By José M. Pallí, esq.
A journalist writing a piece on Cuban real estate for a specialized magazine in Europe asked for help and sent me these questions. I thought the answers could be of interest to my readers:
How is real estate in Cuba right now?
Physically — most of Cuba’s real estate assets are in need of repair or, at the very least and as you often hear people in the street say, Havana needs a paint job. New policies allow homeowners to borrow from Cuban banks to repair their residences. Building construction and repair look like promising segments of the Cuban economy once they are further opened to the private sector.
Economically, or in the sense of how Cubans can use their real estate assets to “improve” their lives and enhance their patrimony — the maxim still applies whereby in Cuba, “Housing is meant to live in, not to live off”. There is no speculative real estate investment the way we conceive it because Cuba’s legal system is not meant to facilitate it. That is what a celebrated U.S. real estate developer — or present-day cathedral builder — was probably told when he spent a couple of days in Cuba for the first time recently, which led him to share with U.S. audiences that Cuba is not ready for prime time, as well as a few other pearls of his newfound Cuban expertise.
That said, the “you cannot live off your housing unit” maxim is being eroded by the many ways in which Cuba has changed since Raúl Castro took the reins from his brother. Now Cubans can rent their houses, and they have been doing it for a long time (even before the Raúl era) room by room, increasing Cuba’s receptivity to foreign tourism and — in the process — improving the lives and buying power of owners and landlords.
Who are the people that can buy ?
Under Cuban laws, only those who are, or plan to become, permanent residents in the real estate they buy, whether they are Cuban or foreigners. There are some nuances regarding foreigners who want to invest in specific pieces of Cuban real estate (see visa question below), but the norm is you need to be in Cuba in order to own Cuban real estate.
Quite a few Cuban-Americans are considering repatriation, which means returning to Cuba and establishing permanent residence there. The key here is that they must understand they will have the same rights — no more and no less — than all Cubans in the island: the right to own one housing unit as propiedad personal and one recreation home (once known in the Soviet Union as dacha)
Where are the best places to buy for a foreigner and what can they buy?
If he or she plans to reside permanently in Cuba, a foreigner may still be able to acquire urban real estate in very attractive Cuban cities — Havana and Trinidad come to mind, though there are many others — and towns that should grow in value as Cuba opens up to U.S. tourism. This seems to be what most investors I know of, worldwide, are betting on.
There is a new visa for foreigners who want to buy. What is it going to change?
The way I read it, the new visa (visa de residente de inmobiliaria) is meant to skirt the “residence in Cuba requirement” in favor of foreign real estate investors who do not want to spend a lot of time in Cuba and need the flexibility to travel back and forth. They need to ask for one of these special visas, specifying what it is they are buying. My sense is the visa will only be granted if they are buying in an area (resort, marina, golf course) aimed at foreign investment, and not if they want to buy, say, a mansion on Havana’s Fifth Avenue. This is all still somewhat fuzzy to me, although I was told recently in Havana that a few of these visas have already been issued.
What is the price per square meter (according to area)?
I hear so many different and contradictory quotes or estimates that it is very difficult for me to give credit to any of them. Free market capitalism is alive in Cuba’s streets when it comes to establishing parameters for real estate prices (and for the prices of many other items in your cart): you get away with as much as you can get away with… And this is quite a change from the Cuba I first returned to in the early 21st century, when one of my favorite photo spots was under the façade of the Ministry of Pricing, close to the Plaza de Santo Domingo.
What new real estate projects are there for foreign buyers?
Some real estate developments aimed at foreigners are in the works in Cuba. These projects and their prices can be easily tracked since they have a web presence in the web, but I refrain from naming them because I am a lawyer, not a broker.
What about the Mariel Special Development Zone?
My understanding is that the Mariel Zone is not meant for housing or resort developments, though Iberostar, a Spanish hotel company may soon set up shop there through a subsidiary (and as the first current Cuban enterprise fully owned by foreigners, no less).
What is the rental profitability (according to area)?
I doubt there is any real good data on this, given the short experience with real estate since the changes.
What about taxes?
Cuba was a tax haven of sorts — in the sense that Cubans lived “tax free” lives — until the government introduced a Tax Code in 2013, the first since the Cuban Revolution more than 50 years ago. The 2013 Code taxes agricultural land, but not — to my knowledge — urban or residential property. The May 2014 resolutions by the tourism and interior ministries implementing the visa de residente de inmobiliaria for foreigners who want to buy a house or an apartment in Cuba do not mention any taxes either. My understanding is that these individual purchases will not be treated as larger foreign investments will, so the tax provisions in Cuba’s Foreign Investment laws may not apply either.
But you can almost count on the government’s fiscal appetite to claim a bite out of this kind of transaction, just as you can count on it everywhere else in the world. I am not a lawyer in Cuba; there are many excellent lawyers in the island you can check this issue with.
How do you buy (bank, currency…)?
Cuba is about to undergo a monetary reform in order to eliminate its dual currency system (with the peso cubano or CUP as the surviving currency, and the convertible CUC — valued at 24 CUP — set to disappear). This currency unification will not only have an impact on the choice of currency for buying real estate, but also on prices. Because of U.S. laws restricting commercial and financial activities between Cuba and the United States, U.S. banks cannot lend to those buying in Cuba. I don’t know about banks under other flags, but until very recently no mortgages were allowed under Cuban laws. That fact, in and of itself, tells you that there is little institutional support for real estate financing.
Is it a good time to invest?
It may take a strong stomach, but I do believe this is a good time, especially for the daring first movers that value the difference it makes to get in the elevator on the ground floor.
What is the outlook in the future?
The outlook is good, from my own perspective.
The key for investors is to understand the nature and extent of the rights they are buying into.
In a regional conference of registrars held in Havana in June , Cuba showcased its revamped land title recording system. I believe it can achieve what a good recording system should do: provide legal certainty to transactions in Cuba’s incipient real estate market. Which is not to say that property rights in Cuba will be the same as in other countries, nor that Cuba’s real estate market will resemble or be driven by the same interests that drive the real estate market, say, in the United States. Because it is up to Cuba to design its laws and regulations pursuant to Cuba’s public policies and socio economic model. The pretense that such public policies can be dictated or even conditioned by someone outside Cuba is, in my eyes, as absurd today as it has always been.
What is the application process for a temporary resident visa to invest in real estate?
Each individual investor must apply for the visa before the Interior Ministry and the Tourism Ministry, and obtain the visa together with an identity document. Both are valid for one year, but renewable for one-year periods as long as the visa holder keeps their status or standing as the legal foreign owner of the property connected to the visa.
Is it easy for a foreigner to sell their property to another foreigner, and what taxes must be paid?
“Easy” may not be the operative word, at least not in terms of an exit strategy of the kind foreign real estate investors may resort to in other countries. The May 2014 resolutions regulating the special visa for foreign real estate investors do not include the option of ending your status as a visa holder by transferring your rights to a purchaser. But if the nature and the extent of the rights you purchased allow you to sell to a third party, you should be able to do so.
Foreigners who reside in Cuba now should be able to sell their real property as easily as any Cuban national; just make sure the title to it is recorded at the Registro de la Propiedad and that the conveyance is implemented pursuant to Cuban laws (which includes the requirement that a Cuban Civil Law Notary must draft and document it, and then have it recorded under the buyer’s name).
José Manuel Pallí is president of Miami-based World Wide Title. He can be reached a jpalli@wwti.net
