Who Are Indian EB-5 Investors? Examining demographics and motivations, with Sandhya Kapoor.
India is one of the largest EB-5 markets, and it's important to understand what motivates Indian investors. What is most important to them and what are their main concerns?
Sandhya Kapoor, director at ActiveAvenues, chats with host Ali Jahangiri, and reveals what developers, regional centers and attorneys should know about Indian EB-5 market.
Sandhya: [00:00:05] The E-2 does grant you the right to live and run a business in the US as long as the underlying business investment is maintained. But keep in mind the profile of the investor is very different. So first of all, for an Indian investor, it necessitates a change in citizenship because India does not have an E-2 visa treaty with the US. So the first step for an Indian investor would be to change their citizenship to a country which has an E-2 visa treaty. So it would be change your citizenship to Grenada and then apply for an E-2. So first that has to be done.
Ali: [00:00:50] This is the voice of EB-5 by EB5 Investors Magazine. Each week we sit down with the experts in the EB-5 investment space to get valuable insights and the latest EB-5 news. Welcome, everybody to the voice of EB-5 with Ali Jahangiri and Sandhya Kapoor as our guest today. I want to say we probably met about five or six years ago. I believe it was India, or it could have been one of our at our annual events in the US. Sandhya's been very active in India. Her company is called Active Avenues. It's a leading Indian based consultancy for residency and citizenship. Active Avenues has been expanding. They have a few employees in Mumbai, Delhi, Bangalore, and they've been growing into a lot of the international programs. They represent Portugal, Grenada, Malta, Greece, etc. They also do EB-5. So hence our discussion here. They are probably one of the predominant and leading groups I would say that I've worked with in India, and it's a pleasure having you. Sandhya, welcome to the show.
Sandhya: [00:02:00] Thanks, Ali. Happy to be here.
Ali: [00:02:02] Thank you for joining us. I'm going to turn it over to you for a couple of questions about India. I know it's on the top of everyone's mind right now. Tell us a little bit about your practice and how you approach this whole immigrant investment visa for EB-5.
Sandhya: [00:02:17] Sure. Yeah. With regard to what you were saying earlier, we actually started in this space with EB-5, and from there we expanded to other programs. So EB-5 is actually the first investment migration program to come to India that became popular in India. And I credited for creating most of the awareness that there is regarding this industry today in India.
Ali: [00:02:43] That's so cool. I didn't know that actually. Sandhya What year did that happen?
Sandhya: [00:02:47] This was 2015. I know there had been applications from India before that in EB-5, but there was no other India based agency on the ground that was consulting with any Indians on EB-5. So we were one of the first to start in this space. And then as awareness grew and people realized that there is an investment program for every country, almost every country in the world-- that can fast track a permanent residency or a citizenship by investing money in a stipulated way. And we started receiving inquiries for other programs for the European Golden Visa, programs, for the Caribbean programs. And from there it just grew as where we saw a demand. We started consulting on those programs. So that's really the way it's grown.
Ali: [00:03:37] That's really cool to know. And I think it was the I'm not sure what year it was when we met. I'm guessing it was 2016, 17, but and it might have been right after this whole the start of the India program.
Sandhya: [00:03:48] Correct, I think it was when you had your first event, the first EB-5 investors event in India and believe that was 2017.
Ali: [00:03:57] Oh great.
Sandhya: [00:03:58] That event really put India on the map because it made us look like we were now a serious EB-5 market, right? A lot of the regionals.
Ali: [00:04:06] Where you're super serious now, right?
Sandhya: [00:04:10] But many regional centers and law firms never considered India till then. It was kind of an eye opener for them that, well, if EB-5 investors will be doing an event in India that it's worth visiting.
Ali: [00:04:22] Yeah, I'm happy that we were able to catch the trend prior and build a relationship with you as well. Sandhya I'm very honored to be part of your network. Likewise, I want to go into kind of what you're seeing with the investor profile. This podcast gets syndicated among the entire industry, so I kind of want to see what are you seeing about with getting into the psyche of the Indian investor. I know it's a unique and interesting topic. What are some of the obstacles or what is your analysis when you think about the Indian investor As of today, looking at EB-5.
Sandhya: [00:04:59] I think with the Indian investors there's really two main concerns when they are going into the program is they are looking at the success of the immigrant application and they are looking at the preservation of the principal investment. So this is top of mind when an investor is looking at the EB-5 program and is evaluating projects. Now, the success of the immigrant application depends largely on job creation in the project, and the preservation of capital depends largely on the financial viability of the project and the developer. In some cases, these can prove to be parallel as a project may not achieve the financial viability that it had projected, but it may still create the jobs that are necessary for the success of the immigrant application. So coming down, breaking them down, job creation in a regional center investment is basically a factor of capital spent. So it is important to have.
Ali: [00:05:59] Are you saying that job creation is kind of the forefront of their minds when they're investing, or is it more so getting? Their money back. Is it the visa or is it the investment you think?
