Real-Estate Revolution Hits Cuba

2015/04/03

HAVANA, Cuba—Listed at $1.2 million, the penthouse has broad terraces, marble floors and stunning waterfront views stretching from the Darth Vader-style Russian Embassy to Meyer Lansky’s old Riviera hotel.

That might seem pricey for a Communist country whose average worker earns around $20 a month. But owner John Jefferis, a 57-year-old hotelier from Bermuda, says his target buyer belongs to a different demographic altogether.

“There are very few apartments that can be legally purchased by foreigners, and when there’s a limited supply of something, usually there’s a premium for the price,” says Mr. Jefferis, who adds that jet-setters like his expat neighbors here can probably afford to splurge. “It’s not their first or second or third home, put it like that.”

It is all part of a real-estate revolution sweeping Cuba. More than five decades after Fidel Castro seized power here, ordinary Cubans are starting to accumulate real wealth by buying and selling their homes. Authorities are dusting off plans to develop a luxury vacation-home market for foreigners. And a diplomatic overture between Washington and Havana is fueling a frenzy of speculation over what might happen here if Americans can legally buy real estate again.

“You can’t imagine how many calls we’ve been getting from U.S. citizens,” said Yad Aguiar, who co-founded the Ontario-based Point2Cuba.com in 2011, one of several sites that have popped up in recent years to connect prospective buyers and sellers.

For now, the 54-year-old embargo remains in place, meaning Americans can’t buy property here, or even travel to the island as tourists. And Cuban law bars nonresidents from owning homes outside a few limited experimental developments. But that isn’t stopping some foreigners from trying to wriggle through loopholes to get their hands on real estate now in the hopes of striking it rich.

That is especially true for Cuban-Americans who fled the country after the revolution and are now starting to exert an increasingly important economic influence here. Exempt from U.S. travel restrictions, they can visit relatives here and funnel them money to fix up fading homes—or even buy one for themselves using a family member’s name and dealing in cash.

“Lots of Miami Cubans are just flying there and buying—people with $300,000 or $400,000 or a million under their mattresses,” says Hugo M. Cancio, a Cuban-American entrepreneur who is launching a quarterly real-estate publication in Cuba.

Nereida Margarita Álvarez, who runs a bed-and-breakfast out of her family’s stately, century-old mansion in the once-exclusive Vedado neighborhood, says she was recently approached by a Cuban offering $400,000 for the place, which, to be sure, could use a new paint job and some plaster work on its 18-foot ceilings. She says she turned down the offer, which she assumed had to have been financed from abroad. “I don’t know where he got the money,” she says. “No Cuban has that kind of money.”

Next door, a Spanish interior designer in an elegant cardigan says he dropped $200,000 on a dilapidated six-bedroom house with good bones and servants’ quarters in the back, and plans to spend at least another $100,000 on renovations. The Spaniard, who couldn’t buy the 1920s-era house himself, says he recently discovered a Cuban great-uncle who agreed to put the property in his name. He says he has already made a lot of money renovating historical buildings in China, but “when I told my dad I was coming here he said, ‘Oh my God, another Communist country.’ ”

Whether or not Cuba can follow China’s path to prosperity is still an open question. The Communist government introduced a few isolated market reforms in the 1990s after the Soviet Union collapsed and cut off the generous subsidies that kept Cuba afloat. After taking over presidential powers from his ailing brother Fidel in 2006, Raúl Castro gave the process a new boost, expanding the types of business that private citizens could conduct and lifting a ban on cellphones. In 2011, in what could prove a major turning point, the government opened the door to Cubans to freely buy and sell their own houses.

“The net worth of the Cuban people has gone up quite a bit,” says Antonio Zamora, a Bay of Pigs veteran and former general counsel of the Cuban American National Foundation, a political action group that fought to keep an embargo in place. Now 73, the Miami resident sees major changes sweeping the island and is thinking of retiring here one day.

Most Cubans lack Internet access thanks to controls and underdeveloped infrastructure. So locals looking to buy and sell a house turn to El Papelito, a $1 pamphlet with classified real-estate ads that is sold on the streets of Havana.

A recent edition had 24 pages, having quadrupled in size over the past several months, underscoring the kind of market activity that would have been unimaginable here a decade ago.

It lists everything from cramped $5,000 apartments in picturesque Old Havana to $1 million mansions in upscale quarters like Miramar. It also has listings selling items ranging from televisions to massage services and even has advertising for local restaurants and photocopy shops.

The pamphlet has become a key resource for residents like retiree Ada Nueva, who wants to sell her small second-floor apartment in Vedado for $23,000. She says she wants to move to a cheaper apartment in the same area and maybe one day use the money to open a shop to generate income.

Meanwhile, artist Annerys Velasco, who shares a 3,000-square-foot, seven-bedroom mansion with several family members, is trying to sell for around $160,000. It is too costly to maintain the house, which is pockmarked by broken floor tiles and chipped paint, Ms. Velasco said, so she and her siblings hope to divide the money and move into their own smaller places. By law, citizens can own a primary residence and a vacation house.

In December, Presidents Barack Obama and Castro announced an agreement to restore diplomatic ties, and the U.S. has followed up by making it easier for Americans to travel here to pursue educational and sports activities, among other things. Under new rules, U.S. residents can send up to $2,000 every three months to people on the island—four times the previous limit.

On Thursday, San Francisco-based home-rental service Airbnb Inc. began offering accommodations to licensed U.S. travelers in Cuba, using the island’s wide network of private guesthouses.

