Puerto Rico: Overview

RENTAL YIELDS

Last Updated: Feb 05, 2009

All is well in Puerto Rico

Rental yields in Puerto Rico increased slightly in 2009, as compared to the Global Property Guide’s 2008 survey. In San Juan, the gross rental yield on a three-bedroom apartment is now around 7.24%.

Coastal areas tend to have lower yields, as would normally be expected. 3-bedroom apartments in coastal areas yield around 5.67%.

Apartments and houses in coastal areas are more expensive than in San Juan, with three-bedroom apartments and four-bedroom houses selling for US$630,000 and US$680,000, respectively.

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TAXES AND COSTS

Last Updated: Jan 20, 2009

Taxes may be high

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	4.2%	8.1%	9.0%
Click here to see a worked example
Source:			Disclaimer

Rental Income: Non-residents earning rental income effectively connected with business are taxed at progressive rates. Income-generating expenses are deductible when computing taxable income.

Capital Gains: Capital gains taxes are imposed at a flat rate of 29% for non-residents.

Inheritance: Inheritance taxes are levied on the net asset’s value, and imposed at progressive rates from 18% to 50%.

Residents: Residents are taxed on their worldwide income at progressive rates.

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BUYING GUIDE

Last Updated: Mar 25, 2008

Buying costs are low to moderate in Puerto Rico

Roundtrip transaction costs range from 6% to 10.50% of property value. The real estate agent's fee, at around 4% - 6%, accounts for the greater part of the costs. Maximum notary fee allowable is 1% of the property value for the first US$500,000 plus 0.5% of the amount in excess of $500,000.

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LANDLORD AND TENANT

Last Updated: Jun 13, 2006

The law is pro-tenant

Rent: Rents and rent increases can be freely negotiated. The tenant must pay the rent on time and the landlord must maintain the property for the tenant’s use.

Tenant Security: Expiration of rental agreement, non-payment of rent, breach of contract, and misuse of the premises are grounds for eviction in Puerto Rico. The renewal of the contract is one year for yearly rental agreements and one month for monthly rental agreements.

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ECONOMIC GROWTH

Last Updated: Jun 15, 2009

Severe economic crisis prolongs

Puerto Rico (pop. 4 million) is a self-governing commonwealth in association with the United States of America. The US has authority over interstate trade, nationality and citizenship, currency, military, and other areas generally controlled by the federal system. Puerto Rico has control over its internal affairs.

Puerto Rico is different from the other 50 US states because it has its own local taxation system, and is exempted from the Internal Revenue Code. It has no voting representation in either house of the US Congress, and Puerto Ricans cannot vote in the presidential elections.

Puerto Rico’s economy is largely dependent on services and industry, which together generate more than 95% of GDP. Many large US firms, especially pharmaceutical companies like Pfizer, GSK and Abbot, have invested heavily in Puerto Rico due to tax incentives and duty-free access to the US.

However, the employment opportunities provided by these companies were insufficient. To reduce the unemployment rate, the government became the biggest employer in Puerto Rico, providing around 300,000 jobs.

In May 2006, the Puerto Rican government shut down for two weeks, because of a severe budget deficit, leaving about 95,000 public employees temporarily unemployed and closing more than 1,500 public schools. Puerto Rico’s economy has been in recession since then. In 2008, Puerto Rico’s economy shrank 2.5%, following a 1.9% contraction in 2007.

The Puerto Rican government is much poorer than the poorest U.S. state—and has a huge debt from an emergency loan in 2006. Puerto Rico’s public debt has grown rapidly, and stood at about US$46.7 billion in 2008.

Governor Luis Fortuño, who took office in January 2, 2009, aims to eliminate the fiscal deficit, which now stands at US$3.2 billion per annum.

Determined to reduce operational expenses and the public payroll, in March 2009 Fortuño laid off about 8,000 public employees, the first in a series of planned mass layoffs in different government agencies. Unemployment rose to 14.7% in March 2009, up from 11% in 2008.

The economy is projected to contract by 3.4% in the fiscal year 2009 (ending June 30, 2009), and by another 2% in 2010, according to the Puerto Rico Planning Board.