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Cuba’s Real Estate Market: Booming Speculation

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  • Cort Greene
    Cuba’s Real Estate Market: Booming Speculation Posted By *Circles Robinson* On May 10, 2013 @ 9:21 am In *Business & Economy,Features,Lead
    Message 1 of 1 , May 11, 2013
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      Cuba�s Real Estate Market: Booming Speculation

      Posted By *Circles Robinson* On May 10, 2013 @ 9:21 am In *Business &
      Economy,Features,Lead Articles,Uncategorized* |
      *Comments<http://www.havanatimes.org/?p=92872&print=1#comments_controls>
      *

      *Emilio Morales* **(Caf� Fuerte <http://www.cafefuerte.com/> [1]) *
      [image: A real estate broker advertises homes with cardboard signs on the
      Paseo del Prado promenade.]<http://www.havanatimes.org/?attachment_id=92873>
      [2]

      A real estate broker advertises homes with handwritten signs on the Paseo
      del Prado promenade. Photo: cafefuerte.com

      HAVANA TIMES �When, at the close of 2011, after more than fifty years of
      restrictions, the Cuban government opened the Pandora�s box of Cuba�s real
      estate market, many experts predicted that the country would experience a
      veritable *boom *in home sales and purchases. Rather than a mad spiral of
      sales, however, this incipient and atypical market has given rise to a
      speculative phenomenon.

      There are approximately 3.3 million homes in Cuba (houses and apartments),
      57% of which are in poor condition. The country�s current household deficit
      exceeds that of 700 thousand homes. This rather dilapidated real estate
      panorama is coupled with the highly limited average purchasing power of
      Cubans who are dependent on their State salary, which is about 20 Cuban
      Convertible Pesos (CUCs) a month. (One CUC equals around 1.10 USD).

      At first glance, the development of a real estate market with so few charms
      strikes one as a pipe-dream as delirious as the 10-million-ton sugarcane
      harvest of 1970. However, for the first time in 50 years, Cubans feel that
      they have finally come into possession of a financial asset: their own
      homes.

      *An Ads Epidemic*

      The right to sell a house or apartment and to freely establish its price
      has unleashed a veritable epidemic of on-line ads. Currently, over 100,000
      houses are advertised in different web-sites and portals. It is worth
      pointing out that, even though Internet access is a privilege enjoyed by
      some State institutions and not the population in general, Cubans still
      manage to publish such ads.

      What is most striking about these is that the majority of sellers lack the
      basic knowledge required to objectively evaluate their house and establish
      a price that is in accordance with its structural condition.

      There is no real estate institution, in Cuba, which provides home sellers
      with a tool or formula that could help them calculate a price on the basis
      of the characteristics of the home. This explains why the advertised
      prices, in most cases, are extremely high and far from appealing.

      How did this phenomenon come about?

      *Conservative Deregulation*

      To begin with, the deregulation of the real estate market, which the Cuban
      government undertook nearly two years ago, has proven extremely
      conservative and limited. Cuban citizens are entitled to a single home
      within city limits and to an additional property in a tourist area.
      According to the new Housing Law, Cubans living abroad or foreigners
      interested in settling on the island � the group of potential buyers with
      the greatest purchasing power today � may not legally purchase property.

      We are witnessing the growth of a market whose sellers are still completely
      inexperienced in the valuation and sale of real estate. The fact most
      Cubans have no real sense of what household maintenance entails has a big
      say in the way a price is established and how the sale of a property is
      negotiated.

      The limited purchasing power of the population � a condition which has not
      changed significantly in over fifty years � has turned entire cities into
      veritable ruins, and most have no notion of what it means to maintain a
      house in optimal or at least presentable condition, from a structural and
      aesthetic perspective.

      In addition to this, because of the pressing material needs which the
      population has accumulated in the course of so many years, many a Cuban is
      desperate to obtain a considerable sum of money in the quickest way the law
      allows. This is a psychological factor which has turned Cuba�s real estate
      market into a highly speculative realm.

      *Inflated Prices*

      Many home sellers set a price for their properties without taking into
      account the major repairs that these households require, repairs which, in
      some cases, are valued at 50 percent of the established sale price. For
      instance, a four-bedroom, two-bathroom house located in Havana�s
      municipality of 10 de Octubre, valued at 60,000 CUCs, may require repairs
      of up to 30,000 CUCs. Thus, the buyer would ultimately have to pay 90,000
      CUC to come into possession of a house in optimal condition.

      The real value of the property, to use this same example, is probably
      30,000 CUC. The initial sale price, thus, is inflated by 50 percent.

      One of the greatest challenges faced by this nascent market is the
      re-education of sellers in real estate valuations and sales. The workings
      of the market itself will no doubt impel this process, gradually adjusting
      prices to real market conditions, but this transformation will require time
      and a series of conditions to become stabilized.

      A recent study conducted by the Havana Consulting Group reveals the drastic
      disparity between the high average prices caught sight of in Cuba�s
      fledgling real estate market and the modest purchasing power of the
      population. The random sample selected comprised 1,094 homes and
      encompassed six of the country�s 15 provinces.

      *Province Average Price (CUC) Number surveyed*

      Havana
      38,849.00 763
      Artemisa
      24,033.00 57
      Camaguey 25,764.00
      100
      Villa Clara
      27,432.00 50
      Matanzas 44,731.00
      88
      Cienfuegos
      29,450.00 36
      *
      Total 31,709.83
      1,094*

      As can be appreciated above, the average real estate property price in the
      nationwide sample was of 31,709.83 CUCs, a very high figure when compared
      to the flimsy purchasing power afforded by the average Cuban salary: 455
      regular Cuban pesos (equal to under 20 CUCs) a month.

