Cuba, home of the world’s oddest property market

June 21, 2013 5:02 pm



Cuba, home of the world's oddest property market

By John Arlidge



The country is finally allowing its people to buy and sell homes but

property lawyers and agents are still illegal

It's only 9am but it's already 33C on the Malecón, Havana's corniche,

and my brain feels like a conch fritter. I've come to meet a man who we

will call Rafael – because that's his name. But that's the only part of

his name he is prepared to reveal. Rafael is an estate agent but he does

not want anyone to know it. "Being an estate agent is illegal here," he

says.

Rafael, 44, wants to show me a penthouse for sale. He says it is worth

$2.5m but no one, not even he, really knows the right price because no

one has bought or sold houses here for 54 years. "The market changes

wildly every day. It's emotional," he smiles.

If we do agree a price, Rafael will advise me not to buy the penthouse

in the normal way. Instead, to avoid tax, I should pay him a nominal

amount locally, say 20 per cent, and "deposit the rest in an account in

Spain, please". I must not talk about the true price because, under new

laws, anyone caught lying about the price of property goes to prison.

Also, I must not reveal the name of the lawyer who does the paperwork

because working as a private property lawyer is illegal.

Undercover estate agents? A legal system that is illegal? Jail for lying

about house prices – which everyone the world over does? Welcome to the

oddest property market in the world. Welcome to Cuba.



Half a century after Fidel Castro's government expropriated all private

property, the sunshine socialist state is up for sale – in part. Raúl

Castro, who took over as president from his ailing brother in 2008, has

introduced new laws that allow Cubans to buy and sell homes. Billions of

dollars in property assets that have been frozen in place and time,

unvalued or undervalued, are now up for grabs.

Raúl Castro's move is the latest – and boldest – step in a slow economic

liberalisation programme designed to generate economic growth. Cuba

desperately needs new sources of revenue. It is only kept afloat thanks

to cheap oil, and other subsidies worth $5bn a year from its ideological

ally, Venezuela. The subsidy deal was agreed by Fidel Castro and former

Venezuelan president Hugo Chávez, who died in March. If Venezuela's new

president, Nicolás Maduro, renegotiates the agreement – and many

analysts say that, with Venezuela's economy slumping, he has no choice –

Cuba will grind to a halt.

After half a century in which they could only swap houses in a creaky,

bureaucratic and often corrupt state-run process known as permuta

(exchange), which involved finding two properties of roughly equal value

and then getting state approval to transfer the title, Cubans are

relishing their new-found economic freedom.



First-in-a-lifetime buyer Guillermo Rey stands next to the scruffy

portico of a four-bedroom, three-bathroom house in Vedado, Havana's most

high-end, fashionable district. The price, says the owner Rosa Marin, is

350,000 CUC, or convertible pesos, Cuba's hard currency, which is

roughly equivalent in value to the US dollar. She is selling because she

wants to move into a smaller property "and buy my daughter a car, a good

one, a Lada".



It is a scene repeated all over Havana. The market is growing so fast

that queues form outside the tumbledown offices of Cubisima, a

Havana-based property sales website. "Every day we get more people

looking to sell and more people looking to buy," Mayelin Aguilar tells

me as she keys the latest listings into her bulky Russian-built desktop

computer – so old it still runs Windows 95.

The tree-lined Prado is polka-dotted with estate agents, their listings

written in longhand in school exercise books. Their commission? A

whopping 5 per cent – if, that is, the buyer pays up. With estate agency

not on the approved list of private businesses Cubans can now set up,

buyers know agents have no recourse to law, so many simply refuse to

pay. "I'm lucky if I get commission for one deal in five," says one agent.

Some 45,000 homes were sold in 2012, according to Cuba's National

Statistics Office. Observers say informal deals take that number to

almost 100,000. Prices range from $10,000 for a small, run-down flat in

Old Havana to $500,000 for villas in sought-after districts, such as

Siboney and Miramar, and more than $2m for penthouses in modern blocks.

The average price last year was just $16,000. The Cuban on the calle is

still desperately poor.



This being Cuba, the conditions surrounding home sales are complicated

and, occasionally, bonkers. The law says that only Cubans and permanent

residents can buy and sell property and they must limit themselves to

one main residence and, if they have the money, one holiday home. Raúl

Castro does not want Cubans to become property barons.

Nor does he want to encourage armies of foreign investors, especially

the many arch-critics of the regime, to descend on Havana and buy it up,

block by block. But, thanks to an early flirtation with capitalism 20

years ago, there are a few apartment buildings in Havana where

foreigners can buy. The best are in the Atlantic Building, a 25-storey

tower on the Malecón, where Rafael shows me the penthouse he says is

worth $2.5m. Few want to say so publicly but some are being snapped up

by Miami-based Cubans, via local relatives, making it difficult to

divine whether the émigré Cuban or the relative is the real buyer.

