Puerto Ricans live the U.S. than on the island itself, according to the Los Angeles Times.
The Puerto Rican economy used to be highly dependent on sugarcane but beginning in the 1940's the territory moved away from agriculture to manufacturing. The island has done well since then and is classified as a high income country by the World Bank. However, globalization has taken a toll on the manufacturing sector as factories relocate to cheaper countries in the region. Tourism plays a huge role in the island's economy, with most visitors coming from the U.S. In 2007, Puerto Rico's median household income stood at USD 17,741, according to the U.S. Census Bureau. In contrast, the lowest median income among the 50 states is Mississippi at USD 36,338, while the highest belonged to Maryland at USD 68,080. With such disparity, it is no wonder the island's residents look for their fortune in mainland U.S.
Real estate in Puerto Rico
The real estate sector in Puerto Rico has been affected by the sub-prime mortgage meltdown. This is no surprise as the island is a U.S. territory. In some ways, the market behaves in a similar fashion to that of the U.S., according to Jose Marti. "We are experiencing a slow down in sales but not [the kind of] property devaluation the U.S. [is seeing]," he said - although this depends on the market segment.
Currently property values are stagnant, or worse dropping, in most parts of Puerto Rico. In the island's capital, San Juan, the average home price for a four-bedroom house dropped to USD 329,750 from 2007's USD 357,500. During the first quarter of 2009, only 1289 homes were sold, down by 43.7 percent from the same period the previous year.
Some places such as the small island of Vieques, some 8 miles away from the main Puerto Rican island, didn't escape the price drop. "Prices dropped 15-25 percent over the last two years and seem to be stabilizing," said a representative from Rainbow Realty. However, sales seem to have picked up over the summer with people looking for a bargain, entering the market.
Vieques is a good option for those looking to escape the hustle and bustle of the main island. Some of the places vacation home buyers tend to favor include Culebra island, and the municipal towns of Isabella on the Northern side of the big island and Rincon on the West side.
Buying real estate in Puerto Rico
There are no restrictions on foreign property buyers in Puerto Rico. "Foreign owners are protected the same way locals are by Federal and island laws," said Marti. However, money launderers beware! As a matter of rule, "funds to buy [property in Puerto Rico] must be certified as coming from legal operations."
For those looking to buy investment property - especially in the tourism sector - there may be some local government incentives available, according to Marti Realty. "There are many opportunities as well as tax credits to motivate new buyers to invest."
Buying real estate in Puerto Rico is simple. However, to be on the safe side, it is better to hire a local real state broker. "Real estate practitioners are regulated by very strict laws, local and [federal]," said Marti. In addition, unless buyers speak Spanish, the language barrier could also get in the way of directly dealing with sellers. Even if quiet a bit of the island's residents speak English, it is most likely not adequate enough to conduct the serious transaction, buying a piece of property often is.
Looking ahead
Recent news on Puerto Rico's economy hasn't been good. During the fiscal year that finished off on June 30, the island's economy shrank by 5.5 percent, according to Business Week. Unemployment also jumped to almost 15 percent adding to the island's woes. From rapidly shrinking economy to ballooning unemployment rate, Puerto Rico's problems are many. These are uncertain times for the real estate sector. Those involved in the property business on the island can only hope better times are on the way.
