Foreign investors get 99-year lease on state land

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In an effort to “expand and facilitate the participation of foreign investment in international tourism,” the Council of State published a much-expected decree that provides a legal framework for residential construction by foreign investors, granting leases on state land for up to 99 years.

Cuba, which offers only two golf courses, hopes to broaden its tourism base with the move, attracting a wealthy clientele.

Decree-law 273, published in the Gaceta Oficial No. 33 on Aug. 26,  reverts a decade-old de facto freeze on foreign residential construction after a short-lived experiment with condominium projects in Havana. The new law is expected to trigger golf and marina condominium construction far away from urban centers. At least four projects have been on the drawing boards of foreign investor groups for months and, in some cases, for years.

“I think this action is very significant for several reasons,” says Antonio Zamora, a Miami lawyer who has researched foreign real estate investment in Cuba for more than 10 years. “First and foremost, it happened. It signals that the RaĂşl government is moving to open up the economy towards the Vietnam model. Fidel and his group are not opposed or cannot stop the moves.”

Zamora: Role for Cuban Americans?

 

The government will begin negotiations with foreign investors about construction of up to 16 golf courses and condominium communities in January, Tourism Minister Manuel Marrero announced on Aug. 1. The 16 projects “have already been approved by the Council of Ministers, are in the process of implementation, and it’s being concluded,” Marrero said in early August. 

Foreigners interested in development projects on the island must go through three stages — identifying a Cuban partner, obtaining approval from the foreign investment and tourism ministries, and finally getting the go-ahead from the Council of State.

According to Marrero, negotiations on four golf course projects are “very advanced.” They include one in the eastern province of Holguín, one in western Pinar del Río, and two located between Havana and the beach resort of Varadero. The new regulations could spawn an unprecedented construction boom of as many as 7,000 golf course condominium units, estimates Antonio Zamora.

The government designated about 80 sites as suitable for golf course development, according to Zamora.

The new regulations will also open up opportunities for construction of marina-only condominium projects, Zamora suggests, adding that the government is pondering as many as six residential developments connected to marinas. This could add another 4,000 units, he believes.

Many details remain foggy; a body of regulations surrounding foreign condo communities has yet to be published. The government hasn’t said how often or quickly owners might be allowed to sell. No regulations exist regarding owners being able to lease their properties. And there is no information yet as to what kind of taxes and fees the government would charge. Also, Cuba has yet to announce whether it will relax sticky regulations such as how long and under what conditions foreigners are allowed to stay in the country at a time, and under what conditions foreign part-time residents will be allowed to bring, sell or re-export personal property such as appliances, furniture and automobiles. Currently, foreigners are allowed to stay up to six months at a time. Finally, the probably most controversial issue is the potentially large influx of Cuban American property buyers. Due to U.S. restrictions, Cuban Americans cannot legally buy property in Cuba, but observers expect wealthy Cubans living abroad to be the largest potential group of buyers. 

Says Zamora: “Real estate sales, golf and marinas can’t work well without Americans. Perhaps there is also a role for Cuban Americans in this effort.”

While Cuban officials steadfastly deny to be following any foreign model, the experiences of Vietnam and China provide a glimpse as to what should be expected from Cuban real estate regulations for foreigners. Vietnam grants considerable freedom to foreign developers, but foreign apartment buyers are fairly restricted. As in Cuba, ownership in Vietnam is technically a long-term lease from the state. Foreign apartment owners are allowed to own only one piece of property at a time, and can’t sell before one year. Non-resident owners in Vietnam cannot lease their property. China is even more restrictive when it comes to foreign real estate buying. Only foreigners who have worked or studied in China for more than one year can buy homes or apartments. Foreigners cannot lease their properties. However, exempted from lease restrictions are Chinese citizens living overseas.

Cuba’s decree-law 273, aiming to provide “greater security and guarantee to the foreign investor in the real estate business,” is based on the legal concept of “usufructo.” The concept allows foreigners to buy, mortgage and sell properties, or pass them on as an inheritance during the life of the lease. Cuba’s usufructo approach isn’t novel. Mexico, whose constitution until recently prohibited foreign ownership of land near the coast and borders, introduced a similar land use concept for foreigners in the 1990s.

Decree-law 273 modifies articles 221 and 222 of the 1987 Surface Law in Cuba’s civil code. Article 221 now stipulates that the state must issue a “surface right” title for each property subject to usufructo, including information about the property’s limits, conditions of use, and the time period, structure, nature and destination of the buildings or the specific activity planned for the property. Article 222 specifies that state-owned land can be leased for up to 99 years; stipulates that, in case the land is leased for a shorter period, the contract can be extended to up to 99 years; and states that the state can sell properties to Cuban companies planning to build tourism-related homes or apartments on the land.

The foreign investment law of 1995 specifically allows the sale of real estate to foreigners for tourism purposes and offices. However, the government has been struggling for years to establish the ground rules for foreign real estate ownership, a delicate topic in Cuba’s egalitarian political system.

Cuba aborted a first run on foreign condominium construction in the late 1990s. In 2000, the government poured cold water over a mini-boom in Havana, when it stopped all sales of newly built condos and bought out its foreign partners. According to Zamora, the problem in 1998-99 was that the government failed to put any provision against flipping in the contracts. Because the buildings were located in the middle of Havana, many Cuban friends and family of the owners ended up living in the new condos, which in turn caused resentment among fellow Cubans living in dire housing conditions.

Even so, some 400 new units in Havana were sold in a five-year span; most of them continue to be in the hands of foreigners.

The new generation of projects is different, because they are in remote locations outside the big cities. This, in turn, might spawn another side business, Zamora suggests: The construction of workforce housing nearby.

The most public of the four most advanced investor groups has been Esencia Hotels & Resorts. The British company announced in late 2008 it wants to build a golf course community, the $400 million Carbonera Country Club Resort in Varadero. Carbonera is planned for 730 units, around an 18-hole golf course and marina.

Meanwhile, a British-Spanish group hired Foster + Partners, the company around renowned architect Sir Norman Foster, to design a 2,000-unit community near Bahia Honda in western Pinar del RĂ­o province, around three golf courses and a 200-slip marina. The project is called La Altura.

Vancouver-based Leisure Canada is redesigning its master plan for a three-course golf resort with marina village at Jibacoa, 50 miles east of Havana, according to President and CEO Robin Conners. A later stage of the project will include cottages, Conners says.

Another Canadian group, according to the Miami Herald, is planning a 2-golf course community with about 2,000 units near the Guardalavaca beach resort in eastern HolguĂ­n province.

Also, a privately owned Vietnamese company, Housing & Urban Development Corp. (HUD), reportedly is planning to build at least one golf course community, including one inland, just west of Havana.

Four golf projects are in advanced stages. Map: CS

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