Thursday, July 26, 2012

Cubans Begin to Rebuild Their Residential Real Estate Market

July 26, 2012 12:54 pm
By LAURA LATHAM / The New York Times
HAVANA -- A university administrator knows she is privileged to have a small apartment in a prime quarter of Old Havana, given to her by the government for a peppercorn rent. But as she shows a visitor the tiny two-room property, she asks: "Quieres permuta?" That is, in English, "Want to trade?" Since the revolution in the late 1950s, swapping or bartering homes, a process known in Cuba as permuta, was the only way residents could change their accommodations. Property was government owned and private sales were prohibited. In November 2011 the law was amended, giving residents the right to buy property freehold, though they can own only one home in the city and a second one in a rural or coastal location for vacations. Since the change, the trickle of property sales has increased. Granma, the Communist Party newspaper, reported in March that there were 2,730 sales in the first quarter of 2012, and an additional 10,660 transactions were recorded to legalize previous exchanges. Prices in Cuba tend to be far lower than elsewhere in the Caribbean, though sellers sometimes expect additional, unregistered payments to avoid taxation. Asking prices for basic apartments generally are as low as 15,000 Cuban convertible pesos, or $15,000, though such apartments are likely to be of poor quality and in undesirable locations. One-bedroom properties in need of renovation generally start at around 30,000 convertible pesos. Something more habitable with one or two bedrooms costs about 50,000 convertible pesos, and houses with three to four bedrooms begin at 80,000 convertible pesos, depending on the location. City districts in Havana like Vedado and Old Havana and the suburbs of Miramar and Playa offer better standards of accommodation than poorer areas like Centro Havana and Cerro. Buyers, however, complain that there are no price benchmarks. "We haven't had a real estate market in Cuba before, so no one knows how much a house is really worth. You might visit two identical places and get two different price requests," said the owner of a popular local restaurant, who, like many of those interviewed for this story, asked not to be identified because he was afraid of government reprisals. He said some owners would take payment only in euros or dollars, and had unrealistic expectations about the value of their properties, something he and friends are encountering as they try to find a building in Vedado suitable for renovation into apartments. Private enterprise is still heavily restricted in Cuba, and many workers earn an average salary of 20 convertible pesos a month, set by the government, so even low-end property is out of reach. Those who do buy often use money they have received legally from family members or friends outside the country. Foreigners who are permanent residents can buy in the same locations as citizens, though they usually are asked to pay a higher price, while foreigners who do not live on the island are limited to specific condominiums. They also must use registered companies for their purchases, though such purchases are not subject to the standard 4 percent tax on residential sales. All foreign purchasers are allowed to own one car per property, and can import duty-free one shipping container's worth of goods and furnishings for personal use. The introduction of resort-style vacation homes for foreigners has been expected since the government legalized leasehold land ownership by foreign companies at the end of last year. International developers have been working on several such projects, backed by Canadian and European investors, though none has yet been approved for construction. At least for now, Havana's wealth of crumbling historic properties, which date to the 17th century and include an eclectic mix of Spanish Colonial, Art Deco and 1950s Modernist architecture, is out of bounds to the overseas buyer, though leases to renovate them for business purposes can be obtained with government permission. There is general agreement in Cuba that finding properties is hard for everyone and has to be done by word of mouth. It is illegal to act as a real estate agent and not entirely legal to advertise properties for sale, though many residents list their properties anonymously on Web sites like Revolico or put a "se vende" sign outside their houses. The restaurateur said the signs began appearing only five or six months ago. "Now you see them appearing everywhere," he said. "It's a big change for people who were brought up to believe all property must be shared and private ownership was wrong." One property search agent in Havana represents Cuban and international investors but, because of the illegal nature of his job, works only via personal recommendations. He said that international buyers who were not residents should expect to pay a minimum of around 125,00 convertible pesos for a one-bedroom apartment of around 65 square meters, or 700 square feet, in a good building, with access to a communal pool and gym. The European owner of a four-bedroom penthouse in the Atlantic building, on the famous Malecón seafront strip, has said the apartment is for sale though it is not formally on the market, the agent said. It has a private rooftop terrace with a pool, and the agent said he was looking for offers of about 3.7 million convertible pesos. Expatriates are the main market for Cuban property. A design consultant, who is Cuban by birth and has family in Havana, has spent the past 20 years working in Britain and Antigua by permission of the government. Now she has decided to buy her first home in Cuba. "I'm buying a property in Havana as an investment and as a vacation residence," she explained. Though unwilling to be identified by name or to say how much she could spend, she said she could see the potential in owning her own property: "I would consider renting it long-term to the right tenant, for example, an expat working for a foreign firm in Cuba." She also said she appreciated what a big step private ownership was for Cuban residents, noting that they used to risk the loss of their houses if the government found out they were exchanging residences or making illegal payments to lawyers or agents. The market is still too new and in too much flux to predict future prices. But Johnny Considine, marketing manager for Esencia Experiences, a Cuban tourism agency that rents out private villas, said he believed that leasing potential was the key to investing well in Cuban real estate. "There is a lack of very high-end hotels in Cuba, and rentals were previously restricted by the government to a maximum of two bedrooms in a private house lived in by the owner, known as casas particulares," he said. "Now there's the opportunity to rent higher-grade property, including entire villas." Tourism to Cuba is rising, with a record 1.24 million visitors recorded in the first quarter of 2012. Returns on one-bedroom apartments range from 50 to 100 convertible pesos a night, depending on location and condition of the property. Mr. Considine said that for a luxury property with pool, waterfront location and two or more bedrooms, that figure can reach 400 to 1,400 convertible pesos a night. Even though the Cuban market appears to be opening up, few residents voice any confidence about the changes. "Today we can buy and sell property, but many people still feel there may be no security in ownership," the restaurateur said. "The laws in Cuba can change from one day to the next."

