Tag Archives: Housing

Cuba’s New Real Estate Market

Phil Peters Cubas New Real Estate Market

 Phil Peters, Lexington Institute, Washington D.C.

 Latin America Initiative Working Paper; February 2014; Foreign Policy at BROOKINGS

Original Essay here:  Brookings, Cuba’s New Real Estate Market)

 TABLE OF CONTENTS

1.      Introduction

2.       Real Estate Laws and the Market Before 2011

3.       Law 288: The Legalization of Residential Real Estate Sales in 2011

4.       Legal Processes under Law 288

5.      The New Market in Operation

6.      Market Experiences

7.       Housing Stock and Construction

8.      Can Foreign Nationals Buy Real Estate in Cuba?

9.       Conclusions

 Appendix 1. Cuban Supreme Court decision  permits legalization of illegal transactions of the past  

Appendix 2.  One buyer’s view of the market

 New Picture (11).bmpa

CONCLUSIONS

The legalization of residential real estate sales in November 2011 is one of the most significant actions taken in Cuba’s economic reform program. It has impact on the vast majority of Cuban households, transforming the nature of residential property.

Before, a home was an asset to use and to pass on to heirs. Now it can be made liquid. At the family level, the result is instant capital formation, the creation of wealth through the granting of a new legal use for assets to which Cuban families hold clear title.

Cuban homeowners thus have new options, although not all the home related transactions practiced elsewhere are available to them. Notably, there are no home mortgages, nor is it possible to use one’s residence as collateral for a loan.

Still, this action has the effect of creating a vast new stock of capital in private hands that is being used for private ends in a new market driven by decisions of private parties. The market appears to be functioning according to clear norms, and transactions are effected without excessive taxation or bureaucracy. Moreover, this market is bringing an inflow of capital from Cubans abroad. The creation of this new market is a clear case of the government ending burdensome controls and allowing a major expansion of private economic activity.

This reform counts as a human rights improvement because it a) expands economic freedom and advances private property rights by ending a prohibition on normal, beneficial transactions that affected all Cuban families, and b) it ends a long despised aspect of Cuban immigration law by repealing the requirement that emigrants forfeit their property to the government.

The market is producing one effect that officials desired the reacomodo or “rearranging” whereby homeowners with excess space are selling, buying smaller homes, and coming out ahead with a bank balance from which they can live or retire.

But home sales alone are not destined to solve Cuba’s housing shortage. While the measures that encourage home construction are having an effect, they are still being developed and implemented and their full impact will not become clear for several years.

Except in the tourism sector, the option of using foreign investment to expand Cuba’s housing stock is not a topic of discussion, even though Cuba’s current laws governing foreign investment would not bar it. It is an open question whether the Cuban government could find profitable formulas where foreign investors could build moderately priced housing for sale to the Cuban public. President Raúl Castro announced that, after long deliberation, new policies will be adopted in March 2014 to encourage greater foreign investment in Cuba’s economy; these policies may open the door to housing projects developed with foreign capital.

Finally, the absence of mortgage finance stands out as a major impediment to expansion of this young real estate market. Demand in this market, and consequently the expansion of the housing stock, is constrained by the lack of credit. In a market where full payment must be made at the time of purchase, the universe of Cuban buyers consists mainly of those who have sold a home or those who receive capital from a relative abroad. A monthly payment of approximately $200 would amortize a $25,000 loan at a five percent interest rate over 15 years. While many Cubans cannot afford such a monthly expense, $200 per month is affordable to many who work as entrepreneurs or for foreign businesses or elsewhere in the hard currency sector, and it would put modestly priced housing within their reach. Assistance to low income buyers could further expand affordability.

A justice ministry official says that consideration is being given to having Cuban banks offer home mortgage loans or other lending mechanisms. “But if so, no one would be put out on the street in case of default,” she says, adding that “the system of social justice will never be put at risk.” One option in case of default would be for the state to assume ownership of the property with the resident permitted to continue residing there, she says

Philip-Peters-Lexungton-InstitutePhil Peters

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Cuba’s Reward for the Dutiful: Gated Housing

 By DAMIEN CAVE FEB. 11, 2014; New York Times

Original Here: Cuba’s Reward

HAVANA — In the splendid neighborhoods of this dilapidated city, old mansions are being upgraded with imported tile. Businessmen go out for sushi and drive home in plush Audis. Now, hoping to keep up, the government is erecting something special for its own: a housing development called Project Granma, featuring hundreds of comfortable apartments in a gated complex set to have its own movie theater and schools.

