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The rush for a slice of paradise in Puerto Rico

Sánchez lives in Rincón, a seaside town in northwestern
Puerto Rico famous for surfing and sunsets that has become a hot spot for
wealthy investors looking for tax breaks. The visitors, like so many before
them, were interested in buying his one-story home, which is a two-minute walk
from the beach. It is not for sale, but that has not stopped the unsolicited
offers from coming.

“They don’t ask you for a price,” he said. “They just
hand you a check and tell you to fill it out with whatever you think the house
is worth.”

These are boom times for investors flocking to idyllic
towns all over Puerto Rico, some of them seeking to take advantage of tax
incentives intended to attract new people and outside money to the
cash-strapped island, which is working its way out of bankruptcy. The tax
breaks’ appeal accelerated after the coronavirus pandemic prompted many
companies to shift to remote work, inspiring Americans who live on the mainland
to move to more temperate climes.

But the influx of the affluent new settlers, who must
acquire residency and buy property in Puerto Rico within two years of moving in
order to keep the tax breaks, has pushed up home prices and displaced residents
who can no longer afford to live in their hometowns. Hurricane Maria, which
heavily damaged thousands of homes in 2017, had already prompted many residents
to leave the island.

The real estate boom, which began in San Juan, the
capital, has extended across the island, as investors have started to move away
from the metropolitan area and into smaller towns like Rincón.

There are new arrivals beyond those seeking tax breaks
who are also snapping up properties and driving up rents and home prices. But it
is the finance and tech investors who have formally applied for tax-break
status who have drawn the most attention.

Many of them are cryptocurrency traders, who now hold
weekly happy hours at a seaside bar in Rincón. A new barbecue food truck that
opened in August accepts Bitcoin, Ethereum, Cardano, Shiba Inu, Solana and
Litecoin for its mainland-style chicken.

The creeping gentrification troubles many Puerto Ricans,
who have become increasingly more forceful in questioning how an economy
reliant on tax breaks for the wealthy can work for local residents increasingly
unable to afford property.

“It feels like Hurricane Maria placed a ‘For Sale’ sign
on the island,” said Gloria Cuevas Viera, a Rincón resident who is helping to
lead the fight against gentrification.

Many investors buy residential properties and then resell
them at higher prices or turn them into short-term vacation rentals, turning
entire neighborhoods into Airbnb corridors and creating a shortage of inventory
for local residents. Forty-three percent of Puerto Ricans live under the
federal poverty level.

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Israel Matos, 45, will have to move out of his Rincón
home by March because the property owner sold it last year. Matos had an option
to buy the house but it expired. The owner, who is from Hermosa Beach,
California, decided to sell to someone else.

Matos has lived in the home with his wife and two
daughters for two years, and said he cannot find a single listing in Rincón
that matches his budget.

The beach in Rincón, Puerto Rico, Jan. 12, 2022. Many Puerto Ricans say they can no longer afford to remain in their homes with outside investors buying up properties and driving up prices. (Erika P. Rodriguez/The New York Times)

The beach in Rincón, Puerto Rico, Jan. 12, 2022. Many Puerto Ricans say they can no longer afford to remain in their homes with outside investors buying up properties and driving up prices. (Erika P. Rodriguez/The New York Times)

“The pressure as a father is incredibly difficult,” said
Matos, a sound engineer for a television station. “I never thought I would be
in the situation of having a hard time looking for a roof to live under with my
daughters. And it’s all because I don’t have $100,000 in the bank.”

Recently, dozens of demonstrators gathered in Old San
Juan to protest the tax breaks. They congregated in front of a former
children’s museum that Bitcoin billionaire Brock Pierce has turned into a
“crypto clubhouse.” Protesters graffitied the building with “Brock Pierce is a
colonizer” and “Gringo go home.”

The tax breaks fall under a law known as Act 60, a
version of which was initially enacted by the Puerto Rico government under
another name in 2012, as the island faced a looming economic collapse. The
incentive drew more interest after 2017, when Hurricane Maria decimated the
island. In 2019, the tax breaks were repackaged to attract finance, tech and
other investors.

People who move to the island can benefit from a
reduction of income taxes on long-term capital gains, dividends, interest and
revenues from their services. In Silicon Valley, a billboard advertises Puerto
Rico as “a tech hub in sync with your vision.”

As of October, Puerto Rico had received 1,349
applications in 2021 — a record — from people looking to become resident
investors. Of those, 982 had been approved. In all, more than 4,286
applications have been approved since 2012, with more than 35% of them approved
in the past three years.

