Despite spending around two months under lockdown during the early stage of the coronavirus (COVID-19) pandemic on the island, Puerto Rico’s real estate market has considerably regained strength since the industry resumed operations, with last July’s property sales performance being even higher than last year’s median.
Nick Pastrana, CEO of San Juan Realty Group, provided THE WEEKLY JOURNAL with a rundown of the sales of each month since the first executive order was enacted to implement restrictions and how each compares to median sales reported in 2019, based on the property sales that have been documented in the Puerto Rico Property Registry, a sub-branch of the Department of Justice.
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In 2019, there were roughly 2,730 registrations on a monthly basis. On March 15, 2020, Executive Order 2020-023 ordered an islandwide quarantine that impacted most residents and business owners. Although real estate agencies were able to work for two weeks before the lockdown came into place, the sudden cease of operations caused sales to drop by -41 percent compared to the 2019 median, with only 1,598 units sold.
April represented an even sharper decline because the industry was virtually immobilized during that month, with only 278 new registrations, or a -90 percent decrease to last year’s sales median.
By May, certain economic sectors were allowed to operate again, and federal and state aid was being distributed, which represented more money and stability to residents and investors, as well as a recovery in the real estate industry.
Compared to April 2020, property sales increased by 36 percent, but were still -56 percent below the 2019 median, with 1,205 units sold. June offered an even more dramatic recovery of 40 percent with 2,298 new property sales, or -16 percent fewer sales than the median last year.
Meanwhile, July even showcased pre-coronavirus growth. In total, the Property Registry included 2,773 new sales, which is 2 percent higher than those reported in the 2019 median.
Pastrana explained that, even in June, the numbers performed as they normally would in a given year because sales percentages fluctuate inter-monthly.
“Notice that, typically, you see that the [monthly] variation rises sometimes 9 percent, 10 percent or up to 15 percent. So, by June we can say that it had normalized a lot, and when you get to July, you are 2 percent above the median of what is a normal month. That is, in terms of sales — and this applies to both residential and commercial sales — July behaved as if it were a regular month of real estate property sales,” he stated, adding that the data reflects his experience as a real estate agent.
Lower Mortgage Rates Contribute to Recovery
Peter Torres, president of the Puerto Rico Mortgage Banks Association (ABHPR by its Spanish initials), stated that property sales have increased partially because now clients can qualify for mortgages, thanks to lower rates.
Mortgage buyer Freddie Mac reported in the first week of August that the average rate on the 30-year home loan in the U.S. mainland dropped to 2.88 percent from 2.99 percent in the last week of July. It was the lowest level since Mac started tracking rates in 1971. Meanwhile, the rate averaged 3.60 percent a year ago.
Puerto Rico mortgage interest rates now are even lower than they were stateside before COVID-19, although these are still higher compared to the rates at present in the U.S. mainland. Torres indicated that there are current rates as low as 2.75 percent or 3 percent, with an average of 3.5 percent. By contrast, the typical rate in the months preceding the pandemic was 4.5 percent or 5 percent.
As with the real estate industry, Torres remarked that mortgage banks’ operations were put on hold starting in March, but the economic reactivation of this sector came with competitive rates that allowed these financial institutions to produce greater mortgage closings or settlements.
“Once the governor began giving reopening opportunities to different businesses, mortgage banks began closing all those loans that had been approved but that had been put on hold due to the closure… Honestly, our production in these past months, excluding the month where the industry was paralyzed, increased considerably. I dare say that closings have basically doubled,” he stated.
His comments were echoed by Pastrana, who noted that now more people can qualify and for properties with greater value.
Regarding how long this low rate offer can be prolonged, Torres said that it would depend on further developments with the COVID-19 emergency. Particularly, when the widely hoped for vaccine becomes available to the public, which is generally expected to be out in the market sometime during the first quarter of 2021, at the earliest.
“Rates can be expected to rise when the vaccine comes out and everything begins to change. But at this moment, I can say that if we are talking about the next four, five or six months, those interest [rates] will remain low. We won’t know in the long term how long this issue that we are living right now will last,” the ABHPR president said.
Moreover, evictions are a growing concern stateside overdue to the millions of unemployed workers, the uncertainty on the extension of the $600 in weekly unemployment benefits — which President Donald Trump has now circumvented with his own executive order for $400 a week — and a federal eviction moratorium that expired on July 25.
In Puerto Rico, Gov. Wanda Vázquez ordered mortgage banks to allow clients to extend forbearances until August because of the coronavirus’ impact on the local economy.
Alleviating clients’ concerns, Torres explained that those who applied for the moratorium on their mortgage payments will not be obliged to pay all monthly payments at once. Rather, if they qualify, they can opt for various payment options that will mitigate the possibility of getting evicted.
Stagnant Tourism Boosts Long-Term Rentals
One of the most hard-hit industries throughout the government’s emergency measures has been tourism, notably short-term rentals such as Airbnb services.
As the tourism reactivation process was postponed until at least August 15 and recreational activities are still restricted for residents and visitors, the owners of these properties have opted to change their model to long-term rentals, which in turn has propelled greater supply that caters to increasing demand in areas such as Old San Juan, Condado, Isla Verde and other local hubs of tourism activity.
Consequently, Pastrana observed that this higher offer could result in lower price points for long-term rentals.
“That can saturate the market and I am already seeing many apartments [listed for rent] and what will happen is that there is greater offer — that is, higher inventory with more apartments — than people looking for apartments, those prices could drop in terms of rent… This is important because it creates an effect on property owners who want to rent long term when they lose Airbnb revenue, and this creates a surplus that is already taking place. Then, rent prices are more competitive and the prices have to be lowered,” he explained.
Pastrana said that while it is commonplace in the U.S. mainland and other countries for people to buy properties with the exclusive intent to generate income, here in Puerto Rico most people who purchase these units do so either to occupy them or to hold that property until retirement and move in then, “but it doesn’t make much of a difference to them if they rent it for short or long term.”
Your correspondent asked if this occurrence would have an effect on property values, but Pastrana stated that it is not a concern at the moment because the demand for property sales is “really strong.”
“I am not seeing [a drop in property values] and it is too early to see that… These last three years I have seen more demand than offerings, so I have always seen a spike in prices, be it for sales or rent. Now I am seeing more offers, but with a strong demand that is absorbing it. If I ever see, and I am not seeing now, that there are more apartments for sale than people looking to buy and these apartments are spending, two, three, five or six months without being sold, then I would say there has been a price correction, but that is not happening now,” he said.
— The Associated Press contributed to this story.