Cubans Hear the Beat of a Pending Real Estate Boom

When Cuba legalizes the buying and selling of real estate by the end of the year — as the government promised again this week — many people expect a cascade of changes: higher prices, mass relocation, property taxes and a flood of money from Cubans abroad, including in the United States.

Experts say that even with some state controls, property sales could transform Cuba more than any other economic change announced by President Raúl Castro. José is an eager almost-entrepreneur with big plans for Cuban real estate. Right now he works illegally on trades, linking families that want to swap homes and pay a little extra for an upgrade.

But when Cuba legalizes buying and selling by the end of the year — as the government promised again this week — José and many others expect a cascade of changes: higher prices, mass relocation, property taxes and a flood of money from Cubans in the United States and throughout the world.

“There’s going to be huge demand,” said José, 36, who declined to give his last name. “It’s been prohibited for so long.” Private property is the nucleus of capitalism, so the plan to legitimize it in Cuba, a country of slogans such as “socialism or death,” strikes many Cubans as jaw-dropping. Indeed, most people expect onerous regulations and, already, the plan outlined by the state media would suppress the market by limiting Cubans to one home or apartment and requiring full-time residency.

Yet even with state control, experts say, property sales could transform Cuba more than any of the economic changes announced by President Raúl Castro’s government, some of which were outlined in the National Assembly on Monday.

Compared with the changes already passed — more self-employment and cellphone ownership — or proposed — car sales and looser emigration rules — “nothing is as big as this,” said Philip Peters, an analyst with the Lexington Institute, a think tank in Arlington, Va.

Back to the Old Days 

The opportunities for profits and loans would be far larger than what Cuba’s small businesses offer, experts say, potentially creating the disparities of wealth that have accompanied property ownership in places such as Eastern Europe and China. 

Havana in particular may be in for a move back in time, to when it was a city more segregated by class. “There will be a huge rearrangement,” said Mario Coyula, Havana’s director of urbanism and architecture in the ’70s and ’80s. “Gentrification will happen.” 

Broader effects could follow. Sales would encourage much-needed renovation, creating jobs. Banking would expand because, under newly announced rules, payments would come from buyers’ accounts. Meanwhile, the government, which owns all property now, would hand over homes and apartments to their occupants in exchange for taxes on sales, impossible in the current swapping market where money passes under the table.And then there is the role of Cuban emigrants. While the plan seems to prohibit foreign ownership, Cuban Americans could take advantage of Obama administration rules letting them send as much money as they like to relatives on the island, fueling purchases and giving them a stake in Cuba’s economic success. “That is politically an extremely powerful development,” Peters said, adding that it could spur policy changes by both nations. 

Unique Complications

The rate of change, however, will likely depend on complications peculiar to Cuba. The so-called Pearl of the Antilles struggled with poor housing even before the 1959 revolution, but deterioration, rigid rules and creative workarounds have created today’s warren of oddities. 

There are no vacancies in Havana, Coyula, the urban designer, pointed out. Every dwelling has someone living in it. Most Cubans are essentially stuck where they are. On the waterfront of central Havana, children peek out from buildings that should be condemned, with a third of the facades missing. The housing stock, already run down before the revolution, continued to deteriorate, the U.S. embargo choked off the supply of building materials, and new construction failed to keep pace with demand. 

Empty lots dot the capital’s seaside Malecon Boulevard as once-stately mansions regularly collapse after heavy rains. Many of those still standing are merely facades or are propped up by scaffolding and wooden beams. Blocks inland, Cubans such as Elena Acea have subdivided apartments to Alice in Wonderland proportions. Her two-bedroom is now a four-bedroom, with a plywood mezzanine where two stepsons live one atop another, barely able to stand in their own rooms. Like many Cubans, she hopes to move: trade her apartment for three smaller places so the elder son, 29, can start a family. “He’s getting married,” she said. “He has to move out.” 

