Residence or citizenship-by-investment systems are changing with the times, with renewed popularity. Many people find the concept of a secondary residence or citizenship enticing amid the Covid-19 pandemic. At the same time, many nations, primarily if they rely on leisure and tourism for tax revenue, are interested in increasing capital and taking wealth across their borders to pay for social services and keep their economies afloat.
Which countries are in demand?
Investment migration initiatives are at the forefront of these interests, in demand in the U.S. and U.K., and available worldwide in countries like Portugal, St. Lucia, and Montenegro, granting foreign investor residency citizenship. These systems are classified in some cases as “golden visas.” Popularized in the aftermath of the 2008 financial crisis, residency or citizenship-by-investment schemes have undergone dramatic changes in recent years. Property investment, London is especially in demand.
Partially owing to government pressure to crack down on immigration and demand more foreign investment-related transparency. The supply side of these services has increased. Even with these issues, analysts expect to continue, as more programmes are likely to arise due to the financial stress created by Covid-19.
Simultaneously, there has been increased interest and demand from high-net-worth individuals who want more effortless global mobility. Management of uncertainty, and diversification of investment, including interest from people outside conventional countries, for these types of programmes.
From January to April 2020, some businesses saw a 49% rise in interest and inquiries compared to the same period last year. Surprisingly, there has been a huge increase in Americans’ interest, who have not historically been a major target for consumers.
The programmes: fast growth and recent improvements
Investment-by-residence systems are not new. In the 1980s, Canada set up a Federal Immigrant Investor Scheme, the U.S. initiated the offering of EB-5 visas in 1990, and the U.K. followed suit. Investment migration programmes now operate in more than 100 countries, over half of which were developed after 2000.
After the financial crisis in 2008, when countries needed a way to help the local economies, several of these initiatives were explicitly introduced. In return for a large purchase of real estate or other business investment, these countries have opened their doors to high-net-worth individuals.
Investment schemes and golden visa programmes
In 2012, Cyprus developed an investment scheme, Malta launched its investor programme in 2014, and in Portugal, Spain, and Greece, golden visa programmes were introduced.
Although they are popular, about 80% of investor visas are only provided by a small number of high-income nations, including the U.S., the U.K., Canada, Hong Kong, and Australia. Updates on many of the most common services follow, most of which have happened in the last few years, in some examples, in the previous few months.
The EB-5 immigrant investors initiative of the United States
In 1990, the EB-5 initiative was introduced, offering a green card in return for an investment in a U.S. company of at least $500,000. The investment threshold was raised in November 2019. The programme now includes a $900,000 investment in a rural area or high unemployment area or $1.8 million, up from $1 million elsewhere.
Since the programme has been so successful with mainland Chinese residents, and no country can have more than 7% of the visas (out of a total of 140,000 annual green cards dependent on employment), there has been a 10-year backlog of Chinese citizens.
Emerging market countries
We are now seeing fewer applications from mainland Chinese investors and more from other jurisdictions, including India, Vietnam, Malaysia, Indonesia, and other countries that we have not traditionally seen. Experts claim that this increased interest in emerging market countries’ EB-5 and other residency-by-investment schemes. There is new wealth and a growing number of high-net-worth individuals. It’s inevitable and partly a way of skirting tightening regulations around the global movement.
Interestingly, Covid-19 has benefited from the EB-5 initiative. That’s because, to preserve the U.S. labour market, the U.S. suspended green card applications and visa processing, first for 60 days and now throughout the remainder of the year. However, EB-5 visa applicants are excluded from this law, considered among the “best and brightest” foreign talent.
The Tier 1 Visa Programme for the U.K.
In the early 1990s, the Tier 1 visa programme, also referred to as a golden visa, was introduced to simplify U.K. citizenship routes. International candidates have to spend a minimum of £2 million in the U.K. as of 2014. In exchange for that, in five years, they could apply for citizenship. Up to £5 million or £10 million in investment and the wait decreases to three or two years, respectively.
In the past, individuals who wanted access to the U.K. because of Brexit are now looking at this programme instead. They may have pursued citizenship through Malta or Cyprus.
Programmes for European Residency: Portugal, Spain, and Greece
The Golden Visa Programme for Portugal, introduced in 2012, is currently on the rise. The programme gives investors who buy a property in a city or a little less in a low-density area for more than 500,000 euros the ability to receive a fully valid residency permit. They also qualify for citizenship after six years. It also offers a 10-year tax cut on worldwide profits.
The Portuguese Parliament adopted a budget in February 2020 that included new laws that would exempt properties purchased in Lisbon and Porto, beginning in 2021. Investors will need to buy in lower-density zones to get their golden visas.
These Portuguese initiatives have more to offer, including a range of policies, laws, and tax advantages to attract foreign technology entrepreneurs to develop their European hub in the region. Overall, this programme has been remarkably successful, noting that it has attracted more than 5.1 billion euros in investment since its inception for a total of 8,736 residency permits. 52% of which were issued to Chinese applicants.
Spain launched in 2013 just after Portugal and likewise needs 500,000 euros, but investors have to wait ten years to qualify for citizenship. Like Portugal, Spain also provides a significant tax advantage for non-domestic citizens, with no tax on foreign-source income.
