IMI asked two prominent industry executives, Jean-François Harvey of Harvey Law Group and Micha-Rose Emmett of CS Global Partners, who combined have more than 30 years of experience in the business, what they expected from the investment migration market in 2021.
An economic boom comparable to the end of WWII
“Most economists agree that once we see the beginning of the end of the pandemic somewhere in Q3, it will be the dawn of an economic expansion that may be comparable to the period that followed the end of World War II in terms of economic growth and investment,” says Harvey, who points out that he shares this opinion and that propagating that message among clients will become important.
“Keep in mind that after WWII, there were practically very few visa restrictions and people were able to travel pretty much anywhere. Of course, this is not the case anymore and anyone that will want to jump on the economic expansion wagon will need to be truly mobile. This is the message that we need to convey as of now: “Get ready to hit the road or you will miss the parade”.”
Q3, then, the period Harvey pegs as the “light in the tunnel” zone, will become a crucial time for the industry, one in which it must convert fresh interest in investment migration into actual clients. Micha-Rose Emmett, similarly, believes the unanticipated demand brought on by the pandemic, particularly in non-traditional markets, is here to stay:
“As with any major global or regional catastrophe,” she says, “2020’s uncertainty created a surge of interest in RCBI. We have seen interest from individuals that would not ordinarily apply for a second citizenship now looking to secure new options. 2021 will see a continuation of this trend. Despite a preference for European citizenship, the industry will see an increased interest in non-European options.”
While the pandemic has “awakened” new markets, Emmett also believes it will change investors’ program selection patterns.
“Clients are seeking safe, secure destinations with smaller populations – as this regime feels more manageable,” Emmett points out. “For example, St Kitts & Nevis’ effective approach to the pandemic has impressed individuals seeking countries with competent governments. People want to be part of societies where governments responded wisely and quickly to the COVID pandemic without ultimately damaging the economy.”
The rich not waiting around to be eaten
She says clients are disgruntled by their governments’ responses to the pandemic and believes that authorities in the larger economies will inevitably look to HNWI to plug the holes in their budgets, which – thanks to the pandemic response – a the largest they have been in at least a generation. In such a scenario, she says “smaller jurisdictions may be seen to offer a gentler approach to their citizens.”
Harvey indicates he’s also seeing the tax man’s writing on the wall.
“Governments, all over the world, have been borrowing money in unprecedented volumes and this will need to be paid back, much of it through the raising of taxes,” he observes. “Considering that the CRS system is now fully implemented (and now a well-oiled machine) coupled with governments’ hunger for additional income (who now have the perfect justifications both morally and economically to bring in major changes), I will not be surprised to see numerous countries adopting the US model of world-wide taxation based on citizenship.”
Though such a development would clearly be an unwelcome one among HNWI, Harvey has no doubt that it would be good for the investment migration business, which, as we’ve pointed out before in IMI, is an anti-fragile industry. Increasing prevalence of citizenship-based taxation, he says, would “set off a bonanza for our industry. We will start to see the first hints of such movements in 2022, if not before.”
At the same time, he thinks there’s a real risk that the very government interests that could drive a citizenship-based taxation trend to help the investment migration market could also take measures to make citizenship-by-investment more difficult, so as to better “capture” HNWI taxpayers.
“There are many variables that could drastically change the industry but few are more formidable than a G20 government hungry for income,” comments Harvey.
If rich-world governments really do aim to tax people based on citizenship while making it more difficult to switch citizenships, it is likely attempts to do the latter will be accompanied by efforts to demonize or vilify the investment migration market. Emmett indicates the industry’s perception had until recently improved, but that recent scandals have caused significant setbacks.
“Sadly, we are still battling with a perception issue in the industry,” she writes. “The exposure of the Cyprus CBI programme’s corruption has done no favours for the industry and will continue to haunt it over the next year. Add the EU Commission’s infringement procedures against the European CBI players and it makes for an interesting 2021.”
The outcome of those procedures will be closely watched by stakeholders, she notes, because it will set the pace of development for citizenship by investment for years to come.
