Housing: the details

With all the talk about a forthcoming policy to permit housing sales, it would be good to clarify what is on the record.

Last month there was a three-day meeting of the Council of Ministers and other top officials where economic policy matters were discussed. The results were presented in Granma, including a decision to allow purchase and sale of residential real estate by year’s end.

Here is recent coverage from CNN, the Herald, and the New York Times, and my previous discussions are here and here.

This idea was presented in the party’s economic policy guidelines approved in April. The new policy reportedly involves dealing in one way or another with 188 laws, regulations, and legal procedures from various ministries that apply to housing transfers.

The Granma article explains some traits of the developing policy:

• It will simplify procedures for citizens who buy and sell property or otherwise transfer it. In many cases they will be able to go before notaries rather than courts, and many processes involving the National Housing Institute will no longer be necessary. The simplification is being carried out “so that citizens’ efforts are not slowed by bureaucratic regulations that give rise to illegality and corruption,” the article said.

• Transfers, donations, and property disposition in divorce settlements are also being simplified.

• Citizens may own only one residence.

• The “payment of the price agreed between the parties” will be made through a bank, which means that buyers, at minimum, will need to have a bank account.

• Sellers will pay personal income tax on the sale income. The tax rates applied to this income are not known. (Personal income from self-employment is subject to a progressive tax with a maximum marginal rate of 50 percent that applies to income over 50,000 pesos [$2,000].)

• Buyers will pay a property transfer tax, amount unspecified.

• The treatment of Cubans who emigrate will change. Today, those who leave under the salida definitiva status must liquidate personal property and the state appropriates their residence. Under the new policy, an emigrant may transfer ownership of the home to family members who live there.

Even if there are restrictions to curb speculation, such as a ban on resale within five years, this will be a high-impact change.

It is a signal to Cubans that they will benefit from the reform process. Title to a home will do more than a guarantee possession and permit passing homes to heirs. It will mean assets can be made liquid.

It will increase incentives for Cuban Americans to send money to their family in Cuba, ensuring an increased inflow of capital. That will increase the number of Cuban Americans with a stake in the island and an interest in successful, gradual reform.

Titles will be brought up to date and transactions entered in the official property registry; these seem to be measures to strengthen the legal foundation of the transactions and to strengthen protections against challenges, such as claims from abroad.

It will create immediate wealth for thousands of Cubans, with a choice to keep the asset, liquidate it, or use if for collateral.

It remains to be seen how Cuba will develop policies to expand the housing stock, a goal stated repeatedly in recent policy discussions. Under discussion are increasing the supply of building material for do-it-yourself builders or restorers, giving loans to do-it-yourselfers, and allowing space for private entities to participate in housing construction.

We’ll see about all that.

For now, if the policy is put into practice without severe restrictions, it will show that the government is willing to drop a very big “prohibition” – far more important than call phones, DVD’s, or hotels – and to allow the reform process to be accompanied by an unpredictable factor: the emergence of a new market that will be influenced by an influx of foreign capital.