New proposals for the U.S. EB-5 residency program could see the investment threshold rise significantly.

An announcement by the outgoing Obama administration suggested the investment requirement for both classes of the program rise by $800,000.

This would mean an investment of $1.3 million, up from $500,000, would be required for a project within a Target Employment Area (TEA), and a rise from $1 million to $1.8 million for a project outside such an area.

The thresholds would then be adjusted as per inflation every five years, under the proposals.

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Current US EB-5 Investment Requirements

• An EB-5 investor must invest in a new commercial enterprise.
• The investor must invest at least $1 million when investing in a general area of business or at least $500,000 when investing in a targeted employment area (“Regional Centres”).
• Within two years of admission as a Conditional Permanent Resident, the investor must create or preserve at least 10 full-time, direct or indirect jobs belonging to qualified US workers.
• See Tax Implications of Gaining Permanent Residence Through US EB-5 Visa

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Further proposed changes include allowing a candidate to keep their place in the line if they are forced to refile an application.

Huge backlogs have been established under the program, particularly for Chinese investors after caps were introduced because of the number of applications from that part of the world.

Places in the line are reserve using a ‘priority date’ system – essentially the date an application was filed. However, should a project be discontinued and a candidate forced to refile their application, currently they move to the back of the line.

Under the new proposals, the original date would be retained.

Changes to the system of defining a TEA are also part of the Obama administration proposals. Currently, the system is flawed in that states and developers can set their own geographical parameters for what constitutes a TEA. The basic requirement is that average unemployment is at or more than 150 per cent of the national average and that the enterprise will be doing business in the designated area.

The system is open to abuse, with critics arguing too much of the investment cash goes to projects in big cities, instead of helping struggling towns, as is the intention.

The Obama proposals would move the power to designate TEAs into the hands of the US Department of Homeland Security.

It is difficult to give much credence to the proposals of an administration that is now no longer in power, but these ideas are an indication of what could happen to the EB-5 program under President Donald Trump.

Despite Trump’s anti-immigration position, real estate industry sources firmly believe he will separate a crackdown on people in the U.S. illegally from a program that has generated billions in foreign investment.

The current program was temporarily extended to April 28, 2017 recently.

It has faced criticism from several sources, who want it abolished. There are several ongoing court cases linked to potential EB-5 fraud. There are calls for a body to be formed to oversee these transactions, to ensure transparency.

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Fraud Cases Linked to EB-5

• The developer behind a biomedical research facility in Vermont, which benefitted from EB-5 funding, is currently being investigated for misusing the money. The project had attracted $83 million of investment from 166 foreigners, many of them Chinese, who now risk losing their money. Developer Ariel Quiros, and several of his associates, stand accused of using the funding to buy a ski resort, a luxury New York condo and to pay tax bills.
• Developer Lobsang Dargey was accused of defrauding Chinese investors out of money for a tower in Belltown. Dargey no longer has control of the project and denies any wrongdoing.
• American Life, a recipient of more than $1 billion in EB-5 investment money, was fined $1.2 million for facilitating payments to unlicensed intermediaries in the U.S.

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