Tuesday, August 24, 2010

Housing Market Woes

Between 2007 and 2009, the value of Puerto Rico's residential housing market experienced an average drop of 25%. In comparison, housing values in in many parts of the U.S have also seen double-digit depreciation. Unlike many parts of the mainland U.S, the island has not seen an alarming number of foreclosures. However, the major problem is the large amount of inventory available. For the past ten years or so, the island underwent a construction boom of residential homes and condominiums. Evidently, this was made possible by cheap credit. Although mortgage rates are very low, people are not buying homes because of the economic conditions facing the island. Puerto Rico's economy has been in a recession for the past five years, and unemployment is above 16%.

In an attempt to stimulate the housing market and make it more attractive for would-be homebuyers, Gov. Luis Fortuño has proposed several ambitious plans to help rescue the housing market. Capturing the attention of most is the "Estímulo de Vivienda 2011" ("The 2011 Housing Stimulus"). Those who purchase a property between Sept. 1st, 2010 and June, 30th, 2011, would be able to take advantage of the following:
  • Zero payment of municipal property taxes (CRIM) for five years.
  • If puchasing a newly constructed home, the purchaser would also be exempt from paying most bureaucratic costs, the so-called "stamps and seals" ("sellos y comprobantes").
  • Those purchasing an existing home will be exempted from paying 50% of the stamps and seals. This could save homebuyers thousands of dollars, depending on the value of the property.
As the island's economy is inextricably tied to that of the mainland U.S, which has just seen sales of homes last month hit the lowest point in over a decade, it not surprising to see the island facing problems in the housing sector. Needless to say, the effects of the financial crisis are quite palpable in the island of Puerto Rico.

1 comment:

Anonymous said...

Good luck convincing some Puerto Ricans that it is a bad as you say. I have given up advising friends that they should walk away from their 400k mortgages on homes now worth half that.

I think the media and the PR government have masterfully kept the population of PR in the dark about just how dire the real estate market is at the moment. What this does is prolong the misery and keeps hard working people in homes with false hopes for a quick rebound.

I have 10 more months on this god-forsaken island. It is going to get mega-ugly here in due time.