For Cuba, a real-estate revolution


The New York Times:

José is an eager almost-entrepreneur with big plans for Cuban real estate. Right now he works illegally on trades, linking families that want to swap homes and pay a little extra for an upgrade.

But when Cuba legalizes buying and selling by the end of the year — as the government promised again this week — José and many others expect a cascade of changes: higher prices, mass relocation, property taxes and a flood of money from Cubans in the United States and throughout the world.

“There’s going to be huge demand,” said José, 36, who declined to give his last name. “It’s been prohibited for so long.”

Private property is the nucleus of capitalism, so the plan to legitimize it in Cuba, a country of slogans such as “socialism or death,” strikes many Cubans as jaw-dropping. Indeed, most people expect onerous regulations and, already, the plan outlined by the state media would suppress the market by limiting Cubans to one home or apartment and requiring full-time residency.

Yet even with state control, experts say, property sales could transform Cuba more than any of the economic changes announced by President Raúl Castro’s government, some of which were outlined in the National Assembly on Monday.

Compared with the changes already passed — more self-employment and cellphone ownership — or proposed — car sales and looser emigration rules — “nothing is as big as this,” said Philip Peters, an analyst with the Lexington Institute, a think tank in Arlington, Va.

Back to the old days

The opportunities for profits and loans would be far larger than what Cuba’s small businesses offer, experts say, potentially creating the disparities of wealth that have accompanied property ownership in places such as Eastern Europe and China.

Havana in particular may be in for a move back in time, to when it was a city more segregated by class.

“There will be a huge rearrangement,” said Mario Coyula, Havana’s director of urbanism and architecture in the ’70s and ’80s. “Gentrification will happen.”

Broader effects could follow. Sales would encourage much-needed renovation, creating jobs. Banking would expand because, under newly announced rules, payments would come from buyers’ accounts.

Meanwhile, the government, which owns all property now, would hand over homes and apartments to their occupants in exchange for taxes on sales, impossible in the current swapping market where money passes under the table.

And then there is the role of Cuban emigrants. While the plan seems to prohibit foreign ownership, Cuban Americans could take advantage of Obama administration rules letting them send as much money as they like to relatives on the island, fueling purchases and giving them a stake in Cuba’s economic success.

“That is politically an extremely powerful development,” Peters said, adding that it could spur policy changes by both nations.

Unique complications

The rate of change, however, will likely depend on complications peculiar to Cuba. The so-called Pearl of the Antilles struggled with poor housing even before the 1959 revolution, but deterioration, rigid rules and creative workarounds have created today’s warren of oddities.

There are no vacancies in Havana, Coyula, the urban designer, pointed out. Every dwelling has someone living in it. Most Cubans are essentially stuck where they are.

On the waterfront of central Havana, children peek out from buildings that should be condemned, with a third of the facades missing.

The housing stock, already run down before the revolution, continued to deteriorate, the U.S. embargo choked off the supply of building materials, and new construction failed to keep pace with demand.

Empty lots dot the capital’s seaside Malecon Boulevard as once-stately mansions regularly collapse after heavy rains. Many of those still standing are merely facades or are propped up by scaffolding and wooden beams.

Blocks inland, Cubans such as Elena Acea have subdivided apartments to Alice in Wonderland proportions. Her two-bedroom is now a four-bedroom, with a plywood mezzanine where two stepsons live one atop another, barely able to stand in their own rooms.

Like many Cubans, she hopes to move: trade her apartment for three smaller places so the elder son, 29, can start a family.

“He’s getting married,” she said. “He has to move out.”

Despite reassurances — on Monday, Marino Murillo, the country’s economic czar, said selling would not need government approval — Acea and many neighbors seemed wary of the government’s promise to let go. Some Cubans expect rules forcing buyers to hold properties for five or 10 years. Others say the government will make it hard to take profits off the island, through exorbitant taxes or limits on currency exchange.