President Barack Obama recently relaxed the restrictions on foreign

remittances from Cubans living in the US. Up to $5bn a year now flows

into Havana and much of it ends up in bricks and mortar.



Other overseas investors get around the restrictions by giving money to

a Cuban friend, or more often, girlfriend, to buy a property – although,

when the deal is completed, some swiftly discover that their girlfriend

is no longer their girlfriend. "I took a risk and it failed," sighs one

Dutch-born investor, whose $400,000 "home" in the fashionable Kholy

western suburbs is now home to his former girlfriend and her extended

family who cannot believe their luck – and his naivety.

Tax is troublesome, too. Both sellers and buyers must pay 4 per cent but

most disguise the value of deals to reduce the liability. Raúl Castro's

dream of generating much-needed tax revenue from home sales is, so far,

a forlorn hope.

But he might have an ace up his linen guayabera shirt – or, rather,

130km down the cracked highway from Havana in Varadero. It is Cuba's

"touristic zone", a ghetto of white sand and whiter westerners, who sip

mojitos and snap up Che Guevara T-shirts without bothering to wonder

what Che would make of them splurging their Yankee dollars on a swanky

beach holiday.

"This is where the £1.5m villas will be. And, over here, right next to

an 18-hole golf course, is where the country club will be," says Andrew

Macdonald, striding across the scrub in canary yellow shorts. The

Scots-born entrepreneur runs Esencia, an Anglo-Cuban firm, that wants to

build Cuba's first new golf course since the revolution, with 800 homes

available for foreigners to buy.



He has signed up some big names to build the $350m development at

Carbonera, near Varadero. Sir Terence Conran will design the homes.

Adrian Zecha, founder of Aman resorts, is in charge of the

country-club-cum-hotel and spa. Golf champion Tony Jacklin will help

design the golf course. "Cuba is the top emerging tourism market in the

Caribbean by a mile, and it's in the top five emerging markets

globally," Macdonald says. "It's a long slog getting stuff done but the

potential is huge."

"Slog" hardly does justice to the tortuous process he has had to undergo

to get this far, and which has cost him $3m on feasibility studies. He

began negotiations in 2006 and each year the government has said it will

approve the venture. But each year then becomes next year. Manuel

Marrero, Cuba's minister of tourism, says the deal has finally been

approved in cabinet but Macdonald still does not have the formal

sign-off he craves.



If and when Macdonald, 47, does get the formal go-ahead, it will mark

the end of Cuba's bunker mentality when it comes to golf. Fidel Castro

declared golf "incompatible with the glorious revolution" and ordered

Cuba's courses to be put to less "bourgeois" use. Today, one of them

lies abandoned just outside Havana; another is a military special forces

training ground; and a third forms the rolling lawns of a city's arts

school.

Macdonald wants to build 150 colonial-style oceanfront villas and 670

apartments. Prices for the apartments will start from $2,700 per sq

metre and range from 75-140 sq metres. The villas will cost $3,750 per

sq metre and range from 350-600 sq metres. Six-hundred investors have

registered an interest, Macdonald says. Buyers will have what passes for

freehold title under Cuba's nascent property laws, and will be able to

rent out their property.

Cuba has retained the original Spanish, pre-revolutionary land registry

and Macdonald says it shows that no overseas parties have a claim on the

land at Carbonera. Tens of thousands of exiled Cubans, who left the

country after the revolution, still claim rights over properties. On a

bluff just along the coast from Carbonera stands the DuPont villa, the

former vacation home of the wealthy US chemicals family. It is now a

government-run guest house.



Investing in Cuba is only for the most steely-nerved. Not only is there

the vexed question of potential claims on properties from exiled Cubans,

the Cuban government has a long, ignominious history of first

encouraging and then choking off economic liberalisation. It relaxed

restrictions on home sales 15 years ago, only to reverse the policy a

few years later.

This time, however, observers say Raúl Castro, who is more pragmatic and

less ideological than his older brother, is unlikely to do a U-turn. One

western business leader, who has set up a financial services consultancy

in Havana, says: "Cuba is bankrupt. Ministers may not like it but they

know the only way to balance the books is to encourage the local market

and to allow overseas investors to build homes and golf courses and

maybe eventually buy villas in Havana."

That would be good news for Rafael. The more the market expands, the

sooner he hopes the government will legalise his profession. "That way,"

he smiles, "the next time you come into Cuba, I can tell you my name."

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For details of Carbonera, visit www.esenciagroup.com

For details of apartments to buy and villas and apartments to rent,

visit www.rent-in-cuba.com and Havana Concierge at www.havana-concierge.com



Source: "Cuba, home of the world's oddest property market - FT.com" -

http://www.ft.com/cms/s/2/95d3017e-d364-11e2-b3ff-00144feab7de.html#slide0