Jennifer Márquez can spot a home renovation in Puerto Rico by an investor who’s not from the island right away.
“When you drive around, you see this,” she said. “You can tell when it’s a local person or an outsider.”
The giveaway is the style choices these investors make; the layout and finishes look nothing like the homes she grew up seeing in Puerto Rico.
It’s Márquez’s job to notice the details. Márquez, who was born and raised in Puerto Rico, is the founder of The Reserve LLC, a hospitality management company that among other things, manages vacation rental properties on the island. Her customers are property owners, both U.S. mainlanders and locals.
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Her business is growing alongside record growth in Puerto Rico’s tourism industry. Puerto Rico’s tourism growth has been helped by visa-free travel and short flights for U.S. citizens living in the states coupled with high COVID-19 vaccination rates among Puerto Rico’s local population.
As demand has surged in Puerto Rico’s tourism sector, investors have been keen to increase supply, particularly among the island’s short-term rentals. Some Puerto Ricans believe investors from the States have been given unfair advantages in their homeland.
“Every single home that you see that is going through a renovation, it’s getting ready for Airbnb. It’s not getting ready to be a (long term) rental home,” Márquez said. “So, you have locals, and then you have the international, you know, travelers who saw potential because of Act 20 and Act 22” tax incentives.
For mainlanders eyeing property in Puerto Rico, buying beach-adjacent property as a second home or for a short-term rental business (or some combination of both) seems like a luxurious deal, especially when considering the tax benefits Puerto Rico offers to them.
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Act 20 and Act 22 (now collectively known as Act 60) are tax incentives for U.S. mainlanders to lure them into investing in and taking residency in Puerto Rico. Americans who move existing or create qualifying businesses or investments to Puerto Rico can lower their federal income tax rate from up to 37% in the states to zero on income earned in Puerto Rico.
According to public records from the Department of Economic Development and Commerce, more than 4,500 people have taken advantage of the tax code incentives since its inception a decade ago, despite protests from Puerto Ricans.
The DEDC reports from 2015-2019 estimates, Act 20 and 22 beneficiaries invested $2.5 billion into Puerto Rico’s economy while directly and indirectly creating an estimated 36,200 jobs. It says 68% of Act 22 beneficiaries bought property in Puerto Rico. That real estate is valued at a little more than $1.3 billion.
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According to data from AirDNA, a market research firm that studies local Airbnb markets, Airbnb listings for “entire home” short-term rentals in Puerto Rico have increased by 32% every year from 2018 to 2020. Listings remained relatively the same between 2020 to 2021.
AirDNA does not track owner information, but Márquez notices a split between Puerto Ricans and outside investors, including those in her own customer base.
“You have a little bit of everything,” she said. “It’s kind of like 50-50.”
Gentrification is taking its toll across the island, with rising existing home prices making it tougher for Puerto Rican residents to afford to buy homes, and long-term rent prices increasing too. The median price of homes for sale in San Juan, a popular tourist area, is listed at almost $260,000 in June, about 42% more than June 2021, according to realtor.com.
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Xavier Ramírez, General Manager of Combate Beach Resort and president of the Paradores and Small Inns Association of Puerto Rico, is seeing a similar split between Puerto Rican investors and U.S. mainlanders benefiting from Act 60 tax benefits on short-term rental ownership.
“We welcome people from outside, nonresidents, to come in and participate in our tourism industry. They’re more than welcome to do so because we do need investment. We need new inventory because we are competing with other Caribbean islands who have more inventory than us,” Ramírez said. “We just want them to be level with it and play fair.”
Ramírez is calling for stronger regulations so these short-term rentals are inspected like other hotels and vacation properties. He says it’s important because these properties are often embedded in communities with long-term residents and the tourism industry needs to ensure the owners are being good neighbors.
“These new properties, they’re not being registered correctly so they’re not paying for municipal taxes and for the service of trash or garbage removal. They’re not paying a pittance for a municipal business,” he said.
Data presented to Puerto Rico’s House of Representatives reported 25,000 short-term rentals operating on the island in 2021, but only about 4,000 of them had been properly registered and were paying room occupancy taxes.
The local government is starting to work on tighter regulation. In Dorado, the local government recently passed requirements for short-term rental business owners to get an additional permit to operate in the area. Puerto Rico’s House of Representatives is conducting hearings to better understand the current reality in order to write new legislation regarding short-term rentals.
In the meantime, Ramírez recommends visitors to Puerto Rico get accommodation recommendations from Puerto Rico’s tourism board because it’s ensured all of the properties are up to date on current regulations.
Sheeka Sanahori is a freelance travel journalist and the founder of Inherited Travel, a newsletter for travelers who want to make more socially conscious travel choices. You can follow her on Instagram @sheeka.sanahori.
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