Cuban Real Estate: The Next Boom?

Cuban Real Estate: The Next Boom?

Douglass G. Norvell

The name Cuba conjures, for many, im-
ages of a country hostile to private real
estate ownership. But those of us who
have been to the island recently know
that opportunities for private land owner-
ship do exist, although they are limited.
As far as Cuba is concerned, American
investments in certain kinds of real estate
are welcome, as are those of citizens of
other nations who are willing to follow
Cuban law and enter into working part-
nerships with Cuba’s government.

Excuse Me; Did You Say Cuba?
Cuba has changed its foreign investment
laws to make the island more hospitable
to investment from abroad. The introduc-
tion to 1993’s Foreign Investment Law is
a concise statement on the benefits of in-
ternational business; it shows a softening
of the socialistic government’s stance
on economic cooperation with capitalis-
tic economies. Addressing the National
Assembly of People’s Power, Cuban
president Ricardo Alarcon de Quesada
said Cuba “... can benefit from foreign
investment, on the basis of the strictest
respect for national independence and
sovereignty, given that such investment
can be used in the introduction of inno-
vative and advanced technology, the
modernization of its industries, greater
efficiency in production, the creation
of new jobs, improvement in the quality
of the products and services it offers,
cost reduction, greater competitiveness
abroad, and access to certain markets...”

Yet as far as our national government

is concerned, until Congress lifts its long-
standing trade embargo, American real
estate ownership in Cuba will be limited
to a select group of government and elee-
mosynary organizations carefully screen-
ed by the Treasury’s foreign asset control
division. For example, anticipating great-
er trade and diplomatic activity, the State
Department recently renovated its down-
town Havana quarters. Only one of the
six floors is occupied, but the building
sits ready for other potential occupants,
“sucking air,” as developers say.

Illinois interests also await an open

Cuba. Recognizing the potential impact

of Cuban trade on the Illinois business
community, in 1995 the Chicagoland
Chamber of Commerce held “a non-
political business conference focusing
on the role of Illinois business in Cuba’s
post-embargo future.” The conference
was attended by sixty-five business
professionals. “We don’t often see that
many people,” noted Bob Lahey, director
of the Chamber’s World Trade Division.

When Cuba opens up, the real estate

opportunities could equal those of Flor-
ida, California, the Colorado highlands,
South Texas, and other 20

century boom

locations. During the next decade, Illinois
investors could easily be operating real
estate developments in Cuba, designed by
Illinois architects, built by Illinois engin-
eers, and funded by Illinois lenders. Illi-
nois Realtors

could be listing condomin-

ium units overlooking any of the more
than 1,000 miles of Cuban beaches.

This article provides an analysis of

the business environment for real estate
investments in Cuba, moving from the
US blockade to discussions of property
rights, the growing tourist trade, the
growth in foreign investment, and some
unexpected sources of competition (such
as the Cuban military, which is actively
engaged in real estate development).

Cuba’s Development Environment
The US blockade is the overriding influ-
ence on business development in Cuba.
Initiated in 1961, after several rounds of
back and forth hostilities between the US
and the Castro government, then streng-
thened by the Helms-Burton Act of 1996,
the embargo makes it illegal for Ameri-
cans to spend money in Cuba. It effec-
tively blocks direct investments, although
our countrymen can invest in foreign
companies that do business in Cuba.

The Illinois business community is

playing a key role in efforts to eliminate
the blockade. Dwayne Andreas, the long-
time

CEO

of Decatur agribusiness con-

glomerate Archer Daniels Midland, is a
major figure in a US Chamber of Com-
merce advisory committee working to
ease the embargo by permitting sales of
food and medicine to the Cuban people.

Many observers believe that once restric-
tions on the sale of food and medicine
to Cuba are lifted, the mere problems of
defining food and medicinal products will
lead to a quick termination of the entire
embargo. Once it is lifted, Americans
will be able to own property within the
limits imposed by the Cuban government.

Property Rights
Even though Cuba has a socialist gov-
ernment, its citizens own land, houses,
and automobiles; and they have bank
accounts. Moreover, many Cubans own
their own businesses, under the provi-
sions of a law that permits entrepreneurs
to work “on their own account.” Lands
have titles that are recorded in a Registry
of Properties, maintained by the Cuban
government in the Ministry of Justice.

Under Cuba’s post-revolution consti-

tution, real estate can be owned by: small
farmers; private citizens; cooperatives;
the government; and political and social
groups, such as labor unions, churches,
and other non-governmental organiza-
tions dedicated to nonprofit activities. In
terms of numbers, small farmers are the
largest category of land owner, as a result
of a strong agrarian reform movement
following the revolution. Between June
1959 and February 1961, a total of
32,823 land titles were given to small
farmers. In terms of total acreage, this
group owns about 15% of all Cuban land;
cooperatives own another 50%, and the
rest belongs mostly to the state.

Certain kinds of real estate can be

owned by foreigners under provisions
of the Foreign Investment Law of 1993.
As set forth in Article 16, paragraph 1,
foreign investors can “acquire ownership
and other property rights over that real
estate.” But these investments are limited
to particular uses; as paragraph 2 of Arti-
cle 16 specifies, “the investments in real
estate discussed in the previous paragraph
can be utilized for: a) housing and other
structures destined for private residence
or tourism activities of persons who
are not residents in Cuba, b) housing or
offices of foreign companies, and c) real
estate development for use in tourism.”