Despite reassurances — on Monday, Marino Murillo, the country’s economic czar, said selling would not need government approval — Acea and many neighbors seemed wary of the government’s promise to let go. Some Cubans expect rules forcing buyers to hold properties for five or 10 years. Others say the government will make it hard to take profits off the island, through exorbitant taxes or limits on currency exchange. 

Still more, like Ernesto Benítez, 37, an artist, cannot imagine a real open market. “They’re going to set one price, per square foot, and that’s it,” he said. He added, “Cubans would respond by setting their own prices, and that might be enough to stimulate movement.” He hopes so. Benítez and the woman he has lived with for nearly a decade broke up 18 months ago. Each is dating someone new and there are nights, they admit, that get a little awkward. Only a narrow bathroom separates their bedrooms. 

Katia González, 48, whose parents passed down her apartment before they died (which Cuba allows), said she would consider selling for a fair price. What did she think her two-bedroom just blocks from the ocean, in Havana’s best neighborhood, could command? “Oh, $25,000,” she said. “A little more, maybe $30,000.” In Miami, a similar apartment might cost nearly 10 times that, which is what many Cuban Americans seem to be thinking. José and several other brokers in Havana said real-estate transactions on the black market routinely involved money from Cubans overseas, especially Florida. “There’s always money coming in from Miami,” said Gerardo, a broker who withheld his full name. “The Cuban in Miami buys a house for his cousin in Cuba, and when he comes here in the summer for a couple of months, he stays in that house.”

Murky Rules 

Technically, this is a violation of the trade embargo that began under President Eisenhower. According to the U.S. Treasury Department, deals or investments with Cubans are prohibited. Receiving money or profit from Cuba is also illegal.

But the rules are muddy in practice. Family transactions — mainly involving recent emigrants — seem to be expanding with a wink from the Obama administration. Supporting private business is now encouraged under the general license that lets Cuban Americans visit relatives, and in 2009, President Obama established a policy of letting Cuban Americans visit the island whenever they want and send unlimited remittances to relatives.

Beyond that, enforcement against individuals, as opposed to businesses, is practically nonexistent. In the past 18 months, one American was penalized for violating the sanctions, with a fine of $525, according to a congressional report published last month. One thing that isn’t expected to be a topic of debate in Cuba is exile claims on homes. Over time, said Antonio Zamora, a Miami lawyer who specializes in foreign investment, families that occupied the homes of Cubans who left the island have essentially become the owners of the dwellings.

Experts say the Cuban diaspora has begun to create a tiered social system in Cuba. Cuban emigrants sent back about $1 billion in remittances last year, studies show, with an increasing proportion of that money financing budding capitalists in need of pizza ovens or other equipment to work privately. Homes would simply expand the bond, experts say, and offers are already arriving.

Ilda, 69, lives alone in a five-bedroom, ninth-floor apartment with views of the sea. A visiting Cuban-American couple — “chic, very well dressed,” she said — recently asked to buy her apartment for $150,000, with little care for any bans on foreign ownership. “I told them I can’t,” Ilda said. “We’re waiting for the law.”

Even when the law changes, she said, she would prefer a “permuta,” a trade, because she would be guaranteed a place to live.

Nowhere to Go 

Her fear of having nowhere to go is common. One recent study, by Sergio Díaz-Briquets, a Washington-based demography expert, found that Cuba has a housing deficit of 1.6 million units. The government says the number is closer to 500,000, still a serious problem. Coyula said money from sales might not be enough to fix the shortage, since there is almost no construction industry, permitting process or materials to build with. Other thorny issues might have to be revisited. “Evictions haven’t happened here since 1939,” he said. “There’s a law forbidding them.”

For now, Cubans are trying to grasp basic details. How will the mortgage system work? How high will taxes be? What’s a fair price? There is even a question of how buyers and sellers will come together.

Classified listings are illegal in Cuba, which explains why brokers such as José, known as corredores, spend their days moving through open-air bazaars with notebooks listing apartments offered or desired. He already has two employees, and when the new law arrives, whether his services are legal or not, he expects to hire more. “We have to get coordinated,” he said. “It’s coming.”

Material from The Miami Herald and The Associated Press is included in this report.