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.”

www.cubaluxuryrent.com

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A Cuban housing market? Govt is lifting a taboo


HAVANA (AP) — Each morning before the sun rises too high, Cubans gather at a shaded corner in central Havana, mingling as though at a cocktail party. The icebreaker is always the same: “What are you offering?”

This is Cuba’s informal real-estate bazaar, where a chronic housing shortage brings everyone from newlyweds to retirees together to strike deals that often involve thousands of dollars in under-the-table payments. They’re breaking not just the law but communist doctrine by trading and profiting in property, and now their government is about to get in on the action.

President Raul Castro has pledged to legalize the purchase and sale of homes by the end of the year, bringing this informal market out of the shadows as part of an economic reform package under which Cuba is already letting islanders go into business for themselves in 178 designated activities, as restaurateurs, wedding planners, plumbers, carpenters.

An aboveboard housing market promises multiple benefits for the cash-strapped island: It would help ease a housing crunch, stimulate construction employment and generate badly needed tax revenue. It would attack corruption by officials who accept bribes to sign off on illicit deals, and give people options to seek peaceful resolutions to black-market disputes that occasionally erupt into violence.

It’s also likely to suck up more hard currency from Cubans abroad who can be counted on to send their families cash to buy, expand and remodel homes, especially since President Barack Obama relaxed the 50-year-old economic embargo to allow unlimited remittances by Cuban-Americans.

“All these things are tied in,” said Sergio Diaz-Briquets, a U.S.-based demography expert. “They want expatriate Cubans to contribute money to the Cuban state, and this is one big incentive for people who want to help their families.”

But few changes are likely to be as complex and hard to implement as real estate reform.

From the earliest days of the revolution, Fidel Castro railed against exploitative, absentee landlords, and enacted a reform that gave property ownership to whoever lived in a home, regardless of who held title. Most who have left the island forfeited their properties to the state. The government, Castro preached, would provide everything a citizen could need: employment, food, education and housing, all for little or no money at all.

But 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.

Meanwhile, cyclones and salty air can start eating through metal bars in a year and have decimated rural shanties and older quarters of Havana. Empty lots dot the capital’s seaside Malecon boulevard as once-stately mansions regularly collapse following heavy rains. Many of those still standing are merely facades or are propped up by scaffolding and wooden beams.

While they wait for the new law to be enacted and the specifics to be announced, Cubans have few legal options. They can enroll in cooperative construction projects, build on existing properties or join the long waiting list for government housing. Or they can head to the open-air real-estate market in hopes of negotiating a “permuta,” which officially is a swap of equal-value properties but in reality usually involves illegal cash on the side.

Many enlist the services of “runners” like Manuel Valdez, an 83-year-old ex-military man who has been brokering the transactions for four decades. At the downtown bazaar, Valdez holds court on a concrete bench, keeping track of real estate offers in a tattered notebook and on posterboard that he tapes to a tree.

Gesturing at the people milling around hoping to strike a deal, Valdez said housing is such a problem that legalization was inevitable: “This is a situation that the state had to get off its back one way or another.”

There’s also www.revolico.com, a kind of Cuban Craigslist that has real estate ads asking tens of thousands of dollars. Site operators claim the real estate section alone gets 30,000 unique visits a month even though islanders must find a way around the Web censors.

Some Cubans enter into sham marriages to make deed transfers easier. Others move into homes ostensibly to care for an elderly person living there. They register at the address and, after enough time passes, can legally claim the “inherited” title. Nowhere is there an official record of the money changing hands.

A Havana professional with a job that pays far more than most salaries on the island told of swapping his tiny apartment about 10 years ago for a bigger, historic home whose bathroom and roof were falling apart, and whose occupants, a 60-something couple, could no longer manage.

The couple took over his recently remodeled and repainted flat. They also received $1,200 in cash — something that will no longer be illegal once Castro’s housing reform takes effect.

The professional reflected on the anomaly of people with money but no home to buy, and people with bigger homes than they need, and the risk they all run trying to change their circumstances. Some Cubans have had their homes confiscated when their illegal sales came to light.

“It would be so helpful if you could do that legally,” he said, speaking on condition of anonymity because of the transaction’s illicit nature.

