Thursday, June 24, 2010

Potential seen in Cuba golf courses but issues remain

Published June 24, 2010

Potential seen in Cuba golf courses but issues remain
Investors perceive risk amid political and social tensions

(HAVANA) If Cuba plays it right, thousands of tourists could eventually
be swinging their clubs at an 18-hole golf course overlooking the
turquoise waters and golden beaches just east of Havana.
Swinging heaven: Sitting just 145km off the coast of the United States -
the world's biggest golf market with 27 million fans - Cuba's potential
as a golf tourism destination is huge and so are the potential revenues

They will moor their yachts at a swank marina and drive electric carts
to luxury villas built around the course's scenic artificial lake.

The project, one of at least a dozen awaiting a thumbs-up from the
island's communist authorities, appears closer than ever to becoming
reality after Tourism Minister Manuel Marrero said last month that Cuba
will go ahead with the construction of golf courses and marinas.

Letters of intent have already been signed between Cuba's state-owned
tourism company Palmares and several investors from countries such as
Spain, Canada, Britain and Vietnam, said a source close to one of the deals.

Cuba currently only has two courses. But sitting just 145km off the
coast of the United States - the world's biggest golf market with 27
million fans - its potential as a golf tourism destination is huge and
so are the potential revenues.

'Cuba can be one of the strongest golf destinations in the Caribbean,'
said Peter Walton, chief executive of the London-based International
Association of Golf Tour Operators.

In the half century since Fidel Castro's revolution turned Cuba into a
communist state and its golf courses into art schools or military camps,
the only well-publicised golf match has been between two guerrillas who
hardly knew how to play.

Mr Castro and Che Guevara, who was a caddy in his boyhood days in
Argentina, played golf in their military fatigues and boots in 1961 to
thumb their noses at the US government.

But even if today's Cuban leadership has overcome its long-time
ideological prejudices against the most capitalist of sports, the fine
print regulating future joint ventures and real estate ownership remains
a mystery.

Golf courses are generally financed by surrounding real estate
developments, so the first thing investors will be looking at is Cuba's
willingness to sell or lease land to foreigners. To justify the
investment, leases will have to extend for at least 50 years.

'They seem ready to accept the real estate developments. But at this
point nobody knows the terms of the leases or the conditions Cuba may
attach to the contracts,' said a foreign businessman involved in one of
the projects.

Over the years, several projects have been pitched to the Cuban
government, including proposals by British architectural firm Foster +
Partners, French construction company Bouygues Batiment International
and, more recently, the Vietnamese Housing and Urban Development

Most of the developments are planned along Cuba's northern coast,
including Havana and up-market resorts such as Varadero and Cayo Coco.

Besides villas and apartments, some of these projects, worth hundreds of
millions of dollars, include full-scale, Western-style restaurants,
supermarkets and shopping malls - so far non-existent on the
communist-run island.

But to see the rough hillsides of a suburb in Havana turned into smooth
greens filled with foreign putters will probably take more than just
reasonably long lease terms, says KPMG analyst Andrea Sartori.

'You need to have certain stability and guarantees to property ownership
that I think the country currently doesn't have,' said Ms Sartori, the
head of Golf Advisory Practice, a Budapest-based division of KPMG
specialised in the industry.

'It is very much an issue of the perception and risk that an
international investor will have in leasing a property in Cuba today.'

Although Cuba's 1995 foreign investment law foresees the sale of real
estate to foreigners, the experiment in the late 1990s was soon halted
after limited sales of apartments.

Business sources say that Cuba would seek to create joint ventures in
which it would provide land in exchange for 51 per cent equity. Foreign
partners would then be responsible for a huge cash injection, a model
similar to the one used two decades ago to develop the island's hotel

'That tends to bring down the returns (on assets) to foreign investors
below the 15 to 20 per cent they will be looking for,' said a
businessman with experience in Cuba.

To break into the regional golf circuit, Cuba would need to develop a
cluster of at least 10 courses, foreign experts say.

Even if nobody says it, the investors behind these projects are betting
on a future opening of American tourism currently prohibited by a Cold
War-era US ban.

President Barack Obama has lifted restrictions on the visits of Cuban
exiles to the island but a Congressional bid to end the travel ban
affecting other Americans seems stalled amid renewed political tensions.

'These golf projects will take time to develop and the relationship with
the US can improve a lot in the next two or three years,' said Tony
Zamora, a Miami-based Cuban American lawyer familiar with some of the deals.

But the challenges facing Cuba's future golf tourism industry may also
derive from the island's own domestic problems.

Before building thousands of luxury villas for foreigners, a businessman
says, Cuba will have to address its overwhelming housing deficit to
deflate potential social tensions.

'The key ingredients of a successful golf destination are there - the
climate, the proximity to a major market, the flavour,' said Ms Sartori.
'However there are key issues that need to be resolved.' - Reuters,4574,391896,00.html?

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