“Twenty years ago, what we earned was a good salary,” said Roberto Rodríguez, 51, a longtime Interior Ministry official among the first to move in. “But the world has changed.”

Cuba is in transition. The economic overhauls of the past few years have rattled the established order of class and status, enabling Cubans with small businesses or access to foreign capital to rise above many dutiful Communists. As these new paths to prestige expand, challenging the old system of rewards for obedience, President Raúl Castro is redoubling efforts to elevate the faithful and maintain their loyalty — now and after the Castros are gone.

Continue reading: Cuba’s Reward for the Dutiful, Gated Housing

aa Apartments at a new housing development in Havana called Project Granma are for loyal Communists, families tied to the military and the interior ministry. Todd Heisler/The New York Times

 

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Construction trades people to be allowed to form co-ops

Cuba Standard March 27,2013

The government will be allowing the creation of cooperatives for building maintenance and renovation, Cuba’s economic reform czar Marino Murillo announced in a speech  about domestic trade, according to official daily Granma.

In addition, the Domestic Trade Ministry will expand sales of much-needed construction supplies and create more wholesale channels, Vice President Murillo said March 27, without providing any details.

While the government announced last year it will support the creation of urban cooperatives, a body of regulations for the new cooperatives has yet to be published.

In order to be successful, the new cooperatives must be based on the free will and convenience of their members, function independently, be efficient, and offer quality products and services, said University of Havana economist Jesús Cruz at a workshop in the Havana headquarters of Cuba’s official union March 26.

Murillo’s announcement seems to open a window of opportunity for carpenters, electricians, plumbers and painters to get into business for themselves, albeit collectively. While the government allowed private businesses to engage in 178 activities two years ago, some construction trades are not included.

Demand for construction services is high, as Cuba is facing the deep and growing challenge of a neglected and crumbling housing stock. But so are obstacles. In 2012, construction supply sales through government-owned outlets — the only ones that offer the much-needed goods — were more than 20 percent below planned targets, Murillo said.

Last week, the government announced the creation of a wholesale company on the Isle of Youth, an apparent pilot project in the effort to channel affordable supplies to Cuba’s fast-growing private sector.



In Need of Repairs: One hopes that cooperative enterprise can help.

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Cubans on the move as new real estate market grows

 

By Jeff Franks

HAVANA | Wed Mar 20, 2013

HAVANA (Reuters) – At an informal housing market on Havana’s historic Paseo del Prado, Renaldo Belen puts the hard sell on a prospective buyer under a tree hung with hand-lettered signs advertising homes for sale.

A house near Boyeros, the avenue to the city’s airport, is being offered for the equivalent of $120,000, with all the amenities.

“The house is beautiful; it has four bedrooms, a pool with a bar and a fountain with a lion’s head on top. Look,” says Belen, pointing to photos on the sign, “water comes out of the lion’s mouth.”

Pausing for dramatic effect, Belen, one of the many touts, or “runners” working at the market, delivers what he hopes will be the coup de grace.

“This place needs no work. It is of capitalist construction,” he says, using a now frequently invoked commendation meaning it was built before Cuba’s 1959 revolution and is therefore of superior quality.

Given that “capitalist” has been a dirty word in communist-run Cuba for the last half century, the description perhaps grates on the nerves of Cuban leaders.

But its widespread usage is a sign of the times on the Caribbean island, where President Raul Castro has loosened things up as he tries to modernize the country’s economy in the name of preserving the socialist system put in place by his older brother Fidel Castro.

HOME SALES REPLACE SWAPPING

In November 2011, the government decreed that Cubans could buy and sell homes for the first time since the early days of the revolution, paving the way for a real estate market that has become an exercise in bare-knuckled capitalism. Previously, Cubans could only do swaps – or “permutas,” in Spanish – with their houses.

“For Sale” signs are now a common sight on homes and apartments across the country, more than 100,000 properties are posted for sale on Internet sites and even state television has gotten in on the act, devoting part of a daily show to sales announcements sent in by viewers.