3 comments:

F. Bolivar said...

This blog gives great insight into Cuba over the last 53 years and serves the reader or casual Cuba voyeur a great caution: in Cuba there is no law and order.

First and foremost, there is no clear title to virtually any property in Cuba. All commercial and residential property was expropriated by fiat by the revolutionary government without any compensation to the owners, despite conditions to do so in the original decrees. That is, by any reasonable assessment all property in Cuba is, by default, stolen.

As such, the "business culture" that exists in Cuba is one of theft, fraud and corruption. To wit: the robust black market in Cuba, which is essential for one’s survival. The new reforms explicitly prohibit foreign ownership of residential property, but that does not deter the "animal spirits" of the nascent entrepreneurs unbound by any code of laws and/or ethics as the blog illustrates. Anyone who has been to Cuba understands these phenomena well.

Although Cuba has been in a vacuum for 53 years, the island is not a "new world". Most valuable property, including trademarks and brands, in Cuba is encumbered. Consider that there are 6000 U.S entities with certified claims for losses in Cuba, ~500,000 Cubans in exile and millions of Cubans in Cuba who had their property confiscated or were "relocated" with potential property claims against the revolutionary regime dating back to 1959.

These claimants have legitimate legal standing and, particularly the latter two groups, should not be disenfranchised. Their fair treatment is the best assurance to the new, burgeoning Cuban owner or entrepreneur of enduring protection of their property and work product.

Compounding matters, if these claims are not addressed, lifting the embargo will expose Americans who buy property or do business in Cuba to liability (in US courts) with Cuban exiles who are now Americans. Notwithstanding the notion that no prudent person would buy property without clear title, these potential legal entanglements will not promote serious and sustainable investment in Cuba. They will hurt Cuba further (if that is possible).

It is not secondary to point out that in Cuba there is no contract sanctity, no independent judiciary to resolve disputes or transparent enforcement agencies to enforce the law (such as it is in Cuba). Select US entities currently do business with Cuba under the protection of the US embargo in a cash up front, no-bid environment, which mitigates these risks.

