June 11, 1999
By Pascal Fletcher
HAVANA (Reuters) - Visitors to Havana are often seduced by its decaying charm. Large swathes of the historic Cuban capital are crumbling and scarred by a legacy of years of neglect and economic recession made worse by the U.S. trade embargo.
But a closer look reveals a scattering of new buildings, construction sites and cleared lots punctuating the avenues of crumbling colonial mansions and faded Art Deco villas.
In the seaside Miramar district a new apartment complex, "Monte Carlo Palace," graces a tree-lined avenue. Not far away stand gleaming new twin office blocks, the first of a projected 18 buildings that will make up the "Miramar Trade Center."
Further up the road, workers toil on a building site encased in scaffolding and framed by jutting cranes. A sign announces this will be a complex of 175 apartments and studios to be called "Gardens of Fifth Avenue."
This new construction bears witness to a budding real estate market some analysts believe may soon compete with tourism as a boom industry on the Communist-ruled island. Of all the sectors of the economy opened up to potential overseas investment by Cuba's 1995 Foreign Investment Law, real estate has perhaps generated the most intense interest.
Demand for scarce modern homes and offices has increased sharply as a result of growing overseas tourism and business. Real estate developers and potential home buyers are attracted by a year-round warm climate, Cuba's reputation as an unspoiled tourist destination and the absence of violent crime.
"There is massive interest, more than availability," said Stephen Marshall, a British businessman who has an agreement with a Cuban real estate company, Inmobiliaria Cimex S.A., to market commercial and residential properties.
But despite the big overseas interest, or perhaps because of it, Cuban officials have moved slowly and cautiously to open up the real estate market.
The government has been bombarded with dozens of project proposals from foreign developers and investors. But only some 17 property joint ventures incorporating foreign capital have been approved so far. Of these, only a few have actually completed construction or refurbishment.
Authorized contracts involve investors from Monaco, Spain, Italy, Britain, Switzerland, Canada, Israel and Portugal. Despite the continuing U.S. trade embargo, one U.S. property developer is also reported to have signed a deal.
Of the approved projects, two are for commercial offices, while the rest are residential, mostly apartments.
'CAN I BUY A HOUSE IN CUBA?'
Many visitors, whether business executives or tourists, ask: "Can I buy a house in Cuba?" The answer is a qualified yes.
The Cuban property market remains a restricted one. Foreign home hunters who think they can simply snap up the elegant mansion or villa of their choice will be disappointed as Cuban law does not allow private Cuban home owners to sell their property freely to foreign nationals.
Nevertheless, reports of clandestine deals are widespread.
In their cautious opening, authorities have allowed foreign developers to form joint ventures with Cuban firms to refurbish existing buildings or build new ones. The Cubans generally supply the property and construction force. The foreign partner provides financing and design and construction expertise.
The resulting offices or apartments are offered for hard currency sale or rent to foreign nationals or firms.
One example is the "Monte Carlo Palace" on Miramar's Fifth Avenue, a newly opened 31-apartment complex built by Real Inmobiliaria, a joint venture between Monaco-based Pastor and Lares, the real estate arm of Cuba's Cubalse corporation.
This is the first residential property foreign investment to be completed in Cuba. The homes, whose prices ranged from $94,000 for a studio to $400,000 for a penthouse, are reported to have sold out to foreign buyers, and Real Inmobiliaria plans two more apartment complexes.
Also reported to be selling well are units in the "Gardens of Fifth Avenue" complex built by a Spanish-Cuban joint venture, Costa Habana, between Residencial Miramar, part of the Madrid-based Espacio 2000 group, and Cuba's Lares. It is expected to be completed by the end of the century.
Prices, depending on the size of the unit, are in the region of $100,000 to $130,000. "Sales so far are above our expectations," said Spanish director Felix Perez.
Other foreign developers include Beta Gran Caribe, a British investment company that focuses on Cuba. BGC has formed Guernsey-registered Caribbean Property Corporation to build on several sites on the island in partnership with Cimex, starting in Miramar with a five-floor building with pool and garage.
LEGAL HURDLES POSE SOME RISK FOR DEVELOPERS
The budding Cuban property market is not without risk.
British businessman Marshall had been operating an office in Cuba under the name of RE/MAX, the North American real estate franchise giant. He said he bought the RE/MAX franchise rights for Cuba in 1997 from regional subfranchiser RE/MAX Caribbean Inc. But last month Denver-based parent company RE/MAX International Inc. denounced the use of its name in Cuba as "illegal," saying it violated the existing U.S. embargo.
Marshall says senior RE/MAX executives knew all along he was operating on the island and vows he will continue to use the brand name to market properties in Cuba worldwide.
Other investors such as Britain's BGC take care to ensure their ventures do not involve expropriated formerly U.S.-owned property, which could violate the 1996 Helms-Burton law. This U.S. law threatens sanctions against investors in Cuba who "traffic" in former U.S.-owned assets.
Some foreign businessmen interested in Cuba's real estate sector have expressed concern about the absence of specific, detailed legislation codifying key issues such as mortgages and ownership rights. Cuba's 1995 Foreign Investment Law gives a general authorization for investment in real estate that refers to acquisition of ownership and other property rights.
Since then, Cuban officials have repeatedly promised to introduce detailed real estate investment legislation, but after more than three years of work and numerous drafts it has still not been promulgated.
"It is a complex law. It takes time," Cuban Foreign Investment Minister Ibrahim Ferradaz said recently. "With or without the law, investors are here," he added.
In the absence of mortgage facilities in Cuba, foreign buyers are purchasing homes from the joint ventures in periodic payment installments that match the completed construction stages. Freehold ownership rights are incorporated in the existing separate joint venture deals.
Nevertheless, the issue of foreign investment in real estate is sensitive in Cuba. Not surprisingly, many Cubans are resentful that the freshly painted, attractive apartment blocks they see being constructed will be offered to foreigners and not to them, especially since overcrowding and poor housing is a major problem in parts of Havana and the rest of the island.
Authorities have been making efforts to repair run-down sectors of the city, but, given the overall state of deterioration, this still seems like a Herculean task.
Copyright 1999 Reuters Limited