Author Archives: Peters Phil

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

Posted in Blog | Tagged , , | Leave a comment

Cuba’s New Law on Cooperatives

Below is Phil Peters fine summary and analysis of Cuba’s new law on cooperatives. Phil is first off the mark with this. I still have not been able to download the Gazeta Oficial to see the legislation first hand.

Peters’ essay can be seen on his Blog, “The Cuban Triangle” here:The new cooperatives law.

Here is his evaluation:

What does this all mean?

I think this is a major step, even though the full definition of the policy will only come with time as cooperatives are created and as the government moves beyond the experimental phase.

Certainly from a capitalist perspective, all we see are the restrictions – first and foremost in the requirement that these businesses organize as cooperatives. But from the perspective of the Cuba of five years ago, this new law was unimaginable.

It opens the door to a much larger private sector, one involved in more substantial activities than the small entrepreneurs.  It is a second option for Cubans interested in private business activity, and a new option for friends and relatives abroad who would support them with capital.  There is nothing stopping five software designers from applying to form a business under this law; we’ll see if there is anything stopping the government from approving it.  If the sector prospers it can create efficiencies in agriculture, construction, transportation, and other sectors that will benefit Cuba’s economy and people. And the government needs the cooperatives to prosper.  Without them, it cannot meet its own goals of cutting state payrolls and generating new private sector jobs.

The pace will satisfy no one, the process will be influenced by officials with more orthodox views, and it will surely have positive and negative notes.  But there’s no denying that this law breaks new ground, with potentially large consequences.

Phil Peters

Posted in Blog | Tagged , | Leave a comment

Phil Peters: “A Viewer’s Guide to Cuba’s Economic Reform”

A comprehensive, concise and high quality study on Cuba’s economic reforms has just been published by Phil Peters, the Vice President of the Lexington Institute.  Peters is also the author of the Blog The Cuban Triangle: Havana-Miami-Washington events and arguments and their impact on Cuba.

The complete presentation is available here:  Phil Peters, A Viewers Guide to Cuba’s Economic Reform

TABLE OF CONTENTS

Introduction

A Tale of Two Speeches

Raul Gets Started

The Communist Party Blueprint for Economic Reform

A Viewer’s Guide, Sector by Sector

Small Entrepreneurs

Agriculture

Cutting Government Spending

Private Cooperatives

State Enterprises

Foreign Investment

Removing “Excessive Prohibitions”

Tax Policy

 Local Government

Credits for Business and Home Improvement

 Conclusion

APPENDICES

A Chronology of Reform

The Media and Reform

The Legalization of Residential Real Estate Sales

The Demographic Squeeze

Phil Peters, Lexington Institute

Posted in Blog | Tagged , , , , , , | 2 Comments