It's unclear how quickly Cuba's economy will handle recent changes in diplomacy, but many feel it might become the best real estate investment for American entrepreneurs.
Since Fidel Castro took control of Cuba in 1959, the island nation was essentially shut off from American interests and investment. In some ways, Havana still exists in 1959 complete with old, dilapidated buildings and decades-old American cars. That's all changing. For real estate investors, the change is very welcome
The famed Paseo del Prado, the most prominent promenade in the city, is also a location where a great deal of real estate transactions takes place. While still in the beginning stages, the emphasis on real estate in Cuba is growing thanks in part to the indomitable Cuban spirit and the opportunities as perceived by the normalization of US and Cuban relations.
Why Cuba is a Prime Real Estate Opportunity Put simply, the Cuban people and the real estate market are ready for an infusion of US investors who can bring new life to the Cuban economy and reinvent the real estate market. The pieces are already in place and Raul Castro, the current leader of Cuba, allowed his countrymen to start buying and selling real estate in 2011 which means that the decades of Communist doctrine in terms of private property has now changed to a capitalistic one.
Before, the citizens of Cuba were only allowed to trade property. Today, the buying and selling of private property have created a small boom in terms of home renovations as well as fixing up old hotel properties that could be rented to new tourists coming in from the US and other countries. However, most of the real estate market is still heavily involved in renovations since constructing new buildings and homes is still very difficult given the low wages and profits of the Cuban people.
However, that could all change if there is a large influx of American tourists and investors into the country such as it was in the 1950s before the Castro regime took power. While the previous Cuban government of the old days was highly corrupt, it did allow for the construction of many buildings and homes which still exist and are used today. The promise is that with all the new money, Cubans will start building new homes, hotels and other types of buildings, which would represent a real boom to the country in general.
For American investors, the possibility of purchasing prime beachfront properties at relatively low prices combined with the expected growing economy in Cuba represents a very large temptation. In essence, Cuba may be seen as a paradise that was closed off for nearly 60 years and now is re-opening to a new world where the profit potential is staggering.
Potential Limitations to the Cuban Real Estate Market Currently, American can actually invest in Cuba, but only through a relative who lives on the island or through an associate that acts as their front man. However, all the legal deeds remain in the name of the Cuban purchaser which greatly increases the risk of things going wrong. For example, a foreigner can marry a Cuban and have the right to purchase real estate while living on the island. However, if they should get divorced, the property goes to the Cuban automatically. In fact, there are many horror stories of foreign investors trying to gain a foothold in the Cuban real estate market under the current system which has not turned out well for them at all. In addition, there is a very large question about what is known as the “right of return” issue.
In 1962, Fidel Castro seized all property that was foreign-owned which today means that there is roughly $8 billion in commercial and private property that still has claims by American citizens and corporations to sort through before the real estate situation can be fully normalized. Considering the feelings of many Cuban ex-patriots who live in the United States along with corporations that still exist wanting their properties returned. This is a process that could take a considerable amount of time depending on the attitude of the Cuban government.
Other issues include the relatively primitive state of Cuba itself as there is no internet access on the island to any real degree. That means current real estate agents operate in Cuba with no internet as if it were the 1950s. Plus, the market itself is still a cash-only system with many agents taking a 5% cut for their fees. This is one reason why up to 50% of the sales take place without any real estate agent to make the transaction. Today, the Cuban real estate market is only open to Cuban citizens which in some ways makes sense as it only started up a few years ago. To subject it to massive foreign investment would be chaotic to say the least and problematic if the Cuban government decides to make changes in the middle of the process. However, the changes in property laws as well as the expansion of the Cuban economy is already happening which means that if relations are normalized, it offers the real chance for substantial investment opportunities which would not only change Cuba into a modern society, but also reap tremendous profits for foreign investors.
The Cuban Investment Potential With the market expanding with the Cuban people and American investors chomping at the bit, the question is certainly more about when the investment can start taking place and not if. While the normalizing of relations is currently occurring, it is important to note that the economic sanctions by the US on Cuba are still in place because that takes congressional action to lift. That will no doubt be a very important part of the equation if the Cuban real estate market will open up to foreign investment. Furthermore, the new normalization is happening under this President’s authority which means that when a new President is elected and starts their tenure in office in January, 2017, that could all change as they would have the power to revert the US/Cuban relations to their former state. So, there are still factors that must play out before the Cuban real estate markets can truly open up.
Another factor that must be established is the lending framework must be put into place before mass expansion can take place not only from foreign investors, but with the Cuban people as well. Today, it is a cash-only system that is direct, but fraught with peril for many investors and potential home-owners. A mortgage system must be established not only to help Cubans purchase their own homes, but to provide greater stability in the marketplace for investors to thrive. The rather primitive nature of the current real estate system in Cuba does promise an incredible opportunity, but there will need to be refinements made not only to the real estate transaction process, but to the Cuban financial system as well which is in need of great reform.
Today, it is really impossible for investors outside of Cuba to make any headway which means that the potential gold rush is still a few years away. In essence, assuming that the normalization of relations continues and either Raul Castro or his successor puts in the needed financial and economic reforms needed to shape the real estate system, the current status quo will still be present to prevent the proper exploitation of investment opportunities. However, there is a light of hope that still shines for potential investors as other Communist markets have opened up considerably to US investment.
While Russia may still be problematic in some ways, there is little question that China has benefitted tremendously from the investment of foreign capital to create one of the largest economies in the world. While the potential for Cuba is not nearly as big given the small population, there are tremendous investment opportunities that could transform the country into a modern state with a considerable boost to the people who live there. As a potential tourist destination alone, Cuba offers remarkable potential in terms of its location which means that real estate investment opportunities will abound when the proper reforms are put into place. So while investors are still sitting on the sidelines in terms of purchasing real estate in Cuba today, the potential for it to become a massive opportunity tomorrow remains quite possible.
