A popular method used by wealthy foreigners to acquire permanent residency in the United States has been to simply buy it. A $500,000 investment can get would-be immigrants an EB-5 immigrant investor visa and an alternative way to acquire permanent residence.
But the program is not without controversy. Not only do foreign investors sometimes get bilked by sketchy real estate deals in the U.S., but the program itself has mixed results in its intended purpose: to invite foreign job-creators to participate in the American dream, and create work for natives along the way. The program aims to generate economic growth, especially in economically depressed areas of the United States. New findings by real estate services firm Savills Studley shows just how much demand from Chinese investors for the visa has grown in recent years as the number of millionaire Chinese households has taken off; so much that demand for the visa exceeded supply for the first time last year.
“It is likely that visas for Chinese investors will become unavailable for all applicants during Q2 2015 as demand for EB-5 visas surpasses annual supply,” said the report released Monday. Nearly 10,700 EB-5 visas were issued last year, with 85 percent of them going to wealthy Chinese investors.
EB-5 applicants favor commercial real estate development because it easily creates the jobs needed to qualify for permanent residency, the report added. Investments in hotels, restaurants and resorts also allow applicants to easily generate service jobs. Developers prefer cash from EB-5 visa applicants because there’s no expected investment return and it costs less than bank financing. Plus, in most cases EB-5 investors don’t care if they lose the money; the green card is the target.
Companies including hotel chain Marriott International have used funds from EB-5 investors to build hotels in Seattle, New York City and Los Angeles. New York-based Silverstein Properties, which develops high-end residential real estate and office buildings in downtown Manhattan, advertises EB-5 investment opportunities on its website.
The visa allows foreign investors to ply $1 million into the U.S. economy, or $500,000 in an economically depressed part of the U.S., in exchange for conditional permanent residency for applicant an immediate family members.
But the program has problems.
A Seattle Times report earlier this month found that the way economically depressed areas are defined, Seattle gerrymandered sections of their cities to attracts EB-5 investors (who could pay $500,000 instead of $1 million for a shot at green cards) to luxury commercial real estate development under the guise of uplifting economically depressed parts of town. Some $2 billion in local development, largely for the booming Puget Sound region, has been raised by eager EB-5 investors.
A Brookings Institution report from last year called on reforms to bring the program back to its intended goal: to lure foreign investment and to create jobs in areas that aren’t already booming with development projects. It also found little follow-up in the program to measure the effects of EB-5-funded projects.
The program also can turn foreign investors into fraud victims. A damning Reuters exclusive in 2010 found that nearly half of all EB-5 investors since the program began failed to win permanent residency thanks to a “unregulated industry paid to fill the EB-5 pipeline with rich foreigners.” The program was tweaked in 2011, but only to make it easier for EB-5 investors to get the visas, a factor that most certainly has played a role in the spike in approvals since then.
The program is set to expire in September, but Congress is likely to reapprove it. One proposal is to exempt EB-5 investors’ immediate family members (spouse and children) from the visa cap. The move would effectively triple the number of visas available.
The U.S. has an annual cap of 10,000 for these visas, but last year was the first time the limit had been reached since the policy was started as a pilot program in 1993. Now it appears the annual cap will be hit much earlier this year, indicating that demand for the visa is rising fast.
After two years, if the visa holder can prove he or she invested the appropriate sum and managed to “create or preserve at least 10 full-time jobs for qualifying U.S. workers,” the applicant and immediate family members can begin paths to citizenship.