Still more, like Ernesto Benítez, 37, an artist, cannot imagine a real open market.

“They’re going to set one price, per square foot, and that’s it,” he said.

He added, Cubans would respond by setting their own prices, and that might be enough to stimulate movement, he said.

He hopes so. Benítez and the woman he has lived with for nearly a decade broke up 18 months ago. Each is dating someone new and there are nights, they admit, that get a little awkward. Only a narrow bathroom separates their bedrooms.

Katia González, 48, whose parents passed down her apartment before they died (which Cuba allows), said she would consider selling for a fair price. What did she think her two-bedroom just blocks from the ocean, in Havana’s best neighborhood, could command?

“Oh, $25,000,” she said. “A little more, maybe $30,000.”

In Miami, a similar apartment might cost nearly 10 times that, which is what many Cuban Americans seem to be thinking. José and several other brokers in Havana said real-estate transactions on the black market routinely involved money from Cubans overseas, especially Florida.

“There’s always money coming in from Miami,” said Gerardo, a broker who withheld his full name. “The Cuban in Miami buys a house for his cousin in Cuba, and when he comes here in the summer for a couple of months, he stays in that house.”

Murky rules

Technically, this is a violation of the trade embargo that began under President Eisenhower. According to the U.S. Treasury Department, deals or investments with Cubans are prohibited. Receiving money or profit from Cuba is also illegal.

But the rules are muddy in practice. Family transactions — mainly involving recent emigrants — seem to be expanding with a wink from the Obama administration.

Supporting private business is now encouraged under the general license that lets Cuban Americans visit relatives, and in 2009, President Obama established a policy of letting Cuban Americans visit the island whenever they want and send unlimited remittances to relatives.

Beyond that, enforcement against individuals, as opposed to businesses, is practically nonexistent. In the past 18 months, one American was penalized for violating the sanctions, with a fine of $525, according to a congressional report published last month.

One thing that isn’t expected to be a topic of debate in Cuba is exile claims on homes.

Over time, said Antonio Zamora, a Miami lawyer who specializes in foreign investment, families that occupied the homes of Cubans who left the island have essentially become the owners of the dwellings.

Experts say the Cuban diaspora has begun to create a tiered social system in Cuba. Cuban emigrants sent back about $1 billion in remittances last year, studies show, with an increasing proportion of that money financing budding capitalists in need of pizza ovens or other equipment to work privately. Homes would simply expand the bond, experts say, and offers are already arriving.

Ilda, 69, lives alone in a five-bedroom, ninth-floor apartment with views of the sea. A visiting Cuban-American couple — “chic, very well dressed,” she said — recently asked to buy her apartment for $150,000, with little care for any bans on foreign ownership.

“I told them I can’t,” Ilda said. “We’re waiting for the law.”

Even when the law changes, she said, she would prefer a “permuta,” a trade, because she would be guaranteed a place to live.

Nowhere to go

Her fear of having nowhere to go is common. One recent study, by Sergio Díaz-Briquets, a Washington-based demography expert, found that Cuba has a housing deficit of 1.6 million units. The government says the number is closer to 500,000, still a serious problem.

Coyula said money from sales might not be enough to fix the shortage, since there is almost no construction industry, permitting process or materials to build with.

Other thorny issues might have to be revisited.

“Evictions haven’t happened here since 1939,” he said. “There’s a law forbidding them.”

For now, Cubans are trying to grasp basic details. How will the mortgage system work? How high will taxes be? What’s a fair price?

There is even a question of how buyers and sellers will come together.

Classified listings are illegal in Cuba, which explains why brokers such as José, known as corredores, spend their days moving through open-air bazaars with notebooks listing apartments offered or desired.

He already has two employees, and when the new law arrives, whether his services are legal or not, he expects to hire more.

“We have to get coordinated,” he said. “It’s coming.”

