How Will Cuba's Real Estate Market Adjust to a New Era?

How Will Cuba's Real Estate Market Adjust to a New Era?
Thursday, July 30, 2015, by Curbed Staff

"Come on, this is bullshit, this is for show, it can't actually be real."

When travel journalist Nick Watt was told that travelers to Havana's
Paseo del Prado could find not just snack vendors and tourists on the
famous promenade, but a thriving, open-air real estate market where
Cubans buy and sell homes, he was a bit incredulous. But as he
discovered during filming of his Travel Channel show Watt's World, the
promenade plays host to a key part of Cuba's nascent real estate market,
a recently unleashed aspect of capitalism in the socialist country that,
as relations with the United States normalize, opens up a host of
questions and possibilities.

"Consider real estate in the same way people look at classic cars on the
street here," he says. "People like me love Cuba, we think the cars held
together with Band-Aids and the old colonial buildings are amazing. But
once the money comes in, will Cubans want up-to-date buildings? In 20
years, will there be old, dilapidated buildings here?"

Watt's trip to the market provides just a small glimpse at a larger
shift happening in Cuban real estate. In 2011, Raúl Castro allowed his
countrymen to buy and sell real estate for the first time in decades,
revolutionizing a socialist system that previously only allowed citizens
to trade property, like for like. It set off a small boom in home
renovations, as well as interest in acquiring and fixing up potential
hotel properties that could house an influx of new tourists.

The prospect of a more open market, even incrementally so, raises the
possibility of massive foreign investment in prime beachfront real
estate and the country's classic housing stock. Currently, Americans can
invest by sending money to a Cuban relative or associate who acts as a
frontman, but legally the deed remains in the name of the Cuban buyer,
adding a degree of risk. A potentially bigger question around foreign
investment may be the right-of-return issue; Fidel seized all
foreign-owned property in 1962, and the U.S. government currently
estimates that American citizens and corporations may have up to $8
billion in property claims to sort out as relations normalize

So far, Castro has held strong to his decision to limit real estate
sales to Cubans only. Considering that a few years in, the market is
still in a bit of an embryonic stage, that makes sense.

The sea change in property law has also encouraged entrepreneurial activity.
Seizing the opportunity in Raul's policy shift, Sandra Arias Betancourt
decided to become a residential real estate agent in early 2013. Not
surprisingly, she believes Cuba's market is unlike any other. A lack of
regular internet access means information sources American buyers and
sellers use every day are non-existent, and only about half of sellers
feel the need to involve an agent. Most just place handmade signs
outside their property and negotiate themselves, Betancourt says. But
still, she sees a booming market and increased opportunity.

"The market has exploded, especially since the beginning of this year,"
she says. "We have a lot of people buying."

Right now, transactions are 95% cash, she says, and she takes a standard
five percent commission for any sales. To succeed, she says agents have
to understand the people and what they really want. She sees a day
coming soon when Americans will begin to buy more property.

"People have been sniffing around this for years," says Watt. "I was
being asked by my American friends 10 years ago to buy property. People
have been trying to find ways for years."

Tom Miller, author of Trading with the Enemy: A Yankee Travels through
Castro's Cuba and a writer who has made annual trips to Cuba since 1987,
also believes that Cubans are just starting to get a sense of how the
market functions. Its evident in new online property sites, such as
EspacioCuba.com, which are still in their early days (founder Yosuan
Crespo, a computer programmer, launched the site in 2012).

"There's a certain amount of speculation," says Miller, "but you need a
certain amount of funds to do that, and Cuba's not a country where
people have the money for that kind of investment. What people are
mostly talking about is foreign investment. You can buy things with a
frontman, and Cuban-Americans are already doing it, but the whole
phenomena hasn't played out yet."

Miller believes a few serious issues need to be resolved before
Americans are snapping up homes. The mortgage system in Cuba is
currently non-existent—it's all "cash on the barrelhead"—and Cuba needs
to push through planned reforms of its financial system (currently,
prices are listed in CUC, the Cuban Convertible peso unit). Both legally
and financially, it's impossible for foreigners, he says.

"Calling it a potential real estate gold rush is a little too
optimistic," he says. "It's still iffy as far as Cuban immigrants
purchasing land and homes. Maybe in five or ten years, Crespo could be
the man with a Century 21 Blazer."

Castro has said he'll be in office until 2018. Miller believes that with
the right financial and banking reforms, the Cuban market could open up
by then; the country's rate of reform will control the real estate
market. But who knows what happens when Raul leaves office, and if his
successor will follow the same policies? It's another one of the quirks
of business in Cuba.

"What's happened in Cuba since 1959 has never happened anywhere else,
and won't happen again," says Miller. "It's a totally unique situation."

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