Friday, September 16, 2011

A Housing Market, Cuba Style

A Housing Market, Cuba Style
By Overseas Property Mall Created: Sep 15, 2011

I'm standing at a shaded corner in Central Havana, Cuba, with many
others, all of us looking as shady as our surroundings. Someone comes up
to me asking "what are you offering" to break the ice. Where am I?

You would be forgiven for thinking I am on the run, trying to buy papers
to get across the border; but actually, all I am doing is trying to buy
a house.

Cuba's housing shortage has become so dire that thousands of people are
forced into these backstreet housing bazaars in the hopes of being able
to buy a house that could cost thousands of dollars in under-the-table
payments—payments that break both the law and the Soviet doctrine by
trading in and profiting from property.

But fear not, the government is unlikely to come crashing in on these
parties. Instead, it plans to get a piece of the action. Raul Castro has
pledged to legalize the underground housing market by the end of the
year, as part of the country's economic reform package. The reforms have
already begun; Cubans have recently been allowed to go into business for
themselves in 178 designated occupations including restaurateurs,
wedding planners, plumbers, and carpenters.

To legalize the housing market would be one of the biggest steps forward
(as in away from communism) that Cuba has taken in the 50 years since
the communist revolution swept Fidel Castro to power. With the sale and
purchase of property legal, the chronic housing shortage would start to
ease, and employment would be stimulated via increasing construction,
thereby bringing in much needed tax revenues.

We would also expect to see increasing remittances coming from Cubans
living abroad. U.S. President Barack Obama has just relaxed a 50-year
embargo allowing unlimited remittances from Cuban-Americans.

"All these things are tied in," said Sergio Diaz-Briquets, a U.S.-based
demography expert. "They want expatriate Cubans to contribute money to
the Cuban state, and this is one big incentive for people who want to
help their families."

Aside from the benefits, the housing market is to be one of the most
difficult areas of all in which to enact reforms. When Fidel Castro took
power he immediately banned all property transactions, and passed
ownership of properties on to their inhabitants. The government,
preached Castro, would provide housing, food, education, employment, and
everything everyone would ever need, and all for little or no money at
all—and housing is the area that this grand promise fell shortest.

Housing stock, which was already deteriorating before the revolution,
continued to decline. As the U.S. embargo choked off building supplies,
existing stock deteriorated quicker, and new construction failed to keep
up with demand.

Cuba is a sore country on housing; cyclones and salty air, which can eat
through metal bars within a year, have decimated rural shanties and
older quarters of Havana. The capital's seaside Malecon boulevard is a
stark example, where once-stately homes collapse after heavy rains on a
regular basis, and many of those left standing are propped up by
scaffolding and wooden beams—a shadow of their former selves.

A quick walk around Havana will show numerous signs of just how severe
the housing shortage has become. While waiting for housing to be
legalized, and outside of the illegal bazaars, Cubans are limited in
their options to solve their plight.

They could well be disappointed when the new law is brought forth;
already the signs emerge that communism will continue to cripple Cubans.
Raul Castro has said home ownership will be limited to one per
individual to avoid accumulation of wealth. Plans have been announced to
extend credit to purchase building materials, but there are no
mechanisms in place for home loans, and no specifics as to how the loans
will work. One thing we do know is that taxes will be levied on sellers
and buyers, and if these taxes are too steep we are already looking at
underreporting transactions.

However, whatever shape the new laws take, it will almost certainly be
better than the current situation, which leaves elderly people in
crumbling homes they can't afford to maintain, and multiple generations
of families struggling to live under one roof. Let's hope so anyway.

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