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Real-Estate Revolution Hits Cuba

Real-Estate Revolution Hits Cuba
The Wall Street Journal.
Michael Allen

HAVANA, Cuba—Listed at $1.2 million, the penthouse has broad terraces,
marble floors and stunning waterfront views stretching from the Darth
Vader-style Russian Embassy to Meyer Lansky’s old Riviera hotel.

That might seem pricey for a Communist country whose average worker
earns around $20 a month. But owner John Jefferis, a 57-year-old
hotelier from Bermuda, says his target buyer belongs to a different
demographic altogether.

“There are very few apartments that can be legally purchased by
foreigners, and when there’s a limited supply of something, usually
there’s a premium for the price,” says Mr. Jefferis, who adds that
jet-setters like his expat neighbors here can probably afford to
splurge. “It’s not their first or second or third home, put it like that.”

It is all part of a real-estate revolution sweeping Cuba. More than five
decades after Fidel Castro seized power here, ordinary Cubans are
starting to accumulate real wealth by buying and selling their homes.
Authorities are dusting off plans to develop a luxury vacation-home
market for foreigners. And a diplomatic overture between Washington and
Havana is fueling a frenzy of speculation over what might happen here if
Americans can legally buy real estate again.

“You can’t imagine how many calls we’ve been getting from U.S.
citizens,” said Yad Aguiar, who co-founded the Ontario-based
Point2Cuba.com in 2011, one of several sites that have popped up in
recent years to connect prospective buyers and sellers.

For now, the 54-year-old embargo remains in place, meaning Americans
can’t buy property here, or even travel to the island as tourists. And
Cuban law bars nonresidents from owning homes outside a few limited
experimental developments. But that isn’t stopping some foreigners from
trying to wriggle through loopholes to get their hands on real estate
now in the hopes of striking it rich.

That is especially true for Cuban-Americans who fled the country after
the revolution and are now starting to exert an increasingly important
economic influence here. Exempt from U.S. travel restrictions, they can
visit relatives here and funnel them money to fix up fading homes—or
even buy one for themselves using a family member’s name and dealing in
cash.

“Lots of Miami Cubans are just flying there and buying—people with
$300,000 or $400,000 or a million under their mattresses,” says Hugo M.
Cancio, a Cuban-American entrepreneur who is launching a quarterly
real-estate publication in Cuba.

Nereida Margarita Álvarez, who runs a bed-and-breakfast out of her
family’s stately, century-old mansion in the once-exclusive Vedado
neighborhood, says she was recently approached by a Cuban offering
$400,000 for the place, which, to be sure, could use a new paint job and
some plaster work on its 18-foot ceilings. She says she turned down the
offer, which she assumed had to have been financed from abroad. “I don’t
know where he got the money,” she says. “No Cuban has that kind of money.”

Next door, a Spanish interior designer in an elegant cardigan says he
dropped $200,000 on a dilapidated six-bedroom house with good bones and
servants’ quarters in the back, and plans to spend at least another
$100,000 on renovations. The Spaniard, who couldn’t buy the 1920s-era
house himself, says he recently discovered a Cuban great-uncle who
agreed to put the property in his name. He says he has already made a
lot of money renovating historical buildings in China, but “when I told
my dad I was coming here he said, ‘Oh my God, another Communist country.’ ”

Whether or not Cuba can follow China’s path to prosperity is still an
open question. The Communist government introduced a few isolated market
reforms in the 1990s after the Soviet Union collapsed and cut off the
generous subsidies that kept Cuba afloat. After taking over presidential
powers from his ailing brother Fidel in 2006, Raúl Castro gave the
process a new boost, expanding the types of business that private
citizens could conduct and lifting a ban on cellphones. In 2011, in what
could prove a major turning point, the government opened the door to
Cubans to freely buy and sell their own houses.

