by Dennis Rodrigues
Over the last few months the potential growth of the EB-5 industry in Latin America is an increasingly hot topic in the world of investment immigration. Interest from wealthy Latin Americans is picking up, and the U.S. EB-5 industry is taking notice.
In 2014, the region as a whole represented less than three percent of the total (10,000) visas issued, with Brazil accounting for roughly 10 percent of that. Although still a small number for the region given the size of its overall population (approximately 600 million people), those familiar with the industry have observed a significant uptick in investor participation from the region this year, and expect this to continue.
Latin America presents different opportunities and challenges throughout the region; here, we will be focusing on its biggest market - Brazil. As the EB-5 market develops in Brazil and other countries in Latin America, we can learn much from how the industry has evolved in China and what can and cannot be applied to the Brazilian market. As with many new markets, the EB-5 industry must give special attention so that the industry grows in a structured and sustainable manner, allowing all of its participants to benefit.
Facets of the Brazilian EB-5 Market
Need for Awareness and Information
One of the challenges that the EB-5 industry faces in Brazil is a general lack of awareness regarding the EB-5 visa and investment process. In order for the market to evolve, increasing awareness must be the single most important focal point for all the stakeholders involved. SPREAD THE WORD! Most Brazilians have never heard of the EB-5 Immigrant Investor Program. Instead, some mistakenly believe that buying an apartment in the U.S. using an LLC, Corporation or other offshore legal entity structure could potentially be a qualification for a visa program. Many also believe that buying or starting a business in the United States would also qualify. The majority is completely unaware of the program, or even if they have heard of it, they know nothing of its requirements.
Opportunity for Migration Agents
If interested parties do happen to ask a local lawyer or accountant, they generally are given misleading or uninformed advice. Migration agents and intermediaries are still rare in Brazil, so many Brazilians have limited access to sound information. To meet the need for information as interest grows, the migration agency industry may see an uptick in growth in light of rapidly rising unemployment across industries including finance and banking, which may bring opportunities to those caught in the down cycle as companies will have to downsize to accommodate the new economic realities. Even so, migration agencies are still in their early days in Brazil, although some in the market are slowly beginning to recognize the migration agent as a profession.
Perhaps given the absence of migration agencies, Brazilians routinely use state-side immigration attorneys directly, or even go at it alone. Local attorneys and accountants are often asked about business structures that could allow for the possibility of living in the U.S., but typical solutions are short term and transient; not permanent residency. While most local Brazilian attorneys and accountants can suggest an offshore tax efficiency structure to purchase a house or apartment in the United States, very few have a thorough understanding of the EB-5 program and its many investment structures. As in China, migration agents could have a key role to play as on the ground advocates for current and future EB-5 Investors.
Best Practices for building the Brazilian EB-5 Market
Chinese migration agents have been an important part of the overall success of the EB-5 program. Unlike in China, however, Brazil has no regulation at this time when it comes to migration agents. With that in mind, EB-5 stakeholders must examine and start out using best practices for what could arguably be the future model for the industry.
Recognize Cultural Differences
One of the points to focus on with regional center partners is that they must have a medium to long-term view of the opportunity. They must understand that the Latin culture is much different than Chinese culture. First, Brazilians tend to be skeptical about everything, as though there is an angle that they are not seeing. They want to understand all of the specifics of the investment, the process and developing the necessary trust takes time. Secondly, Brazilians tend to look at the EB-5 program as a possible opportunity to live in a safer environment versus leaving for political reasons, as may be the case in China. Third, Latins in general have strong family units, its not uncommon for a son or daughter to live at home after completing their education or having an elderly parent living with the family. Leaving family behind is a major challenge for Brazilians. Even so, there are also similarities, such as providing a son or daughter with the opportunity to study in the United States, starting a career and have the advantage of a better start in life.
Establish a Strong Network
Establishing a strong network of migration agents, regional centers, attorneys, accountants and other stakeholders is a must. Given the vast geographic footprint of Brazil dissemination of the EB-5 program may be a challenge as well as making certain that agents follow best practices. As with any new product in a new market all stakeholders must ensure that consumer confidence for the program remains solid. Similar to how program recognition has evolved in China, positive press, word of mouth and real life stories are essential as one participant passes along their experience to other family members, friends and colleagues.
Regional Centers together with industry experts must dedicate the necessary time to cultivate this market and the industry as has done in China and elsewhere. Did you know that Brazil represents the sixth largest asset management market in the world? We must have more industry-sponsored events, more interaction from regional centers, developers, attorneys, accountants and tax experts, etc. in the country to bring awareness to the market. As with any new investment product, the market must gain a basic understanding of how it works in order for adoption to happen. Managing expectations is essential as the country will need time to digest the information and understand the concept. There are definite challenges to overcome, but many believe the market will prove to be fertile territory for the EB-5 program.
Ripe for EB-5
To say that Brazil is in the perfect storm is not an overstatement. The country is going through a political, economic and social crisis not seen in decades.
- Political: Presidential impeachment, corruption allegations at the highest levels of government, mass protests against the government, scandal within the ruling party coalition.
- Economic: Commodity bust, high interest rates, low economic growth, largest corruption scandal in corporate history in state oil company Petrobras, credit rating downgrade, privatization programs stalled, corporate insiders jailed.
- Social: Crime and public safety continues to plague Brazil. It has one of the highest homicide rates in the world. Schools being closed in its largest state due to cost cuts, Health and transportation systems dysfunctional. Most middle class Brazilians disillusioned with future of the country.
As Brazilians deal with this crisis, understanding the opportunities of investing in the United States through the EB-5 program is becoming an increasingly viable alternative. Given the affinity that Brazilians have for the United States (in 2013 alone, 1.8 million Brazilians visited the United States) emigration appears to be a natural, compelling choice for those that have the means. Brazilians often have a familiarity with the United States as some may have studied or have worked in the country. Some also already have financial assets in the United States in the form of bank or investment accounts, which is a result of reduction of capital controls over the last two decades. As an example, Florida has long been a destination of choice not only as a vacation destination but also for real estate investments from wealthy and middle class Brazilians. Miami has been a direct benefactor, as today Brazilians are the second largest real estate buyers in the city next to U.S. citizens. Climate, culture, public safety and ease of travel have all been positive factors bringing Brazilians to the United States and Florida in particular.
Introducing an investor to a program that allows permanent residency in the United States through a passive investment meeting EB-5 program requirements versus buying or operating a business and dealing with its complexities is a revelation for most. As Brazil goes through this transition which will play out over the next few years this market presents a good opportunity for the EB-5 industry and holds strong future prospects in what still is Latin America’s largest economy.