Greece, which closed its immigration process due to the coronavirus pandemic, recently reopened the golden visa process. In their permanent residency programme, there are a couple of options. One requires a minimum investment of 250,000 euros in real estate; the other requires a minimum capital allocation of 400,000 euros to a real estate investment firm that will invest solely in Greece. Investors may apply after seven years of residency for citizenship. The software has been popular with the Chinese recently; it’s been reported.
Citizenship systems providing links to the EU: Cyprus, Malta, and Montenegro
The European Commission publicly criticized Cyprus, Moldova, and Malta for how lax their residency-by-investment schemes were in 2019. They were worried that they might use investment funds for corruption or money laundering. Moldova cancelled its programme as a result. However, citizenship-by-investment programmes in Malta and Cyprus, which allow travel and residency in the EU, have continued. Programmes in Cyprus and Montenegro have recently seen significant jumps.
The Malta programme, which started in 2014, needs a minimum contribution of approximately 1,15 million euros. 650,000 euro for the National Development Fund, 150,000 euro for government-approved investments. 350,000 euro for the acquisition of land. Although steep compared too many other initiatives, investors can start the citizenship process one year after residency.
Cyprus, a small Mediterranean island just 240 kilometres long and 100 kilometres wide. Requires an investment of 2 million euros in citizenship real estate, plus an additional 150,000 euros in government funds. Granting the right to live, work, research, and invest anywhere in the European Union to anyone who becomes a citizen through investments.
The newest addition, introduced in 2019, requiring a minimum real estate investment of 450,000 euro in new construction projects in the coastal region in exchange for citizenship. Montenegro is not part of the EU. However, the country is trying to comply with the EU’s requirements, but this is not required until 2025.
Caribbean: St. Kitts and Nevis and St. Lucia
St. Kitts and Nevis, launched in 1984, has the oldest residency-by-investment scheme. Investors will be on an immediate road to citizenship for $250,000. St. Lucia, which launched its citizenship-by-investment scheme in 2016, requires an investment of $300,000, at which point investors will be on an automatic path to residency in the same way. The country recently launched a new way of gaining citizenship, paying off the country’s debt. This scheme was announced recently and will continue until next year.
Interest in Caribbean programmes dipped at the end of March and April with clients from 80 nations but then bounced back sharply in May, June, and July. In the Caribbean right now, there’s a lot of desire for citizenship, and there is a great deal of this new demand coming from Americans.
The investors: A changing landscape, with new desires and motives
Global mobility and visa-free travel on that nation’s passport have always been the key driver of residency-by-investment programmes. People in business from West Africa, Southeast Asia, India, China, or the Middle East in their 40s and 50s are the first generation to have substantial wealth in their families.
A typical investor may like to move quickly, without obtaining several visas for business or recreation and taking along his extended family to the U.S. Educational and job opportunities, tax incentives, personal protection, global asset diversification, and a return on investment for real estate acquisitions have often been other primary drivers of the residency-by-investment schemes.
Then, the coronavirus pandemic arrived, and right before it, regional volatility events increased, such as the Hong Kong unrest and Southeast Asian environmental pressures. The result is an increasing awareness of the usefulness of investment migration for volatility management and protection for political risk. Since the financial crisis of 2008, there has been a substantial uptick in investment migration-related interest. And these aren’t people who are planning to emigrate from their country of origin and never come back.
The most significant feature of citizenship or residency-by-investment scheme was the second passport in the past. Covid-19 has changed that people are now still interested in residency benefits as health insurance. Among those newly interested are American customers. This category has really risen this year, with Portugal, Antigua, and other places in the Caribbean being where they are most frequently looking to go.
In particular, some American clients are afraid that they will no longer be able to fly quickly with a U.S. passport, partly because the government has not been able to keep the pandemic under control.
Overall, Covid-19 has shown how easily boundaries can be closed and remain closed to high-net-worth individuals. In a foreign country, they now see value in getting more permanent status. This pattern is likely to continue.
A developing sector
More interest has been seen in individuals who want to diversify their investment portfolios. Invest and operate internationally, and build their family’s new heritage and identity. You could argue that the industry is growing. This once discrete mechanism is now an open and public-facing institutionalised field of professional services. This is a step in the right direction, as this drive for greater accountability in taxation and property ownership has increased in recent years.
Although investment migration is difficult to help someone escape Covid (since most individuals are not physically travelling), it has led to increased interest, participation, and sales. Some stakeholders hope it will encourage them to move more freely in a second or third wave of this pandemic. If they put in an investment relocation application today or allow that liberty when another similar event hits in the future.
Looking ahead: more planned growth and interest
The investment migration is on track to become an asset class in and of itself after more than 15 years of steady growth, which stems from both the demand and the equation’s supply side. In a post-Covid world, it’s predicted that many countries would want to prolong these initiatives to bring in money after a significant economic downturn. Hopefully, we might see a few new services as well.
Barbados and Bermuda are also providing rewards, with a 12-month work visa, for citizens to work remotely. And the way governments treated the Covid-19 crisis is still influencing second-home buyers’ perceptions. Governments will be searching for ways to attract investment, and somewhere they will have to pay for fiscal stimulus measures. These services provide one way to replace their coffers efficiently.