“Not only will the result determine how European countries create and manage their residence/citizenship programmes but it will continue to drive the philosophical debate around obtaining citizenship “for cash”.”
To guard against such adverse consequences, Emmett believes the best defense will be the improvement of program standards and service provider conduct.
“Increased scrutiny on programmes will prevail as safety and security remain a big concern. Proper due diligence and compliance must be the priority for countries conducting RCBI programmes. Agents should also be mindful of this aspect. The industry continues to have a negative reputation because it is not adequately regulated. Several agents continue to act indiscriminately and irresponsibly. The continuous disregard by agents to respect the rules of programmes will continue to denigrate this industry’s reputation.”
The four phases of the post-pandemic investment migration market
Harvey says both economic booms and downturns can drive demand for increased mobility, but that each scenario drives demand from different types of client. During economic expansions, people from countries with poor mobility want more visa-freedom in order to be able to “get in on the action” and invest globally. In periods of economic contraction, however, they are more motivated by wealth preservation, tax optimization, and security.
“The best time for the industry is when both situations meet, as we have seen often, where one sector of the economy is booming and another is slowing down,” says Harvey.
Harvey, who has an admirable track record of predicting future growth markets (notably entering the Chinese market in 1993 and the Vietnamese in 2010, in both cases shortly before the markets took off) splits the medium-term prospects of the investment migration market into four distinct phases:
In the first phase, which will begin when the pandemic threat truly begins to subside (Harvey is betting on Q3), he thinks we will “witness the last wave of “never again” clients who have been acquiring residency or citizenship to permit better mobility due to COVID-19’s restrictions.”
In the second phase, once the contours of a “post-war-esque” economic boom become visible, he anticipates a new wave of clients who want better mobility so as to better take part in what they’ll see as a coming expansion. This, he indicates, will be the most true in the traditional RCBI-markets, where mobility has always been minimal.
“The third phase,” writes Harvey, “will be what I would call the transition period; where the economy is booming and – because of that boom – our potential clientele will be very occupied with their own businesses. This will be manifested by a real slowdown in our industry as clients and their entourage will have other priorities than investment migration.”
In the fourth and final post-pandemic phase, which we’ll know has arrived because client volumes are returning to something resembling “normal”, demand will be driven in large part by those newly minted millionaires from the boom-years. “This will be the point at which the party really starts,” he says.
He prognosticates that “business as usual”, the way we used to know it before the pandemic, will not return until in about three years’ time. At that point, he says, “we will be cruising the usual up and down with clients, alternating between those who can newly afford investment migration and those we might call “old money”.”
Throughout each of the phases, he emphasizes, we’ll see sudden spikes in demand in particular locations due to more or less unexpected political and social crises, though predicting precisely when and where is unrealistic.
Questioned as to which types of programs will be the ultimate beneficiaries of changing demand patterns following the pandemic, Micha-Rose Emmett believes countries that can offer security, certainty, and comfortable lifestyles (she cites the Irish IIP and the Portuguese Golden Visa as examples) will see their stars rising.
She adds that “Caribbean CBI programmes, such as Dominica’s CBI, will also remain of interest due to the longevity of these programmes, the certainty of product, and the idea of living one’s Plan B on a tropical island. Lastly, keep an eye on the UK!”
As to whether the governments – having seen the pandemic drain their coffers – will respond by quickly opening investment migration programs to attract capital, she is ambivalent.
While she concedes that many governments are likely to seriously consider taking advantage of RCBI-revenue, she says “the reality of implementing a programme and managing it to achieve a reasonable revenue is a different story. I doubt we will see too many new good programmes emerge next year.”
Finally, Harvey believes that, for all the technological breakthroughs 2020 has bestowed on us, we’ve probably already gotten as much out video conferencing as we could hope for.
“The virtual meeting has reached its limits in terms of adoption and I don’t think we can expect much more from that technology. The demographic group that is entirely comfortable with the virtual alternative sadly does not overlap too well with our potential client demographic (although it will a decade from now).”
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