Otherwise, Americans (or anyone) will simply not have these protections with any enterprise in Cuba that they enjoy in developed countries. Cuba has close to $100 billion in defaulted debt. There have been billions of dollars in foreign commercial expropriation in the past 5 years alone. There are almost 100 foreign businessmen currently held in Cuban prisons without charges. The “flags” could not be more “red” for any investor.

Finally, why are Cubans only making less than 20 convertible pesos (CUCs) a month (US$16)? Mainly because Cuba has 2 currencies, one for foreigners and another as the legal tender for Cuban nationals, the peso. The latter is worth about 0.04 CUCs, but is considered equal to the CUC by the Cuban government for the purpose of paying wages to Cubans. It is illegal for a foreign company to hire a Cuban directly or for the Cuban worker to be paid in anything but pesos.

The result is that the average Cuban is a slave. They have (or have had) no enduring property rights, which include their civil rights and their vote. The cruel and unbelievable reality is THEY ARE PROPERTY and today is July 28, 2012.

This is all deeply disturbing.

Javier Garcia-Bengochea

F. Bolivar said...

This blog gives great insight into Cuba over the last 53 years and serves the reader or casual Cuba voyeur a great caution: in Cuba there is no law and order.

First and foremost, there is no clear title to virtually any property in Cuba. All commercial and residential property was expropriated by fiat by the revolutionary government without any compensation to the owners, despite conditions to do so in the original decrees. That is, by any reasonable assessment all property in Cuba is, by default, stolen.

As such, the "business culture" that exists in Cuba is one of theft, fraud and corruption. To wit: the robust black market in Cuba, which is essential for one’s survival. The new reforms explicitly prohibit foreign ownership of residential property, but that does not deter the "animal spirits" of the nascent entrepreneurs unbound by any code of laws and/or ethics as the blog illustrates. Anyone who has been to Cuba understands these phenomena well.

Although Cuba has been in a vacuum for 53 years, the island is not a "new world". Most valuable property, including trademarks and brands, in Cuba is encumbered. Consider that there are 6000 U.S entities with certified claims for losses in Cuba, ~500,000 Cubans in exile and millions of Cubans in Cuba who had their property confiscated or were "relocated" with potential property claims against the revolutionary regime dating back to 1959.

These claimants have legitimate legal standing and, particularly the latter two groups, should not be disenfranchised. Their fair treatment is the best assurance to the new, burgeoning Cuban owner or entrepreneur of enduring protection of their property and work product.

Compounding matters, if these claims are not addressed, lifting the embargo will expose Americans who buy property or do business in Cuba to liability (in US courts) with Cuban exiles who are now Americans. Notwithstanding the notion that no prudent person would buy property without clear title, these potential legal entanglements will not promote serious and sustainable investment in Cuba. They will hurt Cuba further (if that is possible).

It is not secondary to point out that in Cuba there is no contract sanctity, no independent judiciary to resolve disputes or transparent enforcement agencies to enforce the law (such as it is in Cuba). Select US entities currently do business with Cuba under the protection of the US embargo in a cash up front, no-bid environment, which mitigates these risks.

Otherwise, Americans (or anyone) will simply not have these protections with any enterprise in Cuba that they enjoy in developed countries. Cuba has close to $100 billion in defaulted debt. There have been billions of dollars in foreign commercial expropriation in the past 5 years alone. There are almost 100 foreign businessmen currently held in Cuban prisons without charges. The “flags” could not be more “red” for any investor.

Finally, why are Cubans only making less than 20 convertible pesos (CUCs) a month (US$16)? Mainly because Cuba has 2 currencies, one for foreigners and another as the legal tender for Cuban nationals, the peso. The latter is worth about 0.04 CUCs, but is considered equal to the CUC by the Cuban government for the purpose of paying wages to Cubans. It is illegal for a foreign company to hire a Cuban directly or for the Cuban worker to be paid in anything but pesos.

The result is that the average Cuban is a slave. They have (or have had) no enduring property rights, which include their civil rights and their vote. The cruel and unbelievable reality is THEY ARE PROPERTY and today is July 28, 2012.

This is all deeply disturbing.

Javier Garcia-Bengochea

HcoRealEstate said...
This comment has been removed by the author.