The government last released figures on the market in September 2012 when it said 45,000 dwellings had changed hands in the first eight months of the year, partly through sales, but mostly through “donations.”

Cubans, accustomed to finding ways around heavy-handed government rules and regulations, say many sales are disguised as donations to avoid paying sales fees and taxes.

The new market, despite its apparent vibrancy, is still sorting itself out and still faces hurdles. The main one is that many people are trying to sell and few Cubans, who receive various social benefits but earn on average the equivalent of $19 a month, have the money to buy.

“With the new law, you can sell your house, but there’s no money, nobody to buy. There’s more being offered than there is demand,” said retired economist and math professor Raul Cruz, who has had his apartment in the Vedado district on the market for five months.

Havana was once considered an architectural jewel with an eclectic mix of colonial homes and modern Art Deco construction, but much of the city outside the touristy Old Havana district is in a dilapidated state after decades of neglect and corrosion from humidity and salty sea air.

A study by a Miami-based group found that asking prices range from the equivalent of $5,000 to $1 million, with a median price range between $25,000 and $40,000. Cuba has two currencies, the peso and the convertible peso, the latter of which is used in most housing transactions and is pegged one-to-one with the U.S. dollar.

FOREIGN BUYERS?

What has developed is a two-tier market, the runners at Paseo del Prado say, with Cubans mostly buying small places for between $5,000 and $10,000 and foreigners with Cuban connections buying the more expensive properties.

Sixty-year-old graphic designer Pepin, who did not want to give his full name, has been trying for six months to sell his nearly century-old Vedado home, two stories and painted blue, for $130,000.

So far almost everyone taking a look has been a foreigner or a Cuban with family abroad providing the money, he said, and all have tried to bargain for a lower price.

“One Chinese man, for example, offered me 80,000, but I’m not desperate or anything. If they give me what I want, fine. If not, I’ll stay here,” he said, relaxing in a chair on his plant-enshrouded front porch.

By law, the market is open only to Cubans on the island or those living temporarily abroad. But foreigners, including Cubans living in the United States or other countries, are buying properties in the names of Cuban spouses, family members or friends.

Companies with offices abroad have sprung up to cater to foreign buyers, posting photographs and descriptions of properties across the country on the Internet. Attempts to speak with one of them, Point2Cuba, went unanswered.

The reasons foreigners buy are varied, said Emilio Morales, president of the Havana Consulting Group in Miami.

“I have heard of people who are buying homes and turning them into businesses,” he said. “Some are looking for an investment, others doing it for their family (in Cuba).”

The Cuban government has laid the groundwork for allowing foreigners to buy property on the island, but only in resort developments for which approval has been pending for years.

It could inject billions of dollars into the cash-strapped economy by opening the real estate market to all in a new foreign investment law, said Morales.

BARGAIN HUNTING

Information on pricing in the real estate market is sketchy, but the general sense among Cubans is that asking prices began high and have come down somewhat.

Most blame the drop on the supply and demand problems, while others point the finger at another Raul Castro reform – a newly liberalized migration law, which took effect on January 14 and makes it easier for Cubans to go abroad.

“Prices have dropped now because there’s a greater incentive after January 14 to sell and abandon the country. Which is to say that people hurry up and want to sell quickly,” said Roberto Perez, who is trying to sell his two-story home near the sea in Havana ‘s Playa district for $200,000.

The prices depend on the necessity of the seller. “Someone who has a visa (to go to another country) and has a house worth 60,000 may sell it for 30,000,” said Belen, the Paseo del Prado runner.

Selling is being driven by Cubans wanting to cash in on the sole major asset most of them have. One of the quirks of Cuban communism is that while most things are property of the state, the vast majority of the country’s 3.2 million homes are owned by the people living in them.

“This is one of the things that gave longevity to the Revolution. They have something that most people in Latin America don’t have and wish for,” said Miami lawyer Antonio Zamora, a Cuban American who visits the island frequently.

While some sellers want to sell so they can leave, many simply want the money so they can live better in Cuba. Most said they would use part of the money to buy a smaller house, then live off the rest or use it to open a business.

Need and the low economic standards on the island have created some incredible bargains for people accustomed to paying high housing prices in other countries.

