Over the past two years, every building but one that Margarita Gandia’s real-estate agency sold in Old San Juan went to a U.S. mainlander or a foreign buyer. Every purchaser cited Puerto Rico’s generous tax breaks as the reason for the move.
The influx of outside wealth to Puerto Rico—particularly those who count their riches in Bitcoin, Ether and other cryptocurrencies—has hit an all time high. So has frustration with a tax system that many locals say is inflating a real-estate bubble that’s making island life untenable.
“We used to have a vibrant community here,” Gandia said of the cobbled streets and Spanish forts of the colonial city, where she’s seen prices double or triple in just a few years. “Ever since we let people come in without restrictions, we’re losing big parts of Old San Juan. Local Puerto Ricans can’t afford to live here.”
Meanwhile, on the streets of the capital, pictures of wealthy cryptocurrency and real-estate investors are popping up with the caption: “This is what our colonizers look like.”
At the controversy’s heart is the “resident investor” incentive, commonly known as Act 22, that lures wealthy individuals with the promise of legally skirting U.S. federal income tax. Once they’re Puerto Rico residents, they pay zero tax on capital gains, dividends and interest, making it particularly attractive to holders of cryptocurrencies.
But those perks aren’t available to those already living in the U.S. territory, where most people pay capital-gains levies of about 15% and the economy has been in the doldrums for a decade.
“There’s an issue of disloyal competition here,” Puerto Rico House Speaker Rafael “Tatito” Hernandez said last week, as he announced plans to scrutinize all the island’s tax incentives. “Local capital isn’t subject to the same rules. We have to temper this.”
Proponents of Act 22 and other incentives say they’re attracting a wave of tech-savvy mainlanders who are giving back to the community through their purchasing power, sales and property taxes, and starting companies. Act 22 beneficiaries are also required to donate $10,000 a year to local charities and buy a house.
The island needs all the revenue it can get. On Tuesday, after a four-year ordeal, the government emerged from a record-setting bankruptcy that will require it to pay about $3.4 billion a year to service its debt and public pensions system. And unless it can find new sources of income or jump start the economy, the government could begin running deficits again by 2035.
Meanwhile, the arrival of wealthy mainlanders scooping up real estate in Puerto Rico’s depressed economy “feels like a land grab,” said Juan Lopez Bauza, a writer and translator who lives in Old San Juan.
“The business of the Act 22 people is to buy properties and turn them into Airbnbs or speculate with them,” he said. “They’re making it so I can’t even afford to live in my own city, the place where I’ve been for 30 years.”
Home prices across the island have increased 24% in the past two years, according to the Federal Housing Finance Agency. But in pockets that are popular with mainland investors, like Dorado, Condado and Old San Juan, values are skyrocketing, turning them into English-speaking enclaves of the ultrarich.