ECONOMY-CUBA: Real Estate Freeze and the Question of Property

By Dalia Acosta Reprint | | Print |

Dalia Acosta

HAVANA, Jun 1 2000 (IPS) - The freeze recently declared on all real estate business involving residential units in Cuba highlights the controversial nature of the question of property in the context of the economic reforms undertaken by the government of Fidel Castro since the mid-1990s.

The real estate business, which was taking shape as an attractive source of income, was frozen in order to “analyse its impact on the country,” Lourdes González, with the ministry of foreign investment and economic collaboration, told ‘Radio Havana Cuba’.

González’s remarks, an attempt to calm foreign investors, were the only official confirmation of rumours flying around the capital since late April.

According to versions making the rounds of business circles here, the order to “freeze everything” came from “the highest level” – which in Cuba usually means Castro himself.

“The commander arrived and ordered a halt,” quipped an economist consulted by IPS, in an allusion to a song by local singer-songwriter Carlos Puebla that became famous in the early years after Castro’s 1959 revolution.

The catalyst for the government’s decision was apparently a transaction in which a Russian national purchased an apartment from a real estate association, and immediately resold it for at least double the price he had just paid.

Local analysts say the loss of control over the future of that piece of real estate put authorities on the alert, who are reportedly assessing the risks of real estate speculation, including money laundering.

The greatest concern focuses on upscale apartments.

González said the government would stand by what was already agreed with those involved in the 17 investments in luxury apartments already approved. But she added that “the flats not yet sold will be purchased by Cuba and subsequently leased.”

However, the freeze on activity “will only apply to new investments in real estate construction of housing,” while “the construction of offices, business centres and hotels” will proceed as usual, she stressed.

The opening of real estate to foreign investment in Cuba was announced in October 1994 by Vice-President Carlos Lage, as part of a wider government policy aimed at attracting foreign capital to this Caribbean island nation of 11 million.

At that time, a survey mailed by the governmental National Housing Institute took diplomats and representatives of the business community by surprise in Cuba by posing questions on the characteristics of the house they would like to own on the island, and where that property should be located.

The mailing caused quite a stir, giving rise to speculation that Cuban emigrants might be allowed to purchase a home on the island and come and go as they wished.

Housing is a serious social problem in Cuba. Buying and selling of real estate is prohibited, construction is tightly regulated, and many available units have fallen into severe disrepair.

Back in 1994, business sources predicted that the real estate business could take off and draw more than 1.2 billion dollars in foreign investment in the first five years of the new policy.

Early this year, existing or projected luxury flats were selling for 150,000 to 200,000 dollars.

‘Real Inmobiliaria S.A.’ – belonging to the principality of Monaco’s ‘Monte Carlo International Real Estate Limited’ – and ‘Inmobiliaria Lares S.A.’ have already sold 28 apartments in the Monte Carlo Palace, the first of four projects that are to entail the construction of 600 units.

According to the latest official statistics, three Cuban associations have been created for joint ventures with foreign investors in real estate, 19 projected deals have been approved, and 102 are still under consideration.

The capital financing the joint ventures has come mainly from Spain, Italy, Canada, Luxembourg, France, Israel, Monaco and Britain.

“Of the existing real estate companies, two have been set up to lease office space, and the rest for housing,” says Omar Everleny, with the Centre of Studies on the Cuban Economy at the University of Havana, in his report on “Macroeconomic Stability and External Financing: Direct Foreign Investment in Cuba”.

“Since 1998, there has been a very clear interest in setting up this kind of company,” adds the author, who points out that the boom has taken place before a law on real estate – the seventh draft of which is currently being debated, according to sources close to the justice ministry – has been passed.

Passage of the law has been held up by the controversy surrounding the question of inheritance, the issue of the second nationality of Cubans living abroad – who do not lose their Cuban nationality even if they wish to renounce it – and who are interested in investing in real estate here, and the procedures allowing for the comings and goings of the purchasers from Cuba, said Everleny.

There is no law in Cuba regulating real estate sales, although several ministerial resolutions regulate specific aspects such as the property tax.

A 1992 reform of the constitution began to pave the way for business in real estate, and a 1995 law on foreign investment allowed foreign capital to invest in real estate for housing or offices. But specifications on property ownership were left up to a future law on real estate.

Cuba initially opened its doors to foreign capital in the early 1990s as a means of combatting the worst economic crisis to sweep the Caribbean island nation since the 1959 revolution.

Everleny reported that from 1988 to 1999, 497 joint ventures were set up in Cuba, 374 of which were still active by late 1999, and 192 of which operate in industry and tourism.

Business sources consulted in Cuba said the freeze of business in residential real estate property could have been declared as part of a government aim to apply a more selective policy on foreign investment.