One woman, who did not want to give her name or the location of her residence, said she had recently sold the six-bedroom penthouse with a sweeping sea view she shared with several family members for the equivalent of $130,000. The buyer was a European with a Cuban spouse.

“I know it’s going to be worth a lot more in 10 years but everybody in the family wanted the money now. When we were moving out, a man came running up and told me he would give me 50,000 more than whatever the sale price was, but we had already signed the contract,” she said with a sigh.

Zamora, the Miami lawyer, predicted that Cuba would one day be a big market for Cuban Americas retirees.

“This is going to be huge,” he said, noting that Cuba has low crime and health costs, as well as good airport connections to the United States and a well developed money transfer industry for remittances.

“$750 in social security in the U.S. is nothing here in Miami but it can go a long way in Cuba,” he said.

(Additional reporting by Nelson Acosta and Rosa Tania Valdes in Havana and David Adams in Miami; Editing by David Adams and Claudia Parsons)

Arranging “Permutas” in Havana’s Pre-2012 Informal Housing Market, on Paseo del Prado 

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Carmelo Mesa-Lago, “Sistemas de protección social en América Latina y el Caribe: Cuba”

Carmelo Mesa-Lago, Documento de Proyecto,  CEPAL, Santiago Chile, 2012

Ensayo original:  Mesa-Lago, Cuba Proteccion Social CEPAL-13

Carmelo Mesa-Lago

Desde el inicio de la República en 1902 hasta 1958 el Estado introdujo sistemas públicos de educación y de salud gratuitos; el primero complementado por escuelas privadas y el segundo por una red de cooperativas, mutuales y clínicas privadas, esquemas de mejor calidad que los sistemas públicos, mientras que el acceso y la calidad de los últimos era muy inferior en el campo que en la capital y otras ciudades. La Constitución de 1940 y la legislación laboral y de seguridad social estaban entre las más avanzadas de América Latina pero, a diferencia del resto de la región (salvo Uruguay), no se creó un seguro nacional de salud, si bien el inusual desarrollo de cooperativas, mutuales y clínicas urbanas en parte  alivió ese vacío. En 1957 el desempleo abierto promediaba el 16% más el 14% de subempleo  (30% en total), bajaba durante la cosecha azucarera que proveía el 25% del empleo y se  duplicaba en el resto del año. Tampoco se creó un seguro de desempleo que era lo usual en la región. Se estableció gradualmente un sistema de pensiones de seguro social que cubría alrededor del 62% de la PEA pero segmentado en 54 esquemas separados, con amplias e injustificadas diferencias entre ellos. No existían programas integrados a nivel nacional de asistencia social ni de viviendas estatales o subsidiadas. Tal como ocurría en el resto de la región, no había estadísticas de incidencia de pobreza y de desigualdad del ingreso, pero la escasa información disponible indicaba que ambas eran substanciales. No obstante, en 1958 Cuba se ordenaba entre el primero y el quinto puesto de la región en sus indicadores sociales nacionales, pero con considerable desigualdad especialmente entre las zonas urbanas y rurales. Por ejemplo, la tasa de analfabetismo nacional era del 23%, pero en las ciudades   41,7% en el campo del 41,7%.
En el período de 1959-1989, la revolución logró avances muy notables en la protección social. El Estado dio prioridad y asignó cuantiosos recursos fiscales para: 1) promover el pleno empleo; 2) reducir la desigualdad en el ingreso mediante la expropiación de la riqueza y la disminución de las diferencias salariales en el empleo que era básicamente público; 3) universalizar los servicios gratuitos de educación y de salud que redujeron de forma substancial las disparidades en el acceso y calidad de los servicios sociales entre la ciudad y el campo; 4) lanzar una campaña de alfabetización, graduar masivamente maestros y médicos, y construir escuelas y establecimientos de salud; 5) acelerar la incorporación de la mujer a la fuerza laboral con políticas de educación y guarderías infantiles;  6) expandir la cobertura y monto de las pensiones de seguro social, financiadas por las empresas estatales y el fisco, sin cotización de los trabajadores; 7) crear un programa de asistencia social nacional y municipal; y 8) convertir a la gran mayoría de la población en propietaria de las viviendas que tenían