Real Estate Practices in Puerto Rico
Overview of Real Estate Practices in Puerto Rico
In 1917, Puerto Rico became a United States territory and its people were granted citizenship. Puerto Rico became a commonwealth of the U.S. with its own constitution in 1952. Puerto Rico is a key shipping lane to the Panama Canal and San Juan is one of the biggest natural harbors in the Caribbean. A diverse industrial sector has surpassed agriculture as the primary catalyst of economic activity. Because of the mild year round climate, beautiful beaches and vast rain forests, the tourism industry is also a major source of income. Encouraged by duty-free access to the U.S. and by tax incentives, U.S. firms have invested heavily in Puerto Rico.
Puerto Rico Tax Incentives
In 2011, the Puerto Rico Housing Finance Authority enacted Law 132. Following are the tax advantages for investing in real estate in Puerto Rico:
- No future capital gains tax on new residential property purchased and a 50% reduction on future capital gains for existing property
- No recording fees for new residential property purchased and a 50% reduction in recording fees for existing property
- No capital gains taxes on sale of exiting property and a $5,000 deduction from ordinary income for capital loss on sale of existing home for up to 15 years
- Residential rental income is tax exempt until 12/31/20
- 5 year property tax abatement on new residential property
Real Estate Practices in Puerto Rico
Puerto Rico has six Boards of Realtors serving the island. According to the National Association of Realtors®, there are over 1000 licensed Realtors (majority bi-lingual) in Puerto Rico and brokerage commissions are not regulated by any entity.There is no MLS system, computerized or otherwise and as a result, few sellers are willing to sign exclusive listing agreements.
Locating property is challenging due to lack of recorded roads, suitable maps, insufficient GPS assistance and the mountain range which covers much of the island. For this reason, non-local sellers need to provide a legal description, directions or landmarks depending on the location and a title report in order to make sure that the property is duly registered and ready to be sold.
When placing listing referrals in Puerto Rico, the response time may take at least 14 days from date of receipt of all information to determine if the property is accessible and marketable.Acquisition costs for the seller include the real estate commission (unless otherwise negotiated at time of contract), 1% of the deed of sale and 1% for cancellation of the existing mortgage. Both can be negotiated to a minimum of 1/2% each.
Property & Ownership in Puerto RicoOwnership records can be determined from the Office of Registry of Property only. There is no online access to the real estate tax database and there is a fee for obtaining this information from the Office of the Registry. This is usually done to confirm ownership of the property and obtain the legal description.
Recording is made in the Office of Registry of Property which covers immovable property (real estate) affected; and, if covered by more than one office, in all offices covering immovable property. The place of residence of the parties does not affect place of recording. Each immovable property is individually identified with a number. Puerto Rico uses the metes and bounds land description and a legal description of a specific parcel of real estate must be complete enough for an independent surveyor to locate and identify it.Real property is a term unknown in Puerto Rico law except as the inaccurate translation of Spanish "immueble" (immovable). Dominion title (dominio) is roughly equivalent to fee simple, which is the maximum possible estate or right of ownership of real property, continuing forever.
Mortgages in Puerto Rico
Title to mortgaged property remains with the mortgagor. Mortgages are executed by deed and recorded. There are both primary and secondary mortgage markets. In the primary mortgage market, loans are originated and consist of lenders such as commercial banks, savings and loan associations and mutual savings banks. Mortgages are available to foreign buyers provided the buyer has qualified for a mortgage loan from a local bank.
Closing and Escrow in Puerto Rico