“The net worth of the Cuban people has gone up quite a bit,” says
Antonio Zamora, a Bay of Pigs veteran and former general counsel of the
Cuban American National Foundation, a political action group that fought
to keep an embargo in place. Now 73, the Miami resident sees major
changes sweeping the island and is thinking of retiring here one day.

Most Cubans lack Internet access thanks to controls and underdeveloped
infrastructure. So locals looking to buy and sell a house turn to El
Papelito, a $1 pamphlet with classified real-estate ads that is sold on
the streets of Havana.

A recent edition had 24 pages, having quadrupled in size over the past
several months, underscoring the kind of market activity that would have
been unimaginable here a decade ago.

It lists everything from cramped $5,000 apartments in picturesque Old
Havana to $1 million mansions in upscale quarters like Miramar. It also
has listings selling items ranging from televisions to massage services
and even has advertising for local restaurants and photocopy shops.

The pamphlet has become a key resource for residents like retiree Ada
Nueva, who wants to sell her small second-floor apartment in Vedado for
$23,000. She says she wants to move to a cheaper apartment in the same
area and maybe one day use the money to open a shop to generate income.

Meanwhile, artist Annerys Velasco, who shares a 3,000-square-foot,
seven-bedroom mansion with several family members, is trying to sell for
around $160,000. It is too costly to maintain the house, which is
pockmarked by broken floor tiles and chipped paint, Ms. Velasco said, so
she and her siblings hope to divide the money and move into their own
smaller places. By law, citizens can own a primary residence and a
vacation house.

In December, Presidents Barack Obama and Castro announced an agreement
to restore diplomatic ties, and the U.S. has followed up by making it
easier for Americans to travel here to pursue educational and sports
activities, among other things. Under new rules, U.S. residents can send
up to $2,000 every three months to people on the island—four times the
previous limit.

On Thursday, San Francisco-based home-rental service Airbnb Inc. began
offering accommodations to licensed U.S. travelers in Cuba, using the
island’s wide network of private guesthouses.

The economic woes of Cuba’s latest patron, Venezuela, have given new
urgency to the search for a financial lifeline from abroad. Last year,
the government launched a renewed push for foreign investment, loosening
restrictions on the areas of investment and allowing full ownership in
some cases. A major priority is to attract more capital to the tourism
sector, which long ago passed sugar as the biggest generator of foreign
exchange here.

Cuba already has a string of hotels and restaurants catering to
foreigners and often run by international chains such as Melia Hotels
International of Spain. The government has just completed a marina in
Varadero, with docking room for some 400 yachts, a shopping center as
well as restaurants and cafes. Images of Che Guevara and other
revolutionary iconography are noticeably absent. And there is even a
bowling alley, a sign that Cuba is awaiting a wave of tourists from up
north.

“Of course, it’s made for the Americans,” Sebastiaan A.C. Berger,
director at Guernsey-incorporated CEIBA Investments Ltd., one of the
biggest foreign investors in tourism and commercial real estate in Cuba,
said of the marina. “If you had asked me half a year ago I would’ve said
the marina would become a white elephant because they laid all of that
cement and no one was going to be there to bring their boats,” said Mr.
Berger.

Cuba has even greater ambitions in the works. Plans call for
unprecedented sales of vacation properties to foreigners, built around
high-end golf courses, something Fidel Castro all but banned for years
after the revolution as a bourgeois pursuit. It hasn’t been smooth. Most
of the foreign companies that announced golf resorts in 2011 have pulled
out or disbanded, and Cuban authorities arrested top executives of one
firm on corruption charges.

Still, last year, a company controlled by the Tourism Ministry called
Grupo Empresarial Extrahotelero Palmares SA quietly established a joint
venture with British real-estate investor London and Regional Properties
Ltd. to develop a $350 million golf resort less than two hour’s drive
east of Havana. The development plans to market up to 1,000 villas,
townhouses and apartments to foreigners and locals, along with a
boutique hotel, a tennis academy and an 18-hole golf course, according
to Desmond Taljaard, head of hospitality for the private group owned by
London’s billionaire Livingstone brothers.