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Cuba cuts bulk prices to support private workers


HAVANA (AP) — Cuba is lowering bulk prices for goods ranging from marmalade and mayonnaise to tools and CDs to support newly independent workers and small businesses that lack a wholesale market, official news media said Monday.

The measure addresses a central complaint by many operators of private restaurants, cafeterias and other operations authorized under a wide-ranging economic overhaul launched last year by President Raul Castro.

Under an order from the Ministry of Finance and Pricing, a 1.3-gallon (5-liter) container of cooking oil that used to sell for $11.50 can be had for $9.80, labor newspaper Trabajadores reported. A 7-pound (3-kilogram) container of tomato pure formerly worth $8.70 now goes for $7.00.

“The measure also includes tools and pneumatic and electrical equipment, all with the goal of enhancing sales to independent workers,” the article said.

Other products like tobacco, alcoholic beverages and bottled water are not covered by the order. Trabajadores did not say when it took effect.

Although the initiative targets private businesses, the same prices will apply for anyone making bulk purchases.

Cuba began allowing increased private enterprise at the end of 2010, issuing licenses for people to launch small businesses and hire employees independently of the state.

The government, which currently employs 80 percent of the labor force, plans massive layoffs although those plans have been put on hold.

Many entrepreneurs have complained about a lack of access to a wholesale market or to credit, as well as high tax rates. Cuba has said it plans to extend loans, but details have not been released.

The government fixes prices, and while some products are heavily subsidized and discounted, many other imported goods go for more than double their value elsewhere.

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Tax system to get complete overhaul


The Cuban government will completely overhaul the country’s tax system, Vladimir Requeiro, deputy chief of the Oficina Nacional de Administración Tributaria (ONAT), announced on state TV.

The overhaul of the tax law of 1994 is occurring as the number of self-employed Cubans is skyrocketing. As of early May, more than 300,000 Cubans were licensed to operate small businesses, up from 130,000 in October last year, when the government began issuing self-employment licenses. Officials announced in May that all private businesses will be allowed to hire; however, a 313-point document outlining economic changes outlines progressive employment taxes that increase with the number of employees of a company.

According to the “Guidelines” document, the new businesses must pay 25 to 50 percent taxes on profits, 10 percent sales or service tax, 25 percent employment tax, and 25 percent social security contribution.

Requeiro said that tax rates will be according to income bracket, and that agricultural producers benefit from a special tax system to stimulate food production.

Most Cubans have never had to pay taxes. Even so, Cuban economists expect the government to collect hundreds of millions of dollars of tax revenues this year from private businesses.

Soruce: Cubastandard.com

Cuba OKs credits for entrepreneurs, farmers


HAVANA – Cuba has authorized government banks to offer credit to farmers and small business owners, a key step in a series of sweeping economic changes ushered in over the last six months, state-run media announced Wednesday.

The government has granted tens of thousands of business licenses to new entrepreneurs, and has also loosened restrictions in order to allow farmers to sell their products directly to consumers from roadside kiosks. One of the main challenges facing the new businesses is a lack of financing, making bank credits an important ingredient for success.

The program authorizes credits for purchasing farming equipment in authorized stores — rather than on the black market. It also allows for “loans to persons authorized to operate private businesses to finance working capital and investment,” according to an article in the Communist Party daily Granma.

The article said the measure was approved Friday at a meeting of the Council of Ministers, presided over by President Raul Castro. It gave no details on how credits can be obtained, or what interest rate or other rules the payouts will be subject to, or what the total amount of such loans will be.

Some economists have expressed doubts that cash-strapped Cuban banks will be able to handle the loans and have urged the state to reach out to foreign investors for capital.

While the article made no mention of such a move, many entrepreneurs are receiving foreign capital infusions of a kind: seed money sent in the form of remittances from relatives overseas, most of them in the United States and Spain.

A recent decision by the Obama Administration that allows any American to send up to $2,000 a year to Cuba could make such loans even easier.

Castro has said the economic overhaul is intended to update Cuba’s socialist economic model and is not a wholesale switch to capitalism.

