Puerto Rico is battling a roughly $72 billion debt crisis that its governor says the commonwealth won’t be able to pay back. Gov. Alejandro García Padilla laid out plans to tackle the island’s debt load in a speech on Monday, which included calls for concessions from the island’s creditors. “The public debt, considering the current level of economic activity, is not payable,” the governor said in his speech, which he delivered in Spanish. Here’s some background on Puerto Rico’s debt crisis, and what it could mean for the island’s luxury real estate market.
1. Puerto Rico’s population is shrinking.
The island's unemployment rate reached 12.4% in May, according to the U.S. Bureau of Labor Statistics. About 200,000 people left the island between 2010 and 2013, according to a Pew Research Center analysis of U.S. Census Bureau data. In a separate study, Pew found that 42% of immigrants who moved to the U.S. between 2006 and 2013 gave job-related reasons for relocating.
2. Its government is dependent on debt.
Puerto Rico has more debt per capita than any U.S state. The Wall Street Journal reports that the commonwealth may run out of money within a month, which could lead to a government shutdown or other emergency measures.
3. The island’s energy program is at the center of the crisis.
Puerto Rico relies on crude oil for energy, which is expensive to import. About 80% of the energy used on the island comes from petroleum, according to the U.S. Energy Information Administration. The Puerto Rico Electric Power Authority, which owes a total of $9 billion, announced on Wednesday a deal with its creditors to fund a $416 million payment using reserves and short-term debt, according to the Journal.
4. The commonwealth isn’t allowed to file for bankruptcy.
Like U.S. states, Puerto Rico isn’t eligible for Chapter 9 bankruptcy protection because it’s a U.S. commonwealth and not a municipality. The White House has asked Congress to consider allowing the Puerto Rican government to use bankruptcy as a restructuring tool, but has no plans to bail the island out of its debt.
With seven bedrooms and ten baths, the estate features open-plan living areas and outdoor terraces. Agent: Sandra Cuba, Puerto Rico Sotheby's International Realty. View full listing. PUERTO RICO SOTHEBY'S INTERNATIONAL REALTY
The effect on luxury real estate:
While the overall housing market continues to suffer from the crisis, with prices down around 25% from 2006’s highs, the luxury segment has proven resilient, according to local experts. “The activity in the luxury market is thriving,” said Roberto Trápaga, president of the Association of Home Builders of Puerto Rico. In fact, “We have a supply shortage.” For Trápaga, foreigners who buy high-end properties on the island are looking to take advantage of tax incentives, which aren’t affected by the debt crisis. Acquiring a home in Puerto Rico “continues to be very attractive,” said the expert.
RELATED: The Pricey Side of Puerto Rico "The opportunity to acquire luxury real estate at very low prices is now better than ever, especially for foreign buyers," said Juan Lara, an economics professor at the University of Puerto Rico. Carlos Xavier Velez, president of RE Advisors, a real estate consulting and appraisal firm in San Juan, predicted that soon demand for luxury beachfront properties in exclusive areas such as Dorado, Palmas del Mar and Río Grande will outpace the supply. Listing on Mansion Global as of July 1, 2015 Write to Gina Faridniya at gina.faridniya@dowjones.com Write to Andrea López Cruzado at andrea.lopez@dowjones.com