PR home sales up despite summer lag

By: Alexander López / Caribbean Business

August 16, 2011

Sales of new and existing homes in the first seven months of 2011 are up significantly from the same period last year in large part due to the government housing incentives, the Housing Finance Authority said Monday as it released its most recent report.

Since the introduction of the incentives, 19,168 properties have been sold with an aggregate value of over $2.6 billion. At the beginning of the program, approximately 10,000 properties were ready for occupation or substantially completed. Of those, more than 3,000 have been sold.

The goal of the program, which was extended through Oct. 31 of this year, is to stabilize the real-estate market in Puerto Rico. It is headed by the Housing Finance Authority (AFV by its Spanish initials).

In July, however, sales of new homes decreased from 484 in June to 317 in July – a 35 percent drop-off. The decrease in the United States in the same period was only 7 percent.

Existing home sales dropped from 1,283 in June to 1,152 in July, a decrease of 10 percent.

The sharp drop between the two months could be attributed to buyers seeking to take advantage of incentives that were originally scheduled to expire in June before being extended through October.

The incentives include no future capital gains taxes on new residential property and a 50 percent reduction on future capital gains for existing properties. They also include no recording fees for new residential property and a 50 percent reduction on future capital gains for existing property.

In addition, residential rental income is tax exempt through 2020 and there is a five-year property tax abatement on new residential property.

The average sales price of properties that benefited from the government incentives was $136,000.

However, sales of high-end luxury properties remain stagnant.

“The luxury market must be targeted to foreign buyers because even if the prices are significantly lowered, due to the low density of the developments, the maintenance of the properties remains high,” said AFV Executive Director George Joyner.

The AFV is continuing to evaluate 300 outstanding cases in its separate mortgage loss mitigation program.

So far, approximately 1,200 families have benefited from the program through cooperative arrangements between AFV and banks.

“The banks have made an extraordinary effort to do everything within their power to manage this crisis,” Joyner said.

Once approved for participation in the program, families have an 11-month window to stabilize their economic situation.

“Some may be able to resolve their economic problems; however, others will ultimately end up selling their homes,” Joyner said.

Some of the arrangements made between banks and lenders include forgiveness of certain fees and penalties and the postponement of unpaid delinquencies to be constituted as a balloon payment at the end of the loan term.