Tax Breaks Drive Rush to Buy Property in Puerto Rico

RINCÓN, PR — When strangers last approached Samuel Sánchez Tirado while he was mowing his lawn, he pretended to be the landscaper so they would leave him alone. He knew what uninvited visitors wanted and he was tired of having the same conversation over and over.

Mr. Sánchez lives in Rincón, a beach town in northwestern Puerto Rico famous for surfing and sunsets that has become a hotspot for wealthy investors seeking tax breaks. The visitors, like so many before them, were interested in buying his one-story house, located a two-minute walk from the beach. It’s not for sale, but that hasn’t stopped the unsolicited offers from coming in.

“They don’t ask you for a price,” he said. “They just hand you a check and tell you to fill it with what you think the house is worth.”

It’s a boom time for investors flocking to idyllic towns all over Puerto Rico, some of them looking to take advantage of tax incentives designed to bring new people and outside money to the island on short notice. money, which is coming out of bankruptcy. The lure of tax breaks has accelerated after the coronavirus pandemic prompted many businesses to switch to remote working, inspiring Americans who live on the mainland to relocate to more temperate climates.

But the influx of affluent new settlers, who must take up residence and buy property in Puerto Rico within two years of moving in order to retain tax breaks, has driven up real estate prices and displaced residents who don’t can no longer afford to live in their home town. . Hurricane Maria, which heavily damaged thousands of homes in 2017, had already caused many residents to leave the island.

The housing boom, which began in San Juan, the capital, spread across the island as investors began to move away from the metropolitan area and into smaller towns like Rincón.

There are newcomers beyond those seeking tax breaks who are also grabbing properties and driving up rents and house prices. But it’s the financial and tech investors who have formally applied for tax-relief status that have drawn the most attention.

Many of them are cryptocurrency traders, who now host weekly happy hours at a beachfront bar in Rincón. A new barbecue food truck that opened in August accepts Bitcoin, Ethereum, Cardano, Shiba Inu, Solana, and Litecoin for its continental-style chicken.

Creeping gentrification troubles many Puerto Ricans, who have grown increasingly vocal in wondering how an economy dependent on tax breaks for the wealthy can work for local residents increasingly unable to afford property.

“It’s like Hurricane Maria put a ‘For Sale’ sign on the island,” said Gloria Cuevas Viera, a Rincón resident who is helping lead the fight against gentrification.

Many investors buy residential properties and then resell them for higher prices or turn them into short-term vacation rentals, turning entire neighborhoods into Airbnb corridors and creating an inventory shortage for local residents. Forty-three percent of Puerto Ricans live below the federal poverty level.

Israel Matos, 45, will have to leave his Rincón home by March because the owner sold it last year. Mr. Matos had an option to buy the house, but it expired. The owner, originally from Hermosa Beach, California, decided to sell to someone else.

Mr. Matos has lived in the house with his wife and two daughters for two years and said he could not find a single listing in Rincón that fit his budget.

“The pressure as a father is incredibly difficult,” said Mr. Matos, a sound engineer for a television station. “I would never have thought that I would be in the situation of having difficulty finding a roof to live with my daughters. And that’s because I don’t have $100,000 in the bank.

The tax breaks fall under a law known as Law 60, a version of which was originally enacted by the government of Puerto Rico under a different name in 2012, as the island faced an impending economic collapse. The incentive gained more interest after 2017, when Hurricane Maria decimated the island. In 2019, tax breaks were repackaged to attract financial, technology and other investors.

People who settle on the island can benefit from reduced income tax on long-term capital gains, dividends, interest and income from their services. In Silicon Valley, a billboard advertises Puerto Rico as “a technological hub in line with your vision”.

As of October, Puerto Rico had received 1,349 applications in 2021 — a record — from people seeking to become resident investors. Of these, 982 had been approved. In total, more than 4,286 applications have been approved since 2012, with more than 35% over the past three years.

