Without even lifting its embargo, the US is already driving a real-estate boom in socialist Cuba

Home for sale, one careful owner, last refurbished 1959.
Home for sale, one careful owner, last refurbished 1959.
Image: Reuters/Enrique de la Osa
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This is the first in a series of four dispatches this week on the US-Cuba opening. You’ll be able to read the others here.

HAVANA, CUBA—The hottest investment in socialist Cuba is Havana real estate.

The city’s riotous architecture spans its history: A visitor can admire a Spanish colonial cathedral in Old Havana, sleep in a Mediterranean revival home built at the height of the 1920s sugar boom in the city’s suburbs, admire the sleek lines of the art deco buildings of the 1930s and 1940s, and contrast the garish Miami-style hotels of the 1950s tourist boom with the cement cubes built in the post-revolutionary era.

But the need for new funds is clearly written on many buildings. In the years since the revolution, the city’s housing stock has struggled to find investment, and the bulk of it looks desperate for a rehab and a refresh. Until 2011, when Cuban president Raúl Castro allowed citizens to buy and sell their homes, they could only swap them with another, through a difficult bureaucratic process. Money wasn’t supposed to change hands, though it frequently did.

In this photo taken May 13, 2015 people walk past a shell of a building with the sky visible in Havana, Cuba. House Republicans have voted to keep restrictions on Americans seeking to travel to Cuba. That's a setback to Obama administration efforts to ease the five-decade Cold War standoff. The GOP-controlled chamber voted 247-176 to keep a Cuba-related provision in a transportation funding bill. The provision would block new rules issued in January that would significantly ease travel restrictions to Cuba and allow regularly scheduled flights for the first time.
The shell of a building in Havana.
Image: AP Photo/Beth J. Harpaz

Now it is doing so legally. The se traspasa (“for exchange”) signs you used to see on buildings have changed to se vende (“for sale”). And the US’s decision to roll back its futile 50-year-old embargo is feeding new money into this nascent housing market.

The cash to clean up

The embargo still technically prevents US tourism and most trade. However, the US and Cuba will officially re-establish diplomatic relations on July 20, and changes to US rules enacted in January already allow more access to Cuba’s markets.

Among the earliest beneficiaries of those changes are Cuban-Americans and their relatives. Some 60% of Cubans receive remittances from family and friends abroad, amounting to more than $2 billion a year. The new American rules make it much easier, raising the quarterly limit on remittances to individuals from $500 to $2,000 and abolishing the limit on investments in private businesses.

An apartment building in the Vedado neighborhood of Cuba, June 2015.
An apartment building in the central Havana neighborhood of Vedado.
Image: Quartz/Tim Fernholz

Now neighborhoods like Vedado, Miramar and Playa, where the wealthy lived in pre-revolutionary Cuba, are hotbeds of wheeling and dealing. Cuban-Americans, through their families, are buying up homes or fixing up existing properties, and hiring construction workers—one of 187 private-sector professions newly permitted by the government since the 2011 liberalization. Cubans say that cash deals for attractive homes reach hundreds of thousands and even millions of dollars.

In most cases, Cuba doesn’t allow foreigners to purchase homes, and the US doesn’t allow its citizens to buy Cuban property. While many real-estate investors hope that these barriers will come down in the years ahead—at which point US citizens seeking tropical vacation homes are expected to drive prices up even further—the immediate need this housing boom is serving is accommodation for the coming wave of travelers from the US.

Working from home

Tourism is already big business in Cuba, bringing in $2.63 billion in 2012. Americans tend to forget that basically everyone else in the world can already visit the country at will, including one million Canadians and two million visitors from Europe, Latin America and Asia annually. Trade groups expect the total to double if the US lifts its ban on tourism.

Cuba’s infrastructure is ill-prepared. Since the relaxation on non-tourist travel bans took effect in January, streams of Americans have come on cultural exchanges, business fact-finding trips, and family visits, putting pressure on the country’s limited supply of hotel rooms. A standard room in one of the city’s best hotels can start at $200 a night—if there are any available.

Many visitors therefore rent rooms at casas particulares—private bed-and-breakfasts the government has allowed citizens to operate since the 1990s. These can start from as little $35 a night for a space in a hostel to $60 for a room in a colonial-style home. Havana hotels, other than the major European chains, have a reputation as shabby, so these homes—especially when stylishly appointed—can be nicer to stay in, too.

Cubans can also set up privately-owned restaurants, or paladares, in their houses. Fueled by cash from American relatives and the hope that more American tourists will soon arrive, more Cubans are converting more homes to these purposes.

Inside a casa particular in Havana.
Inside a casa particular in Havana.
Image: Quartz/Tim Fernholz

Finding your particular home

The casas particulares and shortage of hotel rooms make Cuba the perfect spot for Airbnb, the peer-to-peer lodging platform, one of the first American businesses operating in Cuba.

“We launched with more than 1,000 places, and it has doubled to more than 2,000 listings available now in Cuba,” Kay Kuehne, Airbnb’s director for Latin America, told Quartz. “In San Francisco or Berlin, it took three years for the first 1,000 listings. Cuba is really growing fast. On the demand side, search [has] increased 27 times [since the launch]. Within Latin America, it is the most searched destination—more Americans are searching right now for it than Rio de Janeiro or Buenos Aires.”

Cuban officials liked that the company’s business model complemented the existing casas particulares system, and saw the move as a way to ease congestion in traditional hotels. And Airbnb’s web platform means it doesn’t need to make significant capital investments in the country, allowing it to bypass the US’s ban on direct trade and concerns about unresolved property claims.

Arranging payments has been tricky—Cuba is still cut off from the US financial system—and it required partnering with a local payment processor used to turning foreign transactions into Cuban cash. Another challenge was getting the hosts online in a country where just 5% of the population has home internet access. Airbnb solved that in part by using social networking of the old-fashioned kind: Managers of several casas particulares typically gather at one home with internet access to monitor their profiles.

And while it may be tough for Americans to admit, Kuhene says there is something of a lesson in Cuba for US city governments that have clashed with Airbnb. “A lot of cities are thinking about their bans on home-sharing, how to culturally incorporate it into their regulations, and Cuba has already done this,” he says. “Cuba created a registration in the 1990s for home-sharing.”

Dollars bring dilemmas

The skyline of Habana, Cuba.
The Havana skyline.
Image: Quartz/Tim Fernholz

The Hotel Riviera still dominates the Havana skyline above the city’s ocean promenade, the Malecón. The American mafia figure Meyer Lansky built it in 1957 to house a casino that made millions. Lansky was a salaried “gambling adviser” to the dictator Fulgencio Batista, and it is rumored that his connections went deeper than that, virtually buying out the Cuban government, whose corruption would spur the revolution. It’s a reminder that when US money has poured into Cuba, things haven’t always turned out so well.

The US government hopes that most of the American money going to Cuba will wind up in the hands of small businesses in the nascent private sector. The real-estate boom is evidence of that. But there are fears that it’s stressing the already tight housing market and squeezing poorer Cubans out of gentrifying Havana neighborhoods.

To really help improve the Cuban people’s lot, foreign investment will need to come to multi-family homes and basic infrastructure as well as vacation homes and rentals. That will require both governments to change rules that make such investments difficult. But the new paint and plaster appearing on recently crumbling houses in some of Havana’s most romantic neighborhoods gives a hint of what’s possible.