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Foreigners, but not U.S., about to reap Cuban real estate boom

Take that, Florida developers — foreigners will be able to buy and sell properties in Cuba soon, opening the floodgates for residential construction at up to 19 golf course and marina projects.

People close to the Cuban government tell me that new real estate regulations could be published in the Gaceta Oficial before the end of June.

The government's strategy behind the golf and yachting plans is to add value and revenue to tourism, emulating the success its neighbors in the Dominican Republic have had with golf. And the condo model has worked very well elsewhere to create the traffic that sustains such facilities.

The expectations of foreign developers were heightened by an announcement of the tourism minister in early May that the government had reached consensus about ground rules for residential real estate ownership by foreigners.

"A policy was approved that permits real estate development associated with tourism, fundamentally golf courses, marinas and other complementary tourism investments," Manuel Marrero said in a speech during the International Tourism Fair in Havana on May 4, adding that the government was in "advanced talks" with foreign investors.

The new regulations — whose details are eagerly expected by foreign developers — could spawn an unprecedented construction boom of as many as 7,000 golf course condominium units in 13 developments, predicts Tony Zamora, a Miami real estate lawyer who has researched foreign investment in Cuba for more than 10 years.

The new regulations also will open up opportunities for construction of marina-only condominium projects, Zamora suggests, adding that the government is pondering as many as six residential developments connected to marinas. This could add another 4,000 units, he believes.

What's more, at this point the Cuban government is seriously discussing only 13 golf course projects. However, it designated about 80 sites as suitable for golf course development, according to Zamora.

Over the past five years, at least a dozen foreign investor groups have lined up their projects. Four golf community projects have been approved at the ministerial level, Zamora says, and nine more are in earlier stages of planning.

Cuban development projects typically go through three stages — identifying a Cuban partner (the state reserves itself a majority stake), obtaining approval of the foreign investment and tourism ministries, and finally getting the go-ahead from the Council of State.

Under the new regulations, the government will probably offer foreigners an "usufructo" model, under which they can own property under lifetime leases, 50 years and up. The usufructo model would allow foreigners to buy, mortgage and sell properties, or pass them on as an inheritance during the life of the lease.

Another set of regulations that could be included in the law package concern issues such as extended length of stay for foreign part-time residents, and import and export rules for residents' personal goods, such as furniture or automobiles. Currently, foreigners are allowed to stay up to six months at a time.

This would be the government's second run at residential real estate construction for foreigners, after it aborted a first run in the late 1990s.

The foreign investment law of 1995 specifically allows the sale of real estate to foreigners for tourism purposes and offices. However, the government has been struggling for years to establish the ground rules for foreign real estate buying, a delicate topic in Cuba's egalitarian political system.

In 2000, the Cuban government poured cold water over a condo construction mini-boom in Havana, when it stopped all sales and bought out its foreign partners. According to Zamora, the problem in 1998-99 was that the government failed to put any provision against flipping in the contracts. Also, many Cuban friends and relatives of the owners ended up living in the new condos, which caused resentment among fellow Cubans.

Even so, 400 new units in Havana were sold in a five-year span; most of them continue to be in the hands of foreigners.

The new generation of projects is different, because they are in remote locations, outside the big cities. This, in turn, might spawn another side business, Zamora suggests: The construction of work force housing nearby.

The most public of the four most advanced investor groups has been Esencia Hotels & Resorts. The British company announced in late 2008 it wants to build a golf course community, the $400 million Carbonera Country Club Resort, in Varadero. Carbonera is planned for 730 units, around an 18-hole golf course and marina.

Meanwhile, a British-Spanish group hired Foster + Partners, the company around renowned architect Sir Norman Foster, to design a 2,000-unit community near Bahia Honda in western Pinar del Río province, around three golf courses and a 200-slip marina.

Also, a privately owned Vietnamese company, Housing & Urban Development Corp. (HUD), reportedly is planning to build two golf course communities, including one inland, just west of Havana.

Vancouver's Leisure Canada is redesigning its master plan for a three-course golf resort with marina village at Jibacoa, 50 miles east of Havana, according to president and chief executive Robin Conners. A later stage of the project will include cottages, Conners says.

Cuba's new approach might have some similarities with other communist countries going through economic transition.

While Vietnam grants more freedom to foreign developers than Cuba, foreign apartment buyers are fairly restricted. As expected for Cuba, ownership in Vietnam is technically a long-term lease from the state. However, foreign apartment owners are allowed to own only one piece of property at a time, and can't sell before one year. Non-resident owners in Vietnam cannot lease their property.

China is even more restrictive when it comes to foreign real estate buying. Only foreigners who have worked or studied in China for more than one year can buy homes or apartments. Foreigners cannot lease their properties. Exempted from lease restrictions are Chinese citizens living overseas.

Johannes Werner is editor of Cuba Standard, a website featuring real-time news about the Cuban economy and business. He can be reached at johanneswerner@cubastandard.com.

Foreigners, but not U.S., about to reap Cuban real estate boom 06/19/10 [Last modified: Friday, June 18, 2010 9:34pm]
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