Real Estate in Cuba: Hot with Speculation

Real Estate in Cuba: Hot with Speculation
Published on:
Tuesday, January 06, 2009
Written by:
Yemisrach Kifle

While Cuba still remains off-limits to Americans, there is a heated
debate on whether or not Obama's administration should scrap the
half-century old embargo on the island nation. After all, Fidel Castro
no longer holds the reigns of power and his brother Raul seems to be
ready to relax the Communist Party's grip on the economy. That said,
save another revolution, change in Cuba is likely to come very slowly.
However, this has not stopped many investors from keeping a close eye on
Cuba.

That the island has attracted real estate speculators shouldn't be a
surprise. After all, Cuba is a beautiful country whose natural and
cultural landscape has not yet been lost to over-development. It has had
a fascinating history. Its people are mostly educated and have a strong
sense of self. Cuba has received consistently high marks on the United
Nations' Human Development Report.

Of course, the country also faces huge challenges. Its economy is in
tatters. Its infrastructure is substandard. Worse of all, it faces an
embargo from its biggest potential market, the United States. "Time
pretty well came to a standstill following the Revolution in 1959," said
Christopher P. Baker who authored, among five other books, The National
Geographic Traveler: Cuba. Not much visible development has taken place
since then.

Cuba at a glance

Located in the northern Caribbean, Cuba is the biggest island in the
Greater Antilles. Its main island is 766 miles long. Approximately 11
million people live in Cuba. The island's culture is a medley of
aboriginal, Spanish, and African.

The 2008 UN Human Development Report puts Cuba at 51st out of 177
countries. This places the island in the top third of the development
spectrum. The country indeed has archived a lot in terms of health and
education. The average life expectancy on the island is 77.7 years,
virtually tied with the United States' 77.9. Its literacy rate is among
the world's highest. Its GDP per capita, however, ranks 94 which is
close to the bottom of the middle tier countries.

The Human Development Report has been compiled since 1990 and seeks to
look further than just plain economic indicators to rank countries based
on their ability to advance the well-being to their citizens. The report
doesn't take into consideration human right issues such as political and
intellectual freedom. If it had, Cuba would definitely have done badly
in these areas. Its citizens have no say in who rules them. Press
freedom is curtailed by the government and there are very limited
property ownership rights.

The number of foreign corporations entering the Cuban market is rising.
"Currently doing business in Cuba are Canadians, Spanish, Mexicans,
British, German and Jamaican entities. China is boosting its investments
in the mining industry, where Canada's Sherritt Corporation has been the
biggest presence in the past decade," said Baker, who has traveled to
the island more 30 times.

Real Estate in Cuba

"Most Cubans own their own homes, and some, such as tobacco farmers, own
land, but sale is not permitted," said Baker. "Home-owners are permitted
to exchange homes with government approval on a like basis, that is
properties must be similar." Still, this doesn't mean property
transactions involving money don't take place.

The underground property market is thriving in Havana, the nation's
capital, according to the International Herald Tribune. Prices are on
the rise with as much as $50,000 changing hands. Speculators want to get
a hold of historic homes with the expectation that private property will
once again be the norm in the country. Some of the home exchanges taking
place are legal and deal with similar properties. Most, however, involve
swapping for a bigger or smaller property, with the party getting the
bigger place paying the party wishing to trade down.

Cuba is known for its beautiful architecture. "[The country] is a time
capsule, with fabulous colonial structures, as well as a huge core of
Beaux Arts, Art Nouveau, Art Deco, and Modernist buildings," said Baker.
"But the infrastructure is badly corroded and a large percentage of
homes are virtual slums that would be condemned in most developed
Western nations." Despite the Cuban government's successful renovation
of the country's prominent colonial centers, much more needs to be done,
both aesthetically and structurally. Full restoration will require
billions of dollars that the country doesn't possess.

Should Cuba open up, it has a lot going for it as far as attracting
international investment. "Dozens of beaches offer huge potential for
residential development, and this will be the focus of future real
estate development aimed at foreigners," said Baker.

Buying real estate in Cuba

"[As a general rule] foreigners are not permitted to purchase property.
A single exception was made about 10 years ago, when condominiums in
Havana were built for sale," said Baker who is considered a regional
expert on Cuba. That said, there are about a dozen projects in the works
that are planned with international buyers in mind. "These [projects]
are golf course and marina developments financed through sale of
residential units to foreigners."

It looks like the first of these new real estate projects to get
government approval will be The Carbonera Club, according to Havana
Journal. U.K.'s Esencia Hotels and Resorts Ltd recently announced they
are taking applications for pre-launch property ownership opportunity at
the club. The Carbonera will consist of 720 properties, among which will
be various sized villas and apartments. The development will also
include, among other things, a hotel, a spa, sports clubs and a golf
course. Because of the embargo, property purchasing at The Carbonera
Club is not open to American citizens.

"Another project [is] at Bahia Honda, about one hour west of Havana,
[and] has received preliminary approval from the Cuban government, but
approval at the Council of Ministers' level is pending," said Baker. The
Bahia Honda project will include three golf courses and a 500-slip marina.

How fast things will move depends partly on the Cuban government and
partly on factors that are out of the island's hands. The country hasn't
recovered from the effects of the three hurricanes it suffered in 2008
and the world is heading fast towards a recession. These two factors
alone could delay the above projects for the foreseeable future.

Looking ahead

"I envision tentative experimentation with coastal residential
golf-course developments accompanied by marinas aimed at foreign
buyers," said Baker who can also be found at www.cubatravelexpert.com.
Projects targeting foreigners in urban districts will be very limited
until there is a government change, according to him. He also believes
it is inevitable that large parts of the urban areas will need to be
demolished and rebuilt. "I fear that the Cubans themselves may be pushed
aside or given little consideration in any future urban renewal projects
funded from abroad," He said.

Hopefully, having a 99.9 literacy rate means Cubans will be wise enough
to tightly manage the economy as it opens to the restof the world so
that vast numbers of its citizens benefit instead of losing their shirt
to a handful of wealthy.

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