The glory days of real estate in Puerto Rico are over, at least for now. After close to five years of unprecedented growth, the local real-estate market has entered into a lull that has caused cold sweats for many homeowners and property investors. And while some feel an impending sense of doom and gloom for the industry, others inside the industry attribute the phenomenon to a natural progression after a period of tremendous success; a “back to basics” if you will.

Ricardo J. Negrón, senior vice president of BBVA Mortgage, is a firm believer of this, although he admits this so-called “back to basics” has certainly been felt by the banking industry. “Our expectations in BBVA for this year were for a 35% growth, but as of now we’ve only grown 5%,” lamented Negrón. Nevertheless, BBVA’s performance is still better than many other banks, whose mortgage loans have actually gone down in comparison to the previous year, he added. Although data on mortgage originations for the second quarter has not yet been released (it is expected to be available in mid-August), Negrón revealed some of his competitors have gone down by over 10%.

Yet, this decrease in market activity must be taken into the proper context, according to Negrón, especially considering the abnormally high activity of past years. “If you take into account the 15 years prior to 2000, when the boom in the real-estate market started to happen, you realize that those so-called glory years that extended until 2005 were completely unnatural,” he indicated. “When mortgages are closing at a rate of $150 million a month, there’s definitely something out of the ordinary going on.”

BBVA Mortgage Puerto Rico mortgage loans totaled approximately $400 million in 2005, a 50% jump over 2004.

Meanwhile, Realtor Carmenchi García, with close to 20 years of experience in the rental business, explained, “Most owners expect rental fees to completely cover their mortgage payments.” In previous years, high rental fees were generally accepted by tenants, but with the increase in the costs of gasoline, water services, and other essentials, the tenants’ pockets got smaller when it came to rental fees. “Many tenants have started to ask whether electricity, water and maintenance are included in the monthly rental bill,” stated García.

Many property owners, on the other hand, have been adamant in their refusal to lower their rental fees. “They are dead set on not having to take money out of their own pockets to pay the mortgage payment, so rather than lowering their prices by a couple of hundred dollars, they decide to sell the property if it doesn’t find a tenant in two to three months’ time,” García indicated. This has led to a substantial increase in properties for sale, particularly of the walk-up variety. García also blames the recent trend of offering 100% financing on properties. “This increases the monthly mortgage payments significantly, and some owners tend to inflate rental fees to cover their expenses.”

Nevertheless, García predicted that once the summer season is over, which ironically is considered to be a slow season real estate-wise, sales would pick up and perform more strongly.

Yet, there are those, like an appraiser who asked not to be identified, who see this phenomenon with a bit more trepidation. Regarding the current state of the market, the appraiser replied, “it’s totally screwed.” He afterward retracted, saying “things are at a lull right now but will certainly pick up later.” Yet, the preoccupation was still evident. “There have been some tendencies visible in the past year that point toward harder times ahead for the market, and the political situation is not helping things out, either,” he concluded.