Real Estate as an Export

Updated: Oct 8, 2019

In order to specialize and therefore grow their economies, countries need to find products in which they have a comparative advantage. Switzerland has its watches, Spain has wine, Japan its cars, Belgium its beer, and for Cuba it’s Cigars.

This is one of the oldest economic and international trade theories, introduced to the mainstream economic discussion and study by British economist David Ricardo in the19th century. A country should always allocate its resources to produce goods and services for which it has a comparative cost advantage and a lower opportunity cost.

If you ask me, Puerto Rico has two obvious comparative advantages. First, its people. Second, oceanfront and mountain land. Puerto Rican people and culture is the main attraction, what catches the eye of the world. Land is the way to monetize it.

Puerto Rico has a lower opportunity cost when producing real estate for the world because ocean views and mesmerizing surroundings add intrinsic value to any real estate asset. Compare it with Dubai, where entire islands had to be built from scratch in order to create such value. So, by providing real estate for the world, Puerto Rico can offer it at a better price and compete more aggressively. After all, it is located under the U.S. flag which adds to its value.

Creating new developments for the rest of the world will not only reactivate our stagnant construction industry but it can derive a steady income of new money to be inserted to the economy through property taxes. The impact created by new developments will also reactivate other industries like the manufacturing of cement, which can be produced locally, helping to lessen its import and even exporting it like Puerto Rico used to do.

Puerto Rico’s real estate market will be welcoming a new aggregate demand comprised mainly by the international luxury property owner, the retiree, the diaspora and the long term capital preservation investor. This added global demand will inevitably produce price resiliency because property values will no longer be tied to the performance of the local economy.

After an economic or financial crisis, global real estate markets tend to rebound fast and to stronger and larger demand. As an example take Miami’s Brickell Avenue Avenue where prices rebounded aggressively after the 2008 mortgage crisis.

In summary, we live in a globalized world and should, therefore, focus our efforts on areas where we can create lots of value quickly because of comparative advantages provided by nature and our relationship with the United States.