The Puerto Rican government has embarked on an innovative set of programs that seek to responsibly spread homeownership to local residents, while giving Americans on the mainland incentives to buy property here as a second home.
Gov. Luis G. Fortuno signed into law the Real Estate Stimulus Act, which includes four new programs aimed at stimulating the Island's housing market.
Gov. Fortuno implemented the measures to address the weakness in the local housing industry by promoting homeownership and additional construction, while also combating falling median prices and rising foreclosure rates. The long and short of it: big incentives are now available in the Puerto Rican real estate market.
The housing programs are:
Housing Boost 2011: This effort is designed to make it cheaper and easier for consumers to purchase a new home by eliminating the property tax on homes purchased between Sept. 1, 2010, and June 30, 2011, for five years. Purchasers won't have to pay tax on capital gains when the home is sold in the future. People who purchase an existing home will pay only half the tax on capital gains. Sellers of a new or existing home or commercial property valued up to $3 million and making a capital gain from the sale will pay zero tax on the capital gains.
The program is also aimed at cutting administrative fees way back. For example, the program eliminates fees for all internal revenue stamps and vouchers required for the execution and filing of deeds with any public registry on new homes purchased during this period. In addition, consumers who buy an existing residential or commercial property valued up to $3 million will see fees for stamps and vouchers reduced by 50%. Those selling an existing residence during this period will pay nothing in stamps and voucher fees for the cancellation of mortgages being transferred.
Finally, the program also increases the credit against ordinary income that a homeowner can claim from $1,000 to $5,000 if there is a capital loss on the sale of a residence during the target period. The credit can be taken annually for up to 15 years.
My Mortgage Insurance: This program is aimed at purchasers of new and existing homes with a value of up to $300,000. Under this program, the mortgage bank can finance up to 105% of the purchase price. Insurance will cover 17% of the risk of the sale and the bank will take up to 88% of the risk. The commission that is charged will be paid by the bank, developer or seller, and the buyer will have to pay zero out-of-pocket cash.
My New Home: This initiative provides homeowners a closing cost and down-payment-assistance voucher worth 5% of the purchase price for homes selling at or below the financing limits set by the Federal Housing Administration.
Rental Market Stimulus: The final housing program targets the rental market.
Landlords who rent new or existing residential properties will pay zero tax on net rental income for 10 years. This plan begins on Jan. 1, 2011.
The results are very promising. During the first two months of the stimulus program there have been 3,500 new housing contracts signed on the Island and 1,600 closings.
These housing programs are a foundational element of Gov. Fortuno's pro-growth and pro-consumer get-well plan for Puerto Rico, a locale that has experienced some of the nation's worst economic recessionary churn but is on the mend. The programs are receiving high marks. As Wall Street Journal columnist Mary Anastasia O'Grady recently opined about the governor and his vision: "Move over, New Jersey Gov. Chris Christie. You've got a tax-cutting, pro-growth competitor who may be even bolder than you."
Accolades aside, Puerto Rico still has a ways to go economically. The housing programs are essential if the island is to emerge stronger with a more vital and vibrant middle class that has a shot at owning a piece of a Caribbean American Dream.