India has a long history of emigration beginning in colonial times and culminating in the recent migration of educated laborers to the West, Southeast Asia, and the Arabian Gulf. With its booming population and substantial middle class, India currently poses a significant opportunity for EB-5 developers.
The Indian Economy
In 2013, India was facing its worst economic crisis in twenty years, with the economy having grown only 4.4% in the second quarter and the banking system in disarray. That year, the United States Federal Reserve had tightened the reins on foreign investment, and global investors had reacted by transferring billions from developing economies, leading the rupee to fall in value by almost 40%. Additionally, capital controls introduced in India that year concerned foreign investors, who feared the new limits on how much could be transferred out of the country would affect their returns.
In an attempt to confront the worsening economic situation, the Reserve Bank of India eased restrictions on banks, allowing them to borrow in dollars rather than rupees, and instituted reforms to improve fiscal policies and strengthen the manufacturing sector. Perhaps because of tight regulations on banking and debt, most Indian investors bank through Singapore, and financial analysts have estimated that half of all rupee trading occurs outside India. Investors have taken advantage of this lack of government oversight on trading activity, and a large number benefit from banking in countries like Mauritius, which has a 0% tax rate.
Despite its economic woes and its climate of political friction, India was home to 182,000 millionaires and 103 billionaires as of the financial crisis in 2013, meaning this unstable economy nonetheless provides opportunities for EB-5 developers willing to adopt innovative strategies.
Obstacles to EB-5 Marketing in India
Developers keen to enter the market of potential Indian EB-5 investors must overcome a number of obstacles:
- India lacks a network of immigration agents familiar with the EB-5 Program and its benefits and requirements. This means that few wealthy Indian investors, unlike their Chinese counterparts, are already aware of the EB-5 Program.
- Indian investors are already able to access a number of international immigration programs, meaning EB-5 developers face more competition in India than they might elsewhere. As these investors also generally seek out higher returns on investment than do the Chinese, they might not perceive risky EB-5 investments as attractive.
- The current $75,000 cap on capital outflows, mentioned briefly above, restricts the amount an investor can contribute to an EB-5 project. Additionally, developers often have difficulty tracking the sources of investment funds, given Indian investors’ propensity for offshore banking.
- Wealthy Indian investors typically enjoy a good quality of life in India and may be reluctant to emigrate to the United States.
Each of these obstacles is discussed in further detail below along with relevant strategies developers can use to take advantage of this underrepresented market.
Establishing an EB-5 Immigration Network
Developers would benefit from establishing networks of immigration agents in large developed cities such as New Delhi and Mumbai. Indian immigration agents are generally already familiar with U.S. visa programs, and developers can work with these agents by educating them on the EB-5 Program and its benefits for wealthy investors hoping to emigrate. Developers can also leverage their connections with business representatives in India, and because a majority of Indians also speak English, developers are generally able to maintain direct relationships with these contacts.
A number of European, Caribbean, and Southeast Asian countries offer foreign investor residence and citizenship programs that compete directly with the EB-5 Program from the United States. Most notable among these are the programs in Canada, Australia, England, and New Zealand, all of which offer investors the opportunity to exceed by a large margin the $500,000 investment limit of the EB-5 Program.
Indian investors also often aim for a high return on investment and are not content to play a passive managerial role in development projects, unlike the Chinese. Additionally, they generally have ample opportunities for investment within India and can benefit from the high interest rates offered by Indian banks, as well, making investment in the United States less attractive.
To combat these factors, EB-5 developers might focus on advertising direct and pooled-direct investment projects, which generally offer higher returns for investors as well as equity. Lower agent fees in India also lead to a higher return for investors, meaning further opportunities for developers.
The current capital outflow limit of $75,000, meant to stem the flight of capital following the 2013 Indian financial crisis, poses somewhat of an obstacle for foreign investors. While this measure is meant to be temporary according to the current Indian finance minister, EB-5 investors are meanwhile left to grapple with the issue of transferring funds abroad. Fortunately, many wealthy Indian investors maintain foreign bank accounts not subject to the cap, meaning this may not pose as significant a problem as anticipated.
This leads to a second issue, which is the difficulty of tracing the path of funds from Indian investors. To avoid taxation, many wealthy Indians underreport their earnings, meaning the country currently faces the issue of “black money,” this being assets not disclosed to government authorities. As with investors from any country, developers must be careful to document the source and path of EB-5 investment funds with the necessary proof to satisfy United States Citizenship and Immigration Services (USCIS) and Office of Foreign Assets Control (OFAC) regulations.
The high standard of living and status accorded to wealthy investors in India, especially in comparison to what their wealth would afford them abroad, means these individuals are generally not interested in emigrating. However, the United States is the premier education destination for wealthy Indian students, and developers can benefit from stressing the opportunity inherent in the EB-5 Program because of this factor.
The limitations of a work visa may prevent Indian students from gaining work experience in the United States following graduation from a college or university. As such, the possibility of permanent residence under the EB-5 Program can be a draw for the wealthy Indian parents of these students, as can the lower tuition fees offered to U.S. residents. An additional point of interest is that the parents would benefit from the EB-5 Program in this way without being subject to Internal Revenue Service (IRS) oversight of their other assets. Developers can add both these points to their arsenals.
India is a land of opportunity for EB-5 developers willing to adopt innovative marketing strategies to overcome the aforementioned host of obstacles. This as yet untapped market is home to thousands of wealthy candidates for the EB-5 Program, yet developers have been unable to surmount existing cultural and economic factors, the most significant among which concern international competition, a reluctance to emigrate, and an inability to document fund sources.
While Indian participation in the EB-5 Program is unlikely to overtake that of the Chinese in the near future, this market does offer significant potential for diversification of EB-5 investment sources in the face of Chinese quota retrogression and the potential lack of sustainability of the Chinese real estate market. Developers and regional centers willing to establish local immigration networks, conduct their due diligence on fund sources, and advertise the unique benefits of the EB-5 Program for wealthy investors are poised to take advantage of this climate of uncertainty.