arrendadas. El gobierno expropió todas las instalaciones de educación y salud privadas y cooperativas, además absorbió, unificó y homologó los 54 esquemas de pensiones. La construcción y mantenimiento de las viviendas, fundamentalmente a cargo del Estado, fue insuficiente y aumentó el déficit habitacional. Coadyuvó al desarrollo social la ayuda de 65.000 millones de dólares por la Unión Soviética en 1960-1990 (sin contar otros países socialistas), 60,5% en donaciones y subsidios de precios más 39,5% en préstamos que virtualmente no fueron pagados. Aunque dicha ayuda no se dio al sector social, liberó recursos internos para financiar la política del gobierno en este campo. En 1989 Cuba se colocaba a la cabeza de América Latina en la gran mayoría de los indicadores sociales.
El colapso de la Unión Soviética provocó en 1990-1994 una crisis económica muy severa: la caída 35% del PIB, la virtual paralización de la industria y de la agricultura por falta de combustible, insumos y piezas de repuesto, y una mengua drástica en las exportaciones e importaciones (incluyendo insumos para servicios sociales). A la crisis contribuyó el “Proceso de Rectificación de Errores”2, y la incapacidad del modelo de desarrollo para resolver los problemas estructurales, generar un crecimiento económico sostenible, expandir las exportaciones y substituir importaciones. Además, la política social adolecía de fallas: el pleno empleo se logró en parte creando empleo estatal innecesario lo que afectó a la productividad; el excesivo igualitarismo y énfasis cíclico en incentivos “morales” (no económicos) indujo una caída en el esfuerzo laboral y alto ausentismo; y el alto costo de los programas sociales se agravó por el envejecimiento demográfico. A pesar del esfuerzo del gobierno para proteger los programas sociales, casi todos sus indicadores se deterioraron y en 1993 Cuba había descendido en su ordenamiento social en la región.
Las modestas reformas orientadas al mercado en 1993-1996 lograron a partir de 1995 una recuperación económica parcial, pero ocurrió una desaceleración en 2001-2003 en gran  medida por la virtual paralización de las reformas y la “Batalla de Ideas”. Este programa, facilitado por la ayuda económica venezolana y centrado en la lucha ideológica incluyó varias políticas: revirtió las reformas de los años noventa, re-acentuó el centralismo, creó una cuenta única de divisas y CUC en el Banco Central de Cuba (BCC), puso énfasis de nuevo en el igualitarismo y la movilización laboral, redujo el trabajo por cuenta propia, intentó universalizar la educación superior, continuó expandiendo el empleo estatal innecesario, y acrecentó el gasto social haciéndolo insostenible. A partir de 2004, el PIB  creció con rapidez y alcanzó una cima en 2006, debido a la ayuda económica de la República Bolivariana de Venezuela, la expansión de los servicios sociales y un cambio en la  metodología internacional para calcular el PIB3. La crisis global de 2007-2009 y los problemas que arrastraba el modelo de desarrollo cubano indujeron otra desaceleración en la tasa del PIB. Aún con oscilaciones, la recuperación en 1995-2006 ayudó a mejorar los indicadores sociales y la mayoría sobrepasó los niveles pre-crisis de 1989, aunque la pobreza y la desigualdad aumentaron. Desde 2007 ocurrió otra regresión en dichos indicadores por la crisis global y las necesarias “reformas estructurales” del Presidente Raúl Castro para corregir los problemas económico-sociales del país, aprobadas por el VI Congreso del Partido Comunista de Cuba (PCC) en 2011 y extendidas en 2012. Este capítulo se concentra en el período comprendido entre 2007 y2012, describe las reformas por sector social y evalúa sus efectos.

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Cuba’s crumbling buildings mean Havana housing shortage

By Sarah Rainsford;  BBC News, Havana

Havana risks seeing its historic city centre reduced to ‘a void’

Havana is beguiling from a distance, especially its old colonial buildings bathed in tropical sunshine. But up close this city is crumbling. Number 69 on the Malecon, the city’s long seafront, looks particularly perilous. The apartment block has gaping holes where chunks of brick and plaster have fallen away. Bare metal rods protrude where balconies used to be.

“Look how badly these columns have deteriorated,” says Olga Torriente, pointing to thick cracks in the external wall of her flat, up on the top floor.

