Chinese investors are sending more money than ever to the US through the latter’s EB-5 program, but face significant challenges in maintaining such outflows, according to market sources.
The EB-5 program grants foreign investors as well as their immediate families a green card in exchange for a $500,000-plus investment in locations designated as a targeted employment area. Congress has extended the scheme several times, unable to settle disagreements over minimum investments and what should constitute a TEA. In December, lawmakers again rescheduled discussions about the future of the program to the end of April, after PERE went to press.
“We’re continuing to see big, big inflows now,” said Christian Lyndes, managing director of NES Financial, a San Jose, California-based financial technology company that handles about 65 percent of incoming EB-5 capital.
Whether the program is overhauled or extended again until September, EB-5 has continued to draw record sums of Chinese capital, hitting a new high of more than $3.5 billion in 2015, according to data from US Citizenship and Immigration Services and Rosen Consulting Group.
That said, “overall, it’s gotten a lot harder to get money out,” said Abteen Vaziri, director for New York-based real estate advisory firm Greystone’s EB-5 program. “[Capital control] hasn’t slowed down the flow of funds from China, and if it has, it’s affected maybe less than 5 percent. But what we have seen is that it used to take three to four weeks from the time the investor signs the paperwork to the time the money is in escrow. Now, it’s double the time.”
Vaziri said one potential change stems from anticipated new enforcement on how investors take money out of China. Currently, Chinese families are required to provide their passports at the bank when wiring funds out of the country. Such a rule, which has been in place for roughly two years, has not been strictly enforced. However, starting on July 1, the Chinese government is planning to enforce the rule with severe monetary penalties.
“The [EB-5] agents think this July capital control enforcement is going to be big, but not shut down the programs,” Vaziri said.
Despite increased capital controls, he added there would likely not be a large slowdown in outbound capital in the short term, although the cost of exporting such capital may increase. Longer term, however, he said the effect is unclear.
“Like anything else with supply and demand, there’s a price at which people are willing to pay for something.”