Under the law, an investor may qualify for the tax breaks if they have not been a resident of Puerto Rico for at least 10 years prior. The investor must also purchase a home to receive tax relief on capital gains, dividends, interest and service income. The more than three million Puerto Ricans already living on the island are not eligible for these tax breaks.

“This creates inequality in terms of taxpayer accountability,” said Heriberto Martínez Otero, executive director of the Ways and Means Committee of the Puerto Rico House of Representatives.

Tenants forced to leave due to soaring housing prices along the coast can move to cheaper neighboring towns, but may have to spend more on gas and tolls to get around, Mr Martínez Otero said , who also teaches economics at the University of Puerto Rico.

Homeowners selling their homes, of course, have benefited from rising real estate prices, and Governor Pedro R. Pierluisi applauded the fact that many investors are buying luxury homes – a real estate market crash of Luxury was a key motivation for passing the tax law, he said in January.

“What was expected was an influx of people with capital to bring the real estate market to life,” he said.

The large number of people leaving the island had also been a concern for policy makers. Hammered by both the economic crisis and Hurricane Maria, the island’s population fell by 11.8% between 2010 and 2020, according to the census.

“But the fact that there are people buying residential properties that don’t fit the reality of consumption patterns in Puerto Rico ties in with the rest of the issues on the island that are hampering affordable housing,” Mr. Martinez Otero.

Mr. Sánchez, Rincón’s landlord who posed as a landscaper, helps coordinate the city’s federal Section 8 program, which provides affordable housing for low-income families. The program offers families monthly vouchers of $450 to pay for housing, but it struggles to find homes at that price.

“I fear that native Puerto Ricans cannot live or invest here and end up being displaced,” he said. “I thought prices were only going up in the city center, but properties in the more rural parts of the mountains are getting expensive.”

In Rincón, Ingrid Badillo Carrero, a real estate agent, said house prices had skyrocketed over the past four years. In 2017, a two-bedroom condo would cost an average of $290,000. Now, the same unit might be listed at around $420,000.

The average annual income in Rincón is around $19,900.

“Locals told me I was selling our country,” said Ms. Badillo, who regularly deals with investor clients seeking tax breaks. Many are able to pay in cash, which is more attractive to sellers than selling to Puerto Ricans, who may only be able to afford to pay through a mortgage.

In May, Elizabeth Stevenson moved to Puerto Rico with her husband, Tyler McNatt, from Austin, Texas. They were looking for a way to skip the office every day and started exploring cryptocurrency investments as a way to generate income. Ms. Stevenson, a beneficiary of Bill 60, works as a consultant for a Californian film producer now based in Puerto Rico, while also buying and selling cryptocurrencies.

“It’s really exciting that there’s so much to learn and so much money to make,” said Ms Stevenson, who signed a one-year lease for an apartment about a 15-minute walk from the beach.

She is part of several crypto groups for ex-mainlanders who regularly hold events in Rincón. Daniel Torgerson, a crypto investor who moved to Puerto Rico in June, hosts a weekly happy hour at Aqua Marina Beach Club in Rincón.

In early January, around 20 people gathered around the bar and pool, talking under fairy lights and competing with the sounds of the nocturnal coquí frogs.

“How is everyone in the market feeling this week? Mr. Torgerson asked the crowd. “New projects that excite you? »

“Solar bitcoin mining!” someone answered.

New residents bring their children. Myriam Pérez Cruz, principal of the Manuel González Melo K-8 school in Rincón, said the school needs to add more classes for students learning Spanish as a second language.

During the 2016-2017 school year, a survey of students identified three English speakers who needed assistance in Spanish, Ms. Pérez said. For the 2021-22 school year, this number has increased to 17 students.

Mr. Matos, the Rincón resident who is due to vacate his home by March, recently led a search for promising “For Rent” signs. Then he went to the beach, sat cross-legged on the sand and tried to relax. But shortly after parking his car, he felt uneasy.

“There were probably 50 people on that beach, and I only saw what looked like five Puerto Ricans there,” Matos said. “Rincón has changed a lot.”

About Laurence Johnson

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