She pulls her bed into the centre of the room in a storm, afraid the whole wall could come crashing down.  Big chunks have already fallen off this building on the Malecon Some of Olga’s neighbours – those judged priority cases – have been rehoused. Others joined a “microbrigada”, or construction team, almost three years ago to help build a replacement apartment block for themselves. But there is still no completion date, and no alternative.

“How long will we have to wait? We need to get out,” says Ms Torriente. “People ask me if I’m not afraid to live here. Of course I’m afraid, but this is my house so where can I go?”

Like Ms Torriente, most Cubans own the house they live in – one of the principles of the revolution. But many have lacked the funds to maintain them.

Adding to Cuba’s difficulties, some 200,000 families across the island were left homeless by devastating hurricanes in 2008.

“Buildings are crumbling because they’re old. Then there’s the salt spray, humidity, termites, hurricanes and overcrowding. There are many kinds of problems and sometimes altogether,” explains former city architect Mario Coyula.

Seven out of every 10 houses need major repairs, according to official statistics. Some 7% of housing in Havana has formally been declared uninhabitable. The province around the capital needs some 300,000 more properties.   The shortage has forced expanding families to build lofts and new partitions within their homes, putting weakened structures under additional strain.

“It’s difficult, because neither the government nor the people have the money to care for the buildings. In a way, we inherited a city we are not able to keep,” Mr Coyula says, referring to Havana’s once grand colonial-era architecture in particular.

But the government is now trying to stop the rot – literally. For decades, Cuba subsidised all construction materials, but production slumped when state budgets became strained. Finding materials was difficult and an expensive black market emerged. There were also tight restrictions on building work.

Now, Cuba has shifted tack. It is allowing builders yards to sell materials at market prices, while offering state funds to help those home owners in most need. Hurricane victims are a priority but anyone on a low income and in what is considered “vulnerable” housing can apply.

“We used to subsidise materials now we’re subsidising the individual,” says Marbelis Velazquez, from Havana’s provincial housing office. “Not everyone is in the same situation, economically and the state clearly has to help those most in need,” she says.

The new grants range from 5,000 Cuban pesos ($208) for minor repairs to a maximum 80,000 pesos ($3,333) to build a 25 sq metre room from scratch.

In Cerro, one of central Havana’s most run-down districts, the Padro family is hoping their own petition will be accepted. Nadia Padro’s parents built a basic wooden and brick shack in their garden when living there with six siblings and assorted partners and grandchildren became too crowded. There is a kitchen, with water and electricity. But the roof leaks when it rains and Nadia and her husband have to squeeze into one bed at night alongside their two young children. “A government grant would really improve things,” Nadia says, explaining that they want to build a separate room for their daughters. Neither she nor her husband has a steady job and could never afford the work on their own.

The government plans to fund the grants with the sales tax it collects from state-owned building yards. It has already increased production and after years of bare forecourts, the yards are filling up with materials for sale.

“Before you had to hunt for things through friends or contacts,” Hernan Mayor explains, as he loads roofing material onto the back of his bike at The Wonder builders yard. He has been saving money to build a small extension to his house. “The materials are all here legally now, which is better. If things were a bit cheaper, it would be perfect. But at least they’re available now,” he says.

Nadia Padro is hoping to get a government grant to build another room in her shack New regulations have also made it much faster – and simpler – to get a licence for new building work. And, for the first time, bank credit is becoming available.

So Cuba is creeping into action over its housing stock. But the delay has already cost dearly. In Havana alone, it is said that three houses collapse either partially or completely every single day.

As for the city’s heritage, beyond the carefully restored “hub” of Old Havana, much of that may already have been lost for good. “It’s impossible to preserve all the buildings, I know many will go,” says s architect Mario Coyula. “If nothing changes, Havana may end like a circle…with a void in the middle where the city used to be.”

Havana, April 2012, Photos by Arch Ritter


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Mark Frank: “Cuba lifts ban on trade in property”

From the Financial Post, November 3, 2011

Havana’s Pre-Reform Housing Market Place on Paseo del Prado (for “Permutas” Plus…  ); Photo by Arch Ritter, 2009

Cuba has formally lifted a five-decade ban on residents buying and selling property as the communist government of President Raúl Castro makes its most significant move yet to liberalise the island’s Soviet-era economy.

For the first time since the 1959 revolution, Cubans will be able to sell property to other Cuban residents without government approval. The changes, already approved by the National Assembly in August but now formalised, come into effect on November 10.

