OpEd: Puerto Rico real estate market takes pause during COVID-19
The Puerto Rico real estate market has taken a pause and awaits the return of buyers, who are sure to be enticed with low interest rates, investor incentives, the possible revival of the pharmaceutical industry, and thoughts of living in a tropical, social-distancing safe haven. When will the market get the green light to handle in-person showings and closings? At this point, it’s anyone’s guess.
On Mar. 12, 2020, a full week before California Gov. Gavin Newsom announced his statewide stay-at-home order, Puerto Rico Gov. Wanda Vázquez announced a strict curfew, making Puerto Rico the first place in the United States to implement such measures.
Puerto Ricans were ordered to shelter-in-place and not leave their homes unless going to a grocery store, pharmacy, or medical appointment. Outdoor exercise, beach visits, and group gatherings were disallowed, with $5,000 fines imposed on those caught breaking the rules.
Essential personnel that worked in the security, food, and health-related industries were allowed to work, while all others were deemed non-essential. Unlike states like Connecticut and Colorado, Puerto Rico’s real estate industry, including appraisers, inspectors, and notaries, were declared non-essential.
As of Sunday, Puerto Rico had 1,371 positive cases and 84 lost souls. The vacation hot-spots of Vieques and Culebra have so far escaped infection, as have many of the coffee-growing municipalities in the mountains. The governor’s quick action to lock down the territory may very well be what saves Puerto Rico from a major disaster.
Since day one of the lock-down, the Puerto Rico real estate market has been frozen. In-person showings and closings, both of which are key to property transfers, are not allowed under this curfew. Not being able to leave one’s own house, let alone walk through someone else’s, has tempered offers for the time being.
Unlike states like Illinois, where virtual closings are legal, closings in Puerto Rico require that a notary witness the signatures of both buyers and sellers in the same room at the same time. Any lawyer or broker that organizes a closing right now could lose their license.
The Health Secretary projects that the peak of COVID-19 cases in Puerto Rico will occur around May 8, so there appears to be a light at the end of the tunnel. We’re seeing lifted spirits not only in our friends, family, and neighbors, but in the Puerto Rico real estate market as well.
Over the past few weeks, Paraíso Realty has seen increased traffic on our website and social media channels, and this interest has led to increased phone and email inquiries.
Since it is rare for a buyer to purchase a property without seeing it in person, we are enhancing the selling experience with better online media and virtual showings. We are already lining up showings for when the curfew gets lifted, which should create quite the flurry of activity.
Prospective buyers who have already searched and walked through on-the-market properties before the curfew was implemented also remain in the pipeline. During this pause, they have had the chance to think more about their options, as well as work through the approval process with some mortgage companies.
These smart, qualified buyers are now making offers on properties, trying to lock in accepted offers before the rush of new buyers begins.
Curfew creates wave of real estate activity
The curfew has also created a wave of new prospective buyers and sellers, many of whom are reconsidering their current living space and seeking something more desirable after being forced to spend so much time at home. At Paraiso Realty we are seeing an equal number of people looking for a new home within Puerto Rico, as well as those up north in the continental United States looking for a nice piece of paradise in the tropics.
Before the curfew, many neighborhoods of Puerto Rico were seeing tight markets with fewer and fewer listings. Old San Juan, Condado, Ocean Park, Vieques, and Culebra all saw the market tightening, as listings dropped, and demand continued. We expect this pent-up demand to add to the flurry and keep us busy once the curfew ends.
There are positive signs for the Puerto Rico real estate market despite this pause. Interest rates are at historical lows, making home purchases more affordable. After the difficulties of acquiring medicine during this COVID-19 outbreak in the States, there is a new push to return pharmaceutical production to Puerto Rico.
This initiative should reopen factories and create new job opportunities, which in turn will increase demand for home purchases. Act 20/22 and Opportunity Zone incentives remain in place and will continue to drive investment into Puerto Rico.
Based on the collapse of the stock market this month, we are reminded that real estate is still a good place to park one’s money. Unlike many of our 401Ks, there is no property in Puerto Rico that lost 33% of its value since Jan. 1 of this year.
And unlike the aftermath of Hurricane María, properties in Puerto Rico are still in the same physical shape they were on Mar. 12, and demand is expected to be the same if not stronger once the curfew gets lifted.
Even the fear of a worldwide recession will not shake the real estate market. Historically, recessions caused by pandemics do not significantly impact home values. When the stock market tanks, money always moves into the safer investment of real estate.
When the curfew is lifted, we expect there will be some changes to how the real estate industry works, most of which will have to do with the new daily COVID-19 rhythms we face. Face masks, six-foot social distancing, and the absence of large crowd gatherings will all be folded into how showings, closings, and other business are transacted. Virtual solutions like 3D showings and video walk-throughs will become more prevalent.
Considering that everyone has been practicing responsible and safe habits for over a month now, it should be an easy transition. There are short-term and long-term benefits setting up nicely for the real estate market.
And until the governor gives us the green light, we’ll be sitting here revving our engines.