Even before the coronavirus pandemic, Puerto Rico faced waves of financial hardships. 

Entering the conversation more recently is the negative impact of expat cryptocurrency investors on the housing market and cost of living in some Puerto Rico neighborhoods.

Crypto investors have been flocking to the island, many making homes for themselves in areas such as Old San Juan, Dorado, and Condado.

In these areas, the prices of homes are increasing as the island attracts more U.S. mainlanders. The influx is now being cited as a major contributor to Puerto Rico’s inflating real-estate bubble.

As reported by Bloomberg Wealth, all except one building sold by Margarita Gandia’s real-estate agency in Old San Juan sold to a foreign buyer within the two years since pandemic complications first hit the island.

Gandia believes welcoming U.S. mainlanders with little restriction has resulted in higher costs of living in Old San Juan: costs that many natives cannot afford.

With two years of the pandemic’s impact now in place, restrictions on residency and residential tax benefits are strikingly outdated. 

The uptick in U.S. mainlander interest in Puerto Rico residency is thought to be a result of the island’s Act 22, a “resident investor” incentive which some say is being abused as a tax loophole.

Act 22 allows expats to potentially avoid paying U.S. federal tax income. The incentive has been steadily attracting crypto investors.

University of Puerto Rico professor Raul Santiago believes the popularization of work-from-home / work-from-anywhere culture, the prominence of Airbnb and short rental units, and an overall lack of housing are contributing to the housing situation in Puerto Rico.

Santiago calls Act 22 and its incentives “incredibly unpopular” among native Puerto Rican residents.

Supporters of Act 22 claim the incentive is intended to attract wealthy mainlanders who in turn may contribute to the economy by conducting business and paying property taxes.

According to Act 22, once an expat becomes a resident of Puerto Rico, they are eligible to pay zero in taxes on capital gains and dividends of interest. 

U.S. mainlanders only need to spend 183 days on the island to establish residency and receive these benefits. Beneficiaries of Act 22 must also donate $10,000 to local charities per year and purchase a home to remain eligible.

Meanwhile — amid an already struggling economy, attempting a recovery from bankruptcy — native Puerto Ricans are not being allowed access to the same benefits.

Most native residents, instead, pay capital-gains levies of approximately 15%. Home prices in Puerto Rico have risen 24% within the past two years.

Mitchell Dong, CEO of crypto hedge fund Pythagoras Investments, moved to Puerto Rico for the tax benefits, openly stating what many have already known about the new residents. 

“Obviously, we’re here for the taxes: That’s why everybody comes here,” he said.

Puerto Rico Secretary of Economic Development Manuel Cidre, disagrees with those seeking to manipulate Act 22 tax benefits without contributing to the island’s economy.

“If you come here just to buy a house, play golf and enjoy the weather, I don’t want you paying zero taxes,” said Cidre.

Jesus Santa, head of the Puerto Rico House Finance Committee, believes all incentives offered on the island should be reviewed as Puerto Rico transitions out of its bankruptcy, so as to see which advances the island and which work to its detriment.