The newly approved credit measure “supports the updating of the Cuban economic model,” Granma said Wednesday.

www.particularcuba.com

Cuba devalues convertible peso, at dollar parity


HAVANA (AFP) – Cuba devalued its convertible peso by eight percent Monday to the level of parity with the US dollar as part of efforts to boost the communist-ruled island’s flagging economy, the central bank said.

Use of the convertible peso is limited to tourists and other foreigners, for Cubans who receive remittances from abroad and for export activity.

It was established in 1994 at parity with the dollar and in 2005 was revalued to a level of 1.08 US dollars.

The latest action brings the convertible peso — a currency to which only a small number of Cubans have access — to parity with the US greenback.

Authorities will maintain a 10 percent tax on exchanges with the US dollar “as compensation for costs” and for the “irrational and unjust” embargo imposed on Cuba by the United States, according to a central bank statement published in the Communist Party newspaper Granma.

The revaluation is a step “aimed at promoting an improvement in the balance of payments because it is a stimulus to export activity and promotes import substitution,” said central bank president Ernesto Medina.

Under the two-currency system in place, most Cubans use the standard peso which trades at roughly 25 to the US dollar.

The devaluation could help boost tourism, by lowering costs for foreign visitors. It likewise may also encourage more private investment in Cuba, and boost the spending power or Cubans who receive remittances from abroad, amounting to between $600 million and $1 billion annually.

But it will also make foreign goods priced in dollars or other hard currencies more expensive for most Cubans. This, according to officials will encourage more local production, especially in the food sector.

The move comes with Cuba embarking on a series of economic reforms aimed at opening up the country to more foreign investment and boosting private sector activity that had been strictly limited under communist rule.

A Communist Party congress in April is expected to endorse the wide-ranging reform plan proposed by President Raul Castro.

The reforms seek to have former state workers absorbed by the private sector, for state subsidies to be cut, for urban cooperatives to spring up, the welcoming of foreign capital, and for companies to operate autonomously.

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U.S. Denies Cuba’s Access to Oil Technologies


According to ACN: The process of drilling and extracting oil in Cuba is seriously affected by the United States economic, financial and commercial blockade which prevents Cuba from having access to the most advanced technologies in this field. Machinery, equipment or products with high percentage of components madeby U.S. companies or their subsidiaries can not be sold to Cuba, hence theneed to purchase them in farther markets which increases costs. General Director of the Oil Drilling and Extraction of the West Enterprise (EPEPO), Joel Pumariega told ACN that this unjust measure causes Cuba to disburse large amounts of money on the purchase of a product for the separation of water from crude oil.

Cuba used to buy that product from a Canadian company, but this one was bought by a US enterprise and therefore the sales were stopped. Its use in the industry is critical and influences the cost per ton of oil, he said. For Cuban facilities to obtain a similar product must buy it from distant markets, with the consequent delay in time, since this product is only bought when need it and in the exact amounts, he explained. Cuba is then forced to buy these equipments in third countries, where banks include the Cuba Risk factor in the loans, resulting in an increase. Next October 26 Cuba will introduce a resolution at the United Nations demanding the immediate end of the US economic war against it that has already cost it some 750 billion dollars in almost half a century.

www.particularcuba.com

Cuba’s golf future, promising but still far off


Reuters:

If Cuba plays it right, thousands of tourists could eventually be swinging their clubs at an 18-hole golf course overlooking the turquoise waters and golden beaches just east of Havana.

They will moor their yachts at a swank marina and drive electric carts to luxury villas built around the course’s scenic artificial lake.

The project, one of at least a dozen awaiting a thumbs-up from the island’s communist authorities, appears closer than ever to becoming reality after Tourism Minister Manuel Marrero said last month that Cuba will go ahead with the construction of golf courses and marinas.

www.cubaluxuryrent.comLetters of intent have already been signed between Cuba’s state-owned tourism company Palmares and several investors from countries such as Spain, Canada, Britain and even communist ally Vietnam, said a source close to one of the deals.