“It is such a big problem, the housing situation,” said Diaz-Briquets, who estimated in a recent paper that the country of 11 million people was short 1.6 million units of “adequate housing” in 2010. “They have been trying for years to solve it, and it’s finally dawned on them that the state is never going to do it.”

The Cuban government puts the shortfall at closer to 500,000 homes. Still, the result is legions of bickering divorcees trapped under the same roof; newlyweds forced to bunk up with siblings, cousins, uncles, and aunts; and elderly people unable to repair their crumbling homes.

Juana Ines Delgado’s plight is typical. She shares her tiny studio in Old Havana with her grown son, married daughter and 4-year-old granddaughter, while her son-in-law spends nights at his aunt’s place down the street.

“It’s a marriage that’s not the way a marriage should be, you know what I mean?” said Delgado, 61. “My situation is what it is. … But I hope my children don’t have to end their days here.”

Cuba experts caution that the new measure is just a first step toward solving the housing crisis, and note that it deliberately stops short of creating a freewheeling, capitalist real estate market.

Raul Castro has said home ownership will be limited to one per individual to avoid accumulation of wealth. The government has announced plans to extend credit for purchasing building materials, but specifics are still unknown and no mechanism is in place for home loans. Duties will be levied on both sellers and buyers, and if taxes are too steep it could provide enough incentive to underreport transactions.

Only islanders and permanent residents will be able to buy property, but there’s at least a potential for Cubans to front for foreigners keen on owning a waterfront art-deco masterpiece.

“You start down a path of property accumulation and who knows where that’s going to lead,” says Rafael Romeu, a U.S.-based expert on the Cuban economy.

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U.S. Hotel Developers Don’t Expect a Quick Entry into Cuba


Real Estate Channel — American hotel developers today are eye-balling the announced $75 million deal oil-rich Qatar has signed with Cuba, but that’s about all they can do at this time, they say.

A 50-year-old travel ban to Cuba the U.S. placed 50 years ago would first have to be lifted by the Obama Administration before any serious development plans could be undertaken, U.S. developers and marketers say.

At the same time, Cuba President Raul Castro would also have to approve travel by U.S. tourists to his country.

Even if those hurdles are met, some U.S. developers would still balk at doing business with a communist regime.

“I won’t enter into discussions with other companies that want to invest or develop there,” says Burt Cabanas, president and CEO of 25-year-old Benchmark Hospitality International based in Woodlands, TX.

Cabanas told John Walsh, acontributing writer for HotelNewsNow.com, “I won’t operate in Cuba until my family, mother and godmother, is OK with that.”

He predicts the Cuban government will move slower than its U.S. counterparts in opening the country to new hotel development because it fears the 1.5 million Cubans residing in the U.S. will relocate to Cuba and seize the land Fidel Castro took from them 50 years ago.

Cabanas says investors from Ireland and Japan already have contacted him to act as a front for developing luxury resorts in and around Cuba but he has declined the offers.

Other U.S. hotel groups, however, are not that adamant in refusing to do deals with the Castros.

For example, Interncontinental Hotels Group of Denham, United Kingdom and Marriott International of Washington, DC, have been monitoring development opportunities in Cuba for some time.

Scott Smith, senior vice president of PKF Consulting in Atlanta, notes the current cost of construction and labor for new hotel development in Cuba is inexpensive, which would appeal to American developers.

Still, says Allison Fogarty, director at Pinnacle Hotel Group in North Little Rock, AK, “meaningful development (by Americans)  in the luxury segment in Cuba is still a long way off.”

Agreeing with that assessment is Enrique De Marchena Kaluche, president of the Caribbean Hotel & Tourism Association.

He says the new travel rules between the U.S. and Cuba remain unclear.  “How long will it take before we see democracy in Cuba?” he asks.  “In some people’s minds, it is a matter of snapping their fingers, but in reality, it will take at least 10 years.”

However, Sumner Baye, president, partner and a longtime leisure industry consultant at New York City-based International Hotel Network, thinks it could be much sooner.

“Everyone is waiting to see what happens,” he told John Walsh of HotelNewsNow.com.  “It’s too early to tell.”

He pinpoints Veradaro Beach in Cuba as a potential prime new hotel site.

www.cubaluxury.travel – Luxury hotels and condos in Cuba