Newspaper article The Christian Science Monitor

Has Puerto Rico Found a Solution to the US Housing Crisis?

Newspaper article The Christian Science Monitor

Has Puerto Rico Found a Solution to the US Housing Crisis?

Article excerpt

A set of incentives for home buyers in Puerto Rico has helped stimulate the housing market there, and some experts think they could help on the mainland, too.

After the US housing market crashed in 2007 and 2008, Puerto Rico is one of many places that ended up with a glut of houses, condos, and luxury villas on the market.

With the mainland in recession, this was not exactly a surprise. Investors saw their portfolios shrink. Americans who had been using the rising equity on their primary homes to finance the purchase of vacation homes - in tropical spots such as the territory of Puerto Rico - suddenly were "underwater" on their mortgages. Banks pulled back from lending on vacation homes.

The damage to the US housing market is not over. According to an analysis by the Congressional Budget Office, 2.1 million homes are for sale in America, a number the CBO says "far exceeds" normal conditions.

In Puerto Rico, according to an analysis in 2009 by Estudios Tecnicos Inc., the glut of luxury houses worth $600,000 or more was so big that the overhang would not be absorbed for three years. For homes priced between $260,000 and $420,000, there was a five-year supply.

Enter Gov. Luis Fortuno in 2010 with a plan backed by the legislature. Its incentives for potential home buyers included:

Anyone buying a new home does not have to pay capital-gains taxes when the house is sold.

Transfer fees are reduced for existing housing and eliminated for new housing, benefiting both buyers and sellers. The incentives expire at the end of this year.

For the first five years, a new homeowner pays no property taxes. And, if the property is going to be rented, the rental income is tax free for 10 years.

The government offers qualified buyers a loan that could be used for a down payment or to pay closing costs.

"All of a sudden, from the glut we had, there are people coming from New York to buy our condos and beach houses," says Governor Fortuno, a member of the New Progress Party as well as the Republican National Committee, in a recent interview. …

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