Puerto Rico Construction Report, H1 2022

Today, the island faces a new challenge – record costs. Labor, materials, inflation, fuel, and energy are rising due to the Russian invasion of Ukraine. The cost of construction is impacting the bottom line of many builders and changing the calculus for developers. As such, new construction permit fillings have decreased dramatically. Rising costs would not be as impactful if consumers could absorb higher prices. A different scenario than 12 or 6 months ago. Not only are the input costs for completed inventory rising – but transaction and purchase costs are also rising for buyers.

Rising mortgage rates have kept many would-be buyers from entering the market. Currently, builders do not predict demand will continue to be as strong as it has been over the last few quarters. If transaction volumes and prices remain elevated, we may see builders re-enter the market in force. It is of note that as the market has had several months of rising rates and high inflation to digest; construction permits rebounded in August 2022 – and are on track to exceed August 2021. This is a strong indicator that construction starts will rebound in the near term. Investors should closely monitor this trend to see if it persists.