Mr. Taljaard said the project is “on schedule” and should take five to
10 years to complete. “So far we’ve been met with enthusiastic
cooperation,” he said.

The government proved less than enthusiastic about foreign ownership in
the early years of the revolution. By 1962, Fidel Castro had
nationalized most private companies and seized nearly all real estate
belonging to foreigners without compensation. The government also
grabbed property belonging to Cubans who fled the country, although
those who stayed got to keep their homes. Some skeptics think that track
record should weigh heavily on prospective buyers now.

“There’s going to be some unpleasantness at the root of any commercial
venture in Cuba,” says John S. Kavulich, president of the U.S.-Cuba
Trade and Economic Council Inc. “Cuba is littered with projects that are
announced and never happened.”

Indeed, historical grievances may yet trip up some of the proposed
developments. In 2011, when a consortium including Canadian indigenous
people called Standing Feather International announced preliminary plans
to build a $400 million golf course community in Guardalavaca, a
consultant for the Cuban exile family that claims ownership to the site
fired off a letter. “While my clients fully share your assessment of
this area’s majestic natural beauty, they actually do so from the
perspective of being members of the family that has owned this Cuban
property since 1857,” wrote Nicolas Gutierrez Jr., a Miami-based
consultant for the Sanchez-Hill family, which owned large sugar
plantations and other property.

The Sanchez-Hills never heard back from Standing Feather, and Graham
Cooke, who was to be the golf course architect, says the consortium
“kind of dissolved.”

Representatives of Standing Feather weren’t reachable.

For now, a good measure of Cuba’s attitude toward foreign property
rights is a collection of three Mediterranean-style apartment buildings
in Miramar, a quiet neighborhood of 1950s-style homes in the western
Havana suburbs. The developments, with names like Monte Carlo Palace and
Habana Palace, were the product of a joint-venture between a state-owned
company and members of Monaco’s Pastor family during the “special
period” of economic distress after the breakup of the Soviet Union.

According to a person familiar with the matter, the government initially
thought the apartments, priced from under $100,000 to upwards of
$400,000, would be too expensive to move very quickly. But foreign
investors started buying in droves, including an Italian who snapped up
24 units, keeping two for himself and renting the rest to foreign
executives for a fat profit. Eventually, government entities stepped in
to buy the remaining unsold apartments to rent out themselves, worried
they were leaving money on the table, this person says.

Mr. Jefferis, a one-time chairman of the Caribbean Hotel Association who
owns hotels in Tobago and Bermuda, says he bought five of the units
during the construction phase in 2001, including the penthouse now on
the market. He says he paid $356,000 to cobble together three units into
one showpiece, and then spent extra to build out marble interiors and to
create a guest apartment he could rent out separately. The building has
a 24-hour concierge, a parking garage and a rooftop pool.

He says his next-door neighbor in the building is Miguel Fluxá, head of
the Grupo Iberostar hotel empire and one of Europe’s richest men. Mr.
Jefferis doesn’t get to Cuba often these days, but when he does says he
enjoys cruising the lightly trafficked streets in his vintage Mercedes.
Crime is nearly nonexistent, he points out, and he doesn’t believe there
is “any risk” of expropriation. “I’ve had the apartments for 15 years
without any problems whatsoever,” he said.

An Italian citizen living one neighborhood over has a greater appetite
for risk. Two years ago he purchased a house in the name of his Cuban
wife. He knows that he will lose the place if they ever split, but he
radiates confidence. He has already spent money to convert the property
into a swanky open lounge and restaurant. “Many of us are here to stay,”
he says. “But we’re also taking a bet because we know that the day this
place opens up, it’s going to explode.”

Write to Michael Allen at mike.allen@wsj.com and Kejal Vyas at
kejal.vyas@wsj.com

Source: Real-Estate Revolution Hits Cuba –
http://www.msn.com/en-ca/money/topstories/real-estate-revolution-hits-cuba/ar-AAaoq0h

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