EB-5 Program new regulations are coming. They are in the final stage and will be published soon. On the occasion some US immigration lawyers and other immigration practitioners sound the alarm about “possible demise of the U.S. EB5 investor immigration program”. We think that the alleged threat to the EB-5 Program of being destroyed is somewhat inflated.
The EB-5 investor immigration program did not change a lot since its inception 29 years ago. This is both good and bad. It’s good in terms of its consistency and predictability. It’s bad, because it looks outdated in many ways. And it’s not just about inflation, which is not reflected in the EB-5 visa prices, but also about many shortcomings and loopholes, which were not evident when the program started and became crystal clear now.
The EB-5 Program was launched in 1990. It had an annual quota of 10,000 EB-5 visas for eligible foreign investors. About 85% of all EB5 visas were granted to Chinese nationals. This tremendous popularity of the EB-5 Program among Chinese investors originated not only in their pursuit of the American Dream, but also in strong business interests of major Chinese migration companies.
The EB-5 visas were very popular in China from the inception of the program in 1990. However, the investment migration market in China reached its boiling point in 2014, when the Chinese migration services market was deregulated starting from the Guangdong province. The deregulation resulted in a stampede growth of new Chinese immigration services companies. Many of them became very big having thousands of employees.
Those companies were trying to consolidate the investment migration market in China. Their strategy included making major investments in related real estate projects overseas. Hence, many Chinese companies acquired shares in the US regional centers associated with the EB-5 Program.
The regional centers became the center of public attention, because of many abuses related to the way they were created and functioned. According to the initial plan of the EB-5 Program, these regional centers were to attract investments to the Targeted Employment Areas (TEAs) – the most impoverished parts of the U.S.A. with the level of unemployment not less than 150% of the national average. As the major incentive the investment bar for those centers was lowered from $1 million to $500,000 per each EB5 applicant. Surprisingly, some of the most expensive properties in prime locations of Manhattan and Beverly Hills were also included in those Targeted Employment Areas (TEAs).
Of course, it would be unfair to blame the Chinese companies for all the problems related to the regional centers and Targeted Employment Areas (TEAs) in the US. At the same time, it’s clear that the way regional centers and TEAs work should be fixed, and the new regulations are supposed to do that.
First, the new regulations provide that both determining the Targeted Employment Areas (TEAs) and overseeing the regional centers will be under the centralized authority. TEAs will be completely removed from the competency of the States. And probably it’s for good. The bar for abuses will be higher.
Secondly, the new EB5 regulations establish new prices for EB-5 green card applicants. They will probably have to invest about $1,3 million via regional centers and $1,8 million in any other project. The exact amounts will become available only when the official text of the new regulations is published.
We think that this kind of increase in EB5 visa price is quite reasonable, because the prices were never adjusted for inflation. According to the Bureau of Labor Statistics consumer price index, an average inflation rate for the last 29-year period is 2.36% per year. It means that based on the official data, today’s prices should be 96.7% higher than in 1990.
Moreover, some reputable US economists consider the relative value of $500,000 from 1990 to be in the range from $867,000 to $1,720,000 in 2018. In other words, the planned price increase for the EB-5 visa from $500,000 to $1,300,000 in case of the investment via regional centers and from $1,000,000 to $1,800,000 in case of any other investment is in the range of the necessary adjustment for inflation and relative value change of the US dollar.
Thirdly, the new regulations probably will have to address the issue of how EB-5 investors are interpreted for the purpose of determining the annual quota of 10,000 applicants. In other countries that run similar citizenship by investment or residency by investment programs, the visa quota if any is calculated by the number of main applicants only not counting their dependents. The U.S. EB-5 Program establishes the US visa quota at 10,000 investors a year and interprets as “investors” not only main applicants, but their dependents as well. Thus, instead of 10,000 investors only about a third of this number can get the EB-5 visa each year. Either minor children, or elderly dependents are not “investors.” This should be also fixed.
This is a serious issue. Minor children are not “investors.” This confusion just adds more heat to the already overheated debate on the inconsistencies and flaws of the US immigration law. A comprehensive US immigration reform is overdue.
Obama tried to reform the EB-5 visa program in 2017 by raising the financial requirements. However, along with raising the financial contribution and tightening the regulation on the regional centers and TEAs there should be other necessary changes in the EB-5 Program. Among them we expect the clauses on counting only main applicants toward the annual EB-5 visa quota and probably on raising the EB-5 visas ceiling in general.
The EB-5 immigrants are mostly well-established investors who bring here their money and create tens of thousands of new jobs every year. They are less likely to become any burden for the US taxpayers. Many venture investors and maverick capitalists come from this kind of migrants, who flee from the communist Chinese or autocratic Russian government, French excessive taxes etc. The EB-5 Program should be fixed, strengthened and expanded. We’ll see whether the new regulations will get the job done.