The economic woes of Cuba’s latest patron, Venezuela, have given new urgency to the search for a financial lifeline from abroad. Last year, the government launched a renewed push for foreign investment, loosening restrictions on the areas of investment and allowing full ownership in some cases. A major priority is to attract more capital to the tourism sector, which long ago passed sugar as the biggest generator of foreign exchange here.

Cuba already has a string of hotels and restaurants catering to foreigners and often run by international chains such as Melia Hotels International of Spain. The government has just completed a marina in Varadero, with docking room for some 400 yachts, a shopping center as well as restaurants and cafes. Images of Che Guevara and other revolutionary iconography are noticeably absent. And there is even a bowling alley, a sign that Cuba is awaiting a wave of tourists from up north.

“Of course, it’s made for the Americans,” Sebastiaan A.C. Berger, director at Guernsey-incorporated CEIBA Investments Ltd., one of the biggest foreign investors in tourism and commercial real estate in Cuba, said of the marina. “If you had asked me half a year ago I would’ve said the marina would become a white elephant because they laid all of that cement and no one was going to be there to bring their boats,” said Mr. Berger.

Cuba has even greater ambitions in the works. Plans call for unprecedented sales of vacation properties to foreigners, built around high-end golf courses, something Fidel Castro all but banned for years after the revolution as a bourgeois pursuit. It hasn’t been smooth. Most of the foreign companies that announced golf resorts in 2011 have pulled out or disbanded, and Cuban authorities arrested top executives of one firm on corruption charges.

Still, last year, a company controlled by the Tourism Ministry called Grupo Empresarial Extrahotelero Palmares SA quietly established a joint venture with British real-estate investor London and Regional Properties Ltd. to develop a $350 million golf resort less than two hour’s drive east of Havana. The development plans to market up to 1,000 villas, townhouses and apartments to foreigners and locals, along with a boutique hotel, a tennis academy and an 18-hole golf course, according to Desmond Taljaard, head of hospitality for the private group owned by London’s billionaire Livingstone brothers.

Mr. Taljaard said the project is “on schedule” and should take five to 10 years to complete. “So far we’ve been met with enthusiastic cooperation,” he said.

The government proved less than enthusiastic about foreign ownership in the early years of the revolution. By 1962, Fidel Castro had nationalized most private companies and seized nearly all real estate belonging to foreigners without compensation. The government also grabbed property belonging to Cubans who fled the country, although those who stayed got to keep their homes. Some skeptics think that track record should weigh heavily on prospective buyers now.

“There’s going to be some unpleasantness at the root of any commercial venture in Cuba,” says John S. Kavulich, president of the U.S.-Cuba Trade and Economic Council Inc. “Cuba is littered with projects that are announced and never happened.”

Indeed, historical grievances may yet trip up some of the proposed developments. In 2011, when a consortium including Canadian indigenous people called Standing Feather International announced preliminary plans to build a $400 million golf course community in Guardalavaca, a consultant for the Cuban exile family that claims ownership to the site fired off a letter. “While my clients fully share your assessment of this area’s majestic natural beauty, they actually do so from the perspective of being members of the family that has owned this Cuban property since 1857,” wrote Nicolas Gutierrez Jr., a Miami-based consultant for the Sanchez-Hill family, which owned large sugar plantations and other property.

The Sanchez-Hills never heard back from Standing Feather, and Graham Cooke, who was to be the golf course architect, says the consortium “kind of dissolved.”

Representatives of Standing Feather weren’t reachable.

For now, a good measure of Cuba’s attitude toward foreign property rights is a collection of three Mediterranean-style apartment buildings in Miramar, a quiet neighborhood of 1950s-style homes in the western Havana suburbs. The developments, with names like Monte Carlo Palace and Habana Palace, were the product of a joint-venture between a state-owned company and members of Monaco’s Pastor family during the “special period” of economic distress after the breakup of the Soviet Union.

According to a person familiar with the matter, the government initially thought the apartments, priced from under $100,000 to upwards of $400,000, would be too expensive to move very quickly. But foreign investors started buying in droves, including an Italian who snapped up 24 units, keeping two for himself and renting the rest to foreign executives for a fat profit. Eventually, government entities stepped in to buy the remaining unsold apartments to rent out themselves, worried they were leaving money on the table, this person says.

Mr. Jefferis, a one-time chairman of the Caribbean Hotel Association who owns hotels in Tobago and Bermuda, says he bought five of the units during the construction phase in 2001, including the penthouse now on the market. He says he paid $356,000 to cobble together three units into one showpiece, and then spent extra to build out marble interiors and to create a guest apartment he could rent out separately. The building has a 24-hour concierge, a parking garage and a rooftop pool.

He says his next-door neighbor in the building is Miguel Fluxá, head of the Grupo Iberostar hotel empire and one of Europe’s richest men. Mr. Jefferis doesn’t get to Cuba often these days, but when he does says he enjoys cruising the lightly trafficked streets in his vintage Mercedes. Crime is nearly nonexistent, he points out, and he doesn’t believe there is “any risk” of expropriation. “I’ve had the apartments for 15 years without any problems whatsoever,” he said.

An Italian citizen living one neighborhood over has a greater appetite for risk. Two years ago he purchased a house in the name of his Cuban wife. He knows that he will lose the place if they ever split, but he radiates confidence. He has already spent money to convert the property into a swanky open lounge and restaurant. “Many of us are here to stay,” he says. “But we’re also taking a bet because we know that the day this place opens up, it’s going to explode.”

By Michael Allen and Kejal Vyas for Wall Street Journal

Original article: http://www.wsj.com/articles/real-estate-revolution-hits-cuba-1428055201

 
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