Real Estate in Cuba: Hot with Speculation

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. …

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.

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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.

Cuba has much that will attract investors should it open up to the international community. “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 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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