Cuba currently only has two courses. But sitting just 90 miles off the coast of the United States — the world’s biggest golf market with 27 million fans — its potential as a golf tourism destination is huge and so are the potential revenues.

“Cuba can be one of the strongest golf destinations in the Caribbean,” said Peter Walton, chief executive of the London-based International Association of Golf Tour Operators.

In the half century since Fidel Castro’s revolution turned Cuba into a communist state and its golf courses into art schools or military camps, the only well-publicized golf match has been between two guerrillas who hardly knew how to play.www.cubaluxuryrent.com

Castro and Che Guevara, who was a caddy in his boyhood days in Argentina, played golf in their military fatigues and boots in 1961 to thumb their noses at the U.S. government.

But even if today’s Cuban leadership has overcome its long-time ideological prejudices against the most capitalist of sports, the fine print regulating future joint ventures and real estate ownership remains a mystery.

Golf courses are generally financed by surrounding real estate developments, so the first thing investors will be looking at is Cuba’s willingness to sell or lease land to foreigners. To justify the investment, leases will have to extend for at least 50 years.

“They seem ready to accept the real estate developments. But at this point nobody knows the terms of the leases or the conditions Cuba may attach to the contracts,” said a foreign businessman involved in one of the projects.

PERCEPTION OF RISK

Over the years, several projects have been pitched to the Cuban government, including proposals by British architectural firm Foster + Partners, French construction company Bouygues Batiment International and, more recently, the Vietnamese Housing and Urban Development Corporation.

Most of the developments are planned along Cuba’s northern coast, including Havana and up-market resorts such as Varadero and Cayo Coco.

Besides villas and apartments, some of these projects worth hundreds of millions of dollars include full-scale, Western-style restaurants, supermarkets and shopping malls so far non-existent on the communist-run island.

But to see the rough hillsides of a suburb in Havana turned into smooth greens filled with foreign putters will probably take more than just reasonably long lease terms, says KPMG analyst Andrea Sartori.

“You need to have certain stability and guarantees to property ownership that I think the country currently doesn’t have,” said Sartori, the head of Golf Advisory Practice, a Budapest-based division of KPMG specialized in the industry.

“It is very much an issue of the perception and risk that an international investor will have in leasing a property in Cuba today.”

Although Cuba’s 1995 foreign investment law foresees the sale of real estate to foreigners, the experiment in the late 1990s was soon halted after limited sales of apartments.

Business sources say Cuba would seek to create joint ventures in which it would provide land in exchange for 51 percent equity, Foreign partners would then be responsible for a huge cash injection, a model similar to the one used two decades ago to develop the island’s hotel industry.

“That tends to bring down the returns (on assets) to foreign investors below the 15 to 20 percent they will be looking for,” said a businessman with experience in Cuba.

To break into the regional golf circuit Cuba would need to develop a cluster of at least 10 courses, foreign experts say.

YANKEE INVASION

Even if nobody says it, the investors behind these projects are betting on a future opening of American tourism currently prohibited by a Cold War-era U.S. ban.

President Barack Obama has lifted restrictions on the visits of Cuban exiles to the island but a Congressional bid to end the travel ban affecting other Americans seems stalled amid renewed political tensions.

“These golf projects will take time to develop and the relationship with the U.S can improve a lot in the next two or three years,” said Tony Zamora, a Miami-based Cuban American lawyer familiar with some of the deals.

But the challenges facing Cuba’s future golf tourism industry may also derive from the island’s own domestic problems.

Before building thousands of luxury villas for foreigners, a businessman says, Cuba will have to address its overwhelming housing deficit to deflate potential social tensions.

“The key ingredients of a successful golf destination are there — The climate, the proximity to a major market, the flavor,” said KPMG’s Sartori. “However there are key issues that need to be resolved.”

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