Under the law, an investor can qualify for the tax breaks
if he or she has not been a resident of Puerto Rico for at least 10 years
prior. The investor must also buy a home to benefit from a 4% corporate tax
rate and zero capital gains tax. The more than 3 million Puerto Ricans already
living on the island do not qualify for the tax breaks.

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“This is creating inequality in terms of taxpayer
responsibility,” said Heriberto Martínez Otero, the executive director of the
Ways and Means Committee in the Puerto Rico House of Representatives.

Renters forced out by soaring housing prices along the
coast may move to cheaper neighboring towns but may have to spend more on gas
and tolls to commute, said Martínez Otero, who also teaches economics at the University
of Puerto Rico.

Owners who sell their homes, of course, have benefited
from a rise in property prices, and Gov. Pedro R. Pierluisi has applauded the
fact that many investors are buying luxury homes — a collapse in the luxury
real estate market was a key motivation for passing the tax law, he said in
January.

“What was intended was an influx of people with capital
to give life to the real estate market,” he said.

Large numbers of people leaving the island had also been
a concern for policymakers. Hammered by both the economic crisis and Hurricane
Maria, the island’s population declined 11.8% from 2010 to 2020, according to
the census.

“But the fact that there are people buying residential
properties that do not meet the reality of consumption patterns in Puerto Rico
joins the rest of the problems on the island that hinders affordable housing,”
Martínez Otero said.

An oceanside gathering spot in Rincón, Puerto Rico, Jan. 13, 2022. Many Puerto Ricans say they can no longer afford to remain in their homes with outside investors buying up properties and driving up prices. (Erika P. Rodriguez/The New York Times)

An oceanside gathering spot in Rincón, Puerto Rico, Jan. 13, 2022. Many Puerto Ricans say they can no longer afford to remain in their homes with outside investors buying up properties and driving up prices. (Erika P. Rodriguez/The New York Times)

Sánchez, the Rincón homeowner who pretended to be a
landscaper, helps coordinate the town’s federal Section 8 program, which
provides affordable housing to low-income families. The program offers families
monthly $450 vouchers to pay for housing, but he is struggling to find homes at
that price.

“I’m worried that native Puerto Ricans won’t be able to
live or invest here and will end up displaced,” he said. “I thought the prices
were only going up in the downtown area, but the properties in the more rural
sectors in the mountains are getting expensive.”

In Rincón, Ingrid Badillo Carrero, a real estate broker,
said home prices have soared in the past four years. In 2017, a two-bedroom
condo would list at an average of $290,000. Now, the same unit could be listed
at about $420,000.

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The average annual income in Rincón is about $19,900.

“I’ve had locals tell me I’m selling our country,” said
Badillo, who regularly deals with investor clients seeking the tax breaks. Many
are able to pay in cash, which is more attractive to sellers than selling to
Puerto Ricans, who may only have the means to pay through a mortgage.

In May, Elizabeth Stevenson moved to Puerto Rico with her
husband, Tyler McNatt, from Austin, Texas. They were looking for a way out of
going to the office every day and began exploring cryptocurrency investments as
a way to generate income. Stevenson, an Act 60 beneficiary, is working as a
consultant for a California movie producer now based in Puerto Rico, while also
buying and selling cryptocurrency.

“It’s really exciting that there’s so much to learn, and
there’s so much money to be made,” said Stevenson, who signed a one-year lease
for an apartment about a 15-minute walk from the beach.

She is part of several crypto groups for ex-mainlanders
that regularly host events in Rincón. Daniel Torgerson, a crypto investor who
moved to Puerto Rico in June, convenes a weekly happy hour at the Aqua Marina
Beach Club in Rincón.

In early January, around 20 people met around the bar and
pool, speaking under string lights and competing with the sounds of the
nocturnal coquí frogs.

“How’s everyone feeling in the market this week?”
Torgerson asked the crowd. “Any new projects you’re excited about?”

“Solar bitcoin mining!” someone responded.

The new residents are bringing their children along.
Myriam Pérez Cruz, the principal at Manuel González Melo K-8 School in Rincón,
said the school has had to add more coursework for students learning Spanish as
their second language.

In the 2016-17 school year, a student survey identified
three native English speakers who needed Spanish-language assistance, Pérez
said. For the 2021-22 school year, that number rose to 17 students.

Matos, the Rincón resident who must move out of his home
by March, recently drove around looking for promising “For Rent” signs.
Afterward, he went to the beach, sat cross-legged on the sand, and tried to
relax. But soon after parking his car, he felt uneasy.

“There were probably 50 people on that beach, and I only
saw what looked like five Puerto Ricans there,” Matos said. “Rincón has changed
a lot.”

© 2022 The New York Times Company

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