Editor’s note: The following originally appeared in the Nov. 8-14, 2018, issue of Caribbean Business.
As described by Margaret Peña Juvelier, founder & president of Sotheby’s International Realty, a real-estate firm dedicated to sales of luxury housing, the impact of the Acts 20 and 22 tax incentives have been enormous on her particular niche of the real-estate market.
The new residents, according to Peña Juvelier, also want to contribute to the island’s growth and many are doing so through the Partnership for Modern Puerto Rico and the Foundation for Puerto Rico. “This island is so bountiful in terms of natural beauty, the culture, the people and the arts…. These incentives are wonderful but really this is a great opportunity to grow as a person, learn about other cultures…and for your children to learn a second language,” she said.
Sotheby’s in Puerto Rico, which opened its offices at the end of 2012, has a description of the incentives on its website along with a listing of some 53 luxury properties available in Puerto Rico.
“From the onset, when I first arrived here, there was a glut of inventory on the market, at every level, meaning high, middle and low. When we saw that there was all of this inventory, the challenge was how to sell all of this. We needed to obviously market it to the outside world…and so we began actively doing that. By doing that, I believe many of the people started to hear about the incentives and also talked about the incentives early on…. That produced a lot of interest,” she told Caribbean Business during an interview at Sotheby’s offices in San Juan’s Condado community.
The firm sold its majority of the inventory of luxury properties in 2013 and 2014. “We continue to market heavily within our Sotheby’s network, which is a very large network. We have over 950 offices in 70 countries around the world,” she said.
Most of the clients at the time chose to live in Dorado because they did not know much about Puerto Rico and wanted to live in the safety of gated communities. Since then, they have become more willing to explore other areas and even move to the countryside. “The security of a gated community like Dorado that is so pretty was the obvious choice. Since then, as the people have come, we have found they are more comfortable to discover other areas, obviously, Condado, Guaynabo, and other resorts,” she said.
Why a booming market of luxury properties? Peña Juvelier said properties near the ocean tend to sell faster than inland ones. “Other properties have unique features, such as a country estate or a mountain hacienda. It depends,” she said. Condado is an area that is appealing to her clients because it provides a whole new lifestyle near the beach and is “busting with energy.”
As a matter of fact, Sotheby’s has listings of luxury properties, including the famous Hacienda Carabali in Luquillo and a sustainable Tuscany-style home in Sabana Grande, complete with fountains, a swimming pool and gardens, that looks more like the kind of mansion one would find in California but at a fraction of the price. The house is powered by solar panels, so it is sustainable.
Not everything has been a bed of roses, however. Negative media press on the U.S. mainland about the zika outbreak a few years ago as well as the island’s financial problems made people think twice about moving to Puerto Rico. “All of that bad publicity and all that imagery, we had to overcome, and we did,” she said. How did she do it? “By focusing on the positive and letting people know that there is so much here,” she replied.
Peña Juvelier speaks regularly at activities such as investment summits, always focusing on positives and the island’s beauty. While a great number of Puerto Ricans have left the island in search of opportunities in the mainland U.S., she said Puerto Rico is full of opportunities.
“There is so much opportunity here. When I first came to Puerto Rico, I was very excited because I saw everything that was possible here,” she said.
While hurricanes Irma and Maria wreaked havoc on the economy, Sotheby’s sold some $70 million in properties after the hurricanes.
Sotheby’s created a publication that was in the Wall Street Journal this month, which featured the listings available in Puerto Rico on its glossy cover. The listings include homes in Condado as well as homes with tennis courts and swimming pools all over Puerto Rico. “We feature our properties and also show people how fabulous they can be living in Puerto Rico,” she said.
The publication lists the tax incentives provided in Puerto Rico. While the local House of Representatives, through tax reform, tried to raise taxes on those benefiting from Act 20, the law that grants incentives for export services, and on Act 22, which grants tax incentives and credits to individual investors, the Senate eliminated those extra provisions, leaving the incentives as they currently are. These incentives also did not experience any changes resulting from President Trump’s federal tax reform.
One group moving to Puerto Rico is the so-called crypto-millionaires, who are assured low tax rates on short-term capital gains. “That entire market has had a downturn in the past six to eight months, but we still have seen and worked with people who have come under that business model and they love it here. They have found a place where they can be creative and flourish,” she said.
Sotheby’s, however, also has a growing market of “snowbirds” and retirees who do not want to come to Puerto Rico for the incentives. Peña Juvelier is also working with a group of Russian investors who want to develop properties in Puerto Rico. In keeping with recent trends in green energy, the new residents have asked for homes that have renewable energy systems or the space in which to install them.
Puerto Rico has the advantage of being a U.S. jurisdiction in the Caribbean that allows residents to easily travel. Despite her optimism about Puerto Rico, Peña Juvelier accepts that the island has problems, including its deteriorating infrastructure and electric power. She said new residents also ask about recycling initiatives, which she said needs more attention. “We need to recapture what we had before and build it even further,” she said.