The easing of restrictions on property ownership is likely to reshape Cuban cities, spur real estate development and speed renovation of Cuba’s picturesque but dilapidated housing stock. It is also expected to reconfigure Cuban conceptions of class as some homeowners cash in their properties and areas of Havana are gentrified.

“I hope the new law gets rid of so much paperwork, bureaucracy and other problems that simply lead to corruption. If you can now move without months and years of effort and paying people off, we will be content,” said Maritza, a 35-year-old food service worker.

Previously, any Cuban who wanted to swap their home for another had to penetrate thick layers of bureaucracy. Houses were also confiscated by the state if a Cuban moved abroad. Now by contrast, the new rules state that the purchase, sale, donation and trading of houses will be recognised even in cases of “divorce, death or permanent departure from the country”.

The measure is the latest and most dramatic signal that the authorities are serious about implementing reforms adopted this year. Last month, the government ended another ban, also dating from 1959, on the sale of cars. State companies have been given more autonomy, state payrolls and subsidies have been trimmed, and retail services liberalised.

Analysts say that home sales could free up capital needed to jump-start small businesses. Cubans living abroad, especially in the United States, who remit some $1bn a year to the island, have proved instrumental in financing and supplying thousands of small businesses since the sector was liberalised last year. They are now expected to invest in housing through their relatives, pumping millions of dollars into the local economy and helping to renovate the crumbling housing stock.

“This change is another example of the failure of ‘big bang’ models to predict the evolution of the Cuban economy,” said Jose Gabilondo, associate professor of law at Florida International University, said. “Changes in the rules of the game are already under way.”

However, the new housing law dashes hopes that the local real estate market might open up to large domestic or foreign investment as it continues to prohibit foreigners from owning property unless they are permanent residents. A special exception is expected in the next few months for golf course and other tourist developments currently under negotiation with various foreign companies.

Every property transaction will require a notary, with payment through a state bank, and both the seller and buyer paying a 4 per cent tax.

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“The Economist” on Cuba’s Housing Market

Swap shop: Where a beach-front house can be (almost) yours for a snip

Feb 3rd 2011 | HAVANA

CUBA’S government likes to crow that over 85% of Cubans own their homes. The claim is technically correct. However, there is a catch: holding title to a property does not give you the right to sell it. The only legal way to move in Cuba is by swapping residences—a slow, bureaucratic and often corrupt process known as the permuta (“exchange”), which requires finding two roughly similar properties and getting state approval. To avoid this hassle, some Cubans prefer to marry the owner of a property, transfer the deed, and divorce.

Because there is no incentive to build new homes, Cuba suffers from a dire housing shortage. Many buildings have been repeatedly subdivided. In some families three generations share one bedroom.

After replacing his brother as president in 2008, Raúl Castro has legalised and taxed bits of Cuba’s informal economy, like pirated DVDs and used furniture. Now he has turned to housing. In 2010 the government relaxed rules on forming building companies and buying building materials. It is preparing to let foreigners buy property in tourist zones. And in April the Communist Party Congress is expected to allow Cubans to “buy, sell, or swap” their homes.

Havana’s Housing Market, circa 2002: Arranging “Permutas” on Paseo del Prado, Photo by Arch Ritter

The effect of these measures may be limited. Most permutas already involve money under the table—ranging from a few thousand dollars to $40,000 for a smart three-bedroom flat. The market will be heavily regulated: officials say they will ban the (as yet undefined) “accumulation” of property. And buyers may be discouraged if they have to prove that their money did not come from the vast black market.

Even so, allowing selling is risky. It will raise tax revenues, but could belie Cuba’s myth of material equality. If too many luxury homes pop up, the poor may further doubt that America’s trade embargo is the cause of their misery. Already a cluster of sea-front houses west of Havana, acquired via permuta by pop stars and foreigners, is getting its first lick of paint in decades.

The market will probably benefit from Barack Obama’s loosening of the embargo. He has relaxed most limits on visits and remittances, which should increase demand for Cuban homes and the amount buyers can pay. Some Cuban-Americans are even considering returning for retirement. “Now is the time to move”, says Ada Fuentes, who recently came back to Havana after 49 years in New Jersey. “If you have money, life’s good here”.

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