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Puerto Rico’s Hurricane Firesale

Puerto Rico’s Hurricane Firesale

October 3, 2017 By admin

BY RSH Inc IN RSHinc On 03-10-2017
Puerto Rico is a Caribbean island and unincorporated U.S. territory, located in the northeast Caribbean Sea. Possessing a GDP of 103B, Puerto Rico currently hosts an active population of 3.4 Million people within 78 territories, with the average person earning $27,000 a year. Puerto Rico has long been known by the average person for its beautiful coasts and tropical climate as a vacation destination, attracting tourism from around the globe which accounts for 8% of its GDP. Among those in the Pharmaceutical/Service Industries however, it’s known for its notorious tax incentives, bringing in major producers such as Pfizer, IPR, Thermo Fisher, and many more; these accounting for an additional 46% of its GDP.

Puerto Rico has been the site of multiple natural disasters over the last 100 years, with significant infrastructure damage more recently in 1989 by Hurricane Hugo, and 1998 by Hurricane George; each doing $2B and $9B worth of damage respectively. After each of these disasters there was demonstrable GDP Growth retractions of 5% primarily due to loss of tourism, and temporary service industry disruption. (See chart below)

In September of 2017, a series of Hurricanes struck the Carribean Sea the worst of them being Hurricane Maria which made landfall in Puerto Rico, and the Virgin Islands as of September 22nd. Maria left behind an estimated $90B worth of damage to Puerto Rico leaving all 3.4 million inhabitants without electrical infrastructure, and without usable power for an estimated 6-Months as new infrastructure is built.

The home infrastructure damage is more significant and is what accounts for most of the $90b estimated damage. In many communities, 90% or more of the homes were destroyed beyond repair, with others commonly reporting 70-80% total loss; far more than the likes of Hurricane Katrina in New Orleans which brought at most a 30% Household loss. Only 1% of the home-owning population in the Puerto Rico communities have flood insurance; and less than 50% have Wind Insurance protecting against the 155 MPH Winds Maria brought meaning most will go without receiving any type of reimbursement. Thus, it can be expected there will be force foreclosures, and land sales so civilians have operating cash at a time when unemployment is estimated to reach 30-40%; up from its pre-hurricane rate of 13%. In the case of Katrina and the Household $150,000 Debt-Grants this meant that Households were selling for up to 25% above pre-hurricane Market rate as limited standing households were available; it is unlikely for this to be the same in Puerto Rico however where most communities are reporting 80% total loss- leaving the available households to be near null, and no Household grants to speak of.

As of 2016 there were 5,500 Foreclosures, an increase of 138% from the prior year 2015, and 2017-prior to Hurricane Maria there was an estimated 17,000 in the process of foreclosure; representative of 1.3% of the total housing. Post-hurricane Maria it is likely that land sales and Foreclosures will reach an all-time high, possibly breaching 50,000(4% of households) sales or more as damage is reviewed, and announced; and homeowners without insurance scramble to recoup what amounts they can.

Long term it is likely that Puerto Rico’s GDP due to the above events, and continuingly developing damage reports will contract between an estimated 15-30% over the next 3-years largely in part due to complete loss of tourism, full disruption of Puerto Rico’s Service and Production Industries (51% GDP), as well as the $70B in debt Puerto Rico possesses largely due to Government Owned Corporations, and Bonds. It is our expectation that after which within 2-years of this period Puerto Rico will begin to recoup, as its services industry and Tourism industries likely return due to influx of foreign investment, and the continued efforts to rebuild.


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