Will a free market in Cuba spark a real estate investment frenzy?
A potential change in Cuba’s property ownership legislation could open the market up to foreign commercial real estate investors, but it won’t happen quickly.
Cuban lawmakers recently approved a draft of a new Constitution that would recognize the right to own private property – a freedom that has not existed since Fidel Castro came to power in 1959.
If approved by voters in a national referendum expected in late 2018, the replacement to the Soviet-era Constitution has the potential to dramatically increase foreign investment in Cuba’s commercial real estate, says Hector Klerian of JLL Mexico.
Nonetheless, investors are likely to exercise caution in the beginning as they wait for a resolution to the ownership disputes that are expected once private property is legalized.
“Cuba has this special appeal – it is a beautiful island that was closed for so many years – so there is real opportunity for foreign companies looking to invest in tourism and infrastructure,” Klerian says. “But even if the Constitutional change goes through, it will be a very risky investment environment in beginning. Institutional investors will need to see proof that, if they buy something, it won’t be taken away the next year in an ownership dispute.”
Who truly owns Cuban property?
When Castro came into power, the Cuban government seized the property of those living on the island. Given the growth in tourism and development in the Caribbean and Latin America since then, the amount of property seized may be worth more than US$100 billion, according to Nicholas Gutierrez, a legal consultant in Florida who has advised Cuban émigrés in the United States on property disputes.
If the new Constitution passes, it is still unclear how the legislation will be ratified and how those disputes will be settled. While some smaller investors may be willing to take the risk, institutional investors will likely remain cautious for several years.
“There needs to be some credibility around the legislation change in order to make investors feel comfortable,” Klerian says. “First, the changes will have to actually go into effect, and then it will take two, three, four or five years for investors to trust that they are there to stay.”
The U.S. ban
Investors in the United States may be shut out entirely.
The U.S. economic embargo of Cuba – instated in 1960 as a reaction to the seizure of U.S.-owned factories and businesses on the island – is still in effect. It’s unknown whether the two countries will come to a resolution that allows the United States to do business in Cuba.
One thing is clear: with the ban still in place, the constitutional change won’t have as much impact, because U.S. investors will miss out on the opportunity to invest, Klerian says.
“All of this is academic discussion until the ban is lifted,” he says.