      In some municipalities located in the province of La Habana, which reports
      the country�s highest purchasing power, the average real estate price
      exceeds that of 50,000 CUCs, as is the case in the municipalities of Playa
      and Plaza. The most expensive homes in the entire country, in fact, valued
      at 59,191 and 52,050 CUCs, respectively, are located in these two
      neighborhoods in Havana.

      At the municipal level, the prices registered for the province of La Habana
      by the Havana Consulting Group study were the following:

      *Havana Municipalities* *Average Price* *Number surveyed*

      Playa
      59,191 64
      Plaza
      52,050 171
      10 de Octubre 29,218 66
      Boyeros 36,985
      149
      Cerro 30,162
      122
      La Lisa
      26,609 49
      Old Havana 25,189 43
      Habana del Este 37,845 89
      Arroyo Naranjo 34,556 10

      *Total
      763*

      Who, then, are the people currently selling and purchasing homes in Cuba?

      The transfer of property titles for as many as 45,000 homes was reported a
      year after Cuba�s real estate sale and purchase law came into effect.

      *The study conducted was able to identify a number of groups of sellers
      with different economic needs and possibilities. The main ones are:*

      - People who are leaving the country and availing themselves of the
      opportunity to sell their homes, so as to emigrate with a sum of money that
      will afford them a financial base on which to start a new life elsewhere.


      - People who have found an incipient niche in the real estate market,
      where they can purchase property, repair it and sell it.


      - People who live in large homes and are looking to secure a sum money
      that will allow them to live more comfortably, by selling their current
      home, purchasing a smaller property, and pocketing the difference.


      - People who own a large house in poor condition and do not have the
      money needed to repair it, who choose to sell it and secure a sum that will
      allow them to purchase a smaller house in better conditions and, perhaps,
      walk away with some money with which they can address material needs
      they�ve been unable to satisfy for many years.


      - People in need of capital to open a private business, who have no
      other means of securing the money.

      *The following groups of buyers were identified by the study:*

      - People who have relatives living abroad, who have the money to invest
      in a business venture.


      - Cubans living abroad who want to invest in real estate in Cuba,
      thinking about possibilities in the country over the next 10 to 15 years.


      - People who have relatives abroad willing to help them with their
      housing situation.


      - Cubans who participate in official government work programs abroad and
      return to Cuba with enough money to purchase a house (athletes, health
      professionals, actors, diplomats, etc.).


      - Cubans residing abroad who want to invest in a business venture on the
      island, with a relative or friend.


      - Foreigners who want to invest in a restaurant or a home rental
      business aimed at tourists, purchase a summer house they can use when they
      travel to Cuba, or simply invest in the real estate sector with a view to
      securing profits in a post-Castro Cuba.

      The conditions that would allow Cuba�s real estate market to develop in a
      sustainable fashion, however, do not yet exist in Cuba.

      Current limitations in this connection include the limited purchasing power
      of the population and the next to inexistent participation of the private
      sector in the construction of new real estate.

      *Building is Key*

      Building new houses and ensuring properties are available for rent or
      purchase is one of the conditions needed to develop Cuba�s real estate
      sector dynamically. Without this, the country is unlikely to experience a
      sales boom in the sector.

      In other words, if Juan sells his home, Juan needs to buy or rent a house
      where he can live. In Cuba, there is no apartment or house rental market a
      person can resort to after selling their house. Everything is resolved
      through the by now well-known and messy house-swapping (*permuta*) market.

      The construction of homes by the private sector is an indispensable step
      towards a dynamic real estate market in Cuba. Hundreds of thousands of
      people could be employed by such initiatives, including construction
      professionals such as architects, civil, hydraulic and electrical
      engineers, carpenters, bricklayers, plumbers and others.

      *The Crucial Link*

      The production of building materials by private sector industries is also a
      crucial step that can no longer be postponed. Without this link, the house
      production chain will not break out of its current stagnation.

      A banking institution capable of financing mortgages in the real estate
      market is also of the utmost importance. In Cuba, there are no financing
      plans and the full value of the property is paid in one cash installment.
      No real estate market on the planet can hope to develop without a monetary
      support that allows buyers to finance their mortgages. There is no other
      market in the world where homes are purchased with a single cash payment.

      If the Cuban government were able to introduce these changes in the short
      term, Cuba�s real estate market would experience a 180 degree turn and
      would become immensely attractive for potential buyers. If not, the
      speculative illusion experienced in this market today will soon become a
      boom in stagnant boredom.

      (*) *Cuban economist. Former head of strategic planning and marketing for
      Cuba�s CIMEX corporation and author of the books �Cuba: A Silent Transition
      to Capitalism?� (Cuba: �tr�nsito silencioso al capitalismo?) and �Marketing
      without Advertising, Brand Preference and Consumer Choice in Cuba.� He is
      the current president of the Havana Consulting Group, based in Miami.*


      ------------------------------

      Article printed from Cuba's Havana Times.org: *http://www.havanatimes.org*

      URL to article: *http://www.havanatimes.org/?p=92872*

      URLs in this post:

      [1] Caf� Fuerte: *http://www.cafefuerte.com*

      [2] Image: *http://www.havanatimes.org/?attachment_id=92873*


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