Sandhya: [00:06:09] No. So it's both. They want the visa and they want the investment. And the visa depends largely on the job creation because they can invest money, like I said, in a project which does not do well financially, but it can still create the jobs that are required for the visa. So they are really looking at both aspects. What I'm trying to say is that they don't always intersect. It's not necessarily that if in a project which is not financially viable, they necessarily lose the green card. But job creation for a regional centre investment, it's all about the capital being spent, right? Because the capital is not spent, then the jobs are not created. And so it is very important to have the capital stack in place and to be clearly identified. The developer equity, the senior loan, if there is one, any funding, any construction loan, it should all be in place, The agreements should all be in place. Developer equity should either already be spent or in the process of being spent. The project should not be dependent on EB-5 capital, which means that if the regional centre is not able to raise a necessary amount of money EB-5 money, the project should still get completed and the jobs should still get created.
Sandhya: [00:07:24] And obviously if the project is already in progress, as in construction has begun and jobs have already been created and that's a plus, right? So that is one big aspect that they're looking at. Once they understand the way the program works and when they're looking at project selection. The other aspect, which is the financial viability, obviously that depends on the feasibility of the projects, product or service, the asset class, the location, how recession proof the business is, the inputs that have been used for the cash flow projections, The exit strategy. Again, in this case as well, if the project is already in progress or near completion and it has already started generating revenue or is already in pre lease or pre-sales, of course that is a big plus as well. So these are really the two main aspects that investors are focusing on. They're not swayed by high returns on capital. They understand that the return on this investment is primarily the green card.
Ali: [00:08:24] Would it be typical to charge them, let's say 25 basis points or 50 basis points? Is that typical?
Sandhya: [00:08:30] Yeah, that's typical. Point 0.25, 0.5. Yeah.
Ali: [00:08:33] So if someone comes up with a programme and says, hey, you know, we're going to start giving investors 3% or 5% interest per year, do you think that changes their decision to invest in a project or not?
Sandhya: [00:08:46] If the parameters that I just mentioned are in place, if you show me a project that says I'm going to give you 3%, but you know what? I don't have my senior lender in place. I'm putting like 7% developer equity and the regional centre has just started raising capital then. No, they won't go for the 3%.
Ali: [00:09:03] It's interesting because some developers, they want to have a competitive advantage, right? Of course everyone does. But I've seen some people talk about higher returns. Yeah, and it's unique to see that actually it does not make a difference. It's all the other factors, right?
Sandhya: [00:09:21] Yeah. Look, if a project can fulfill the job creation requirements and everything is in place, it's in progress. It has exemplar, it has construction has started, job creation is almost in place. And you say, okay, and I'm offering you 3%. Great. But show me a project like that.
Ali: [00:09:38] Right, Exactly. Tell me about this exemplar. Why are you focusing on the exemplar? Is it a lot of these projects they file in, they're ready to go. What difference does that make?
Sandhya: [00:09:50] Yeah. So now, honestly, that is going to be the case with the Reform Act, because most of the projects we're dealing with right now.
Ali: [00:09:57] No one has.
Sandhya: [00:09:58] They've just about file exemplar. But that was a consideration earlier when projects they would have the foresight to file an exemplar almost eight months in advance and typically they would have an approved exemplar by the time they started marketing a project. And in no way is that again, it's not a singular basis for selecting the project, but it's a nice to have. Of course, now with everything that has happened in the last few months, most projects which are in the market have just about file an exemplar, so we won't see that concept again for a while.
Ali: [00:10:31] You know, that's true. So going into the folks that have kind of succeeded in the happy clients you've had, have you typically seen that the investors that you're working with, are they from middle class families? What's that investor looking for? Are they coming to the US for education already currently in the US, what does that investor kind of look like?
Sandhya: [00:10:55] Yeah, so Ali, another fun fact about India is almost 80% of our applications are made directly in the name of children. Most Indian HNWI who are in that income bracket. And it's not just the income bracket who have the kind of sourced money, Right. Which you can easily source. And it's it's ready to be put into an EB-5 application. Most of such investors are not looking at the green card for themselves. They actually do not intend to benefit from the application. It is possible, and the youngest child we filed for is probably 13. And if the child is old enough where it is possible to file in the child's name, then they would rather just go ahead and file in the child's name and just stay out of the application. Of course, when the family has two children who would benefit from the application, then one of the parents ends up being, or sometimes both the parents, are included on the application.
Ali: [00:11:55] I love these fun facts Sandhya. Throw me as many as you can. These are super cool.
Sandhya: [00:12:00] Yeah.
Ali: [00:12:00] So 80% of the applications are done in one child's name. And is that for tax purposes? Are the parents trying to protect themselves?
Sandhya: [00:12:08] Well, I don't know if it is for tax purposes, because these are they are typically very highly placed professionals in India. They are earning that kind of money. All their money is tax paid in any case. And India's tax rate in that bracket is not so different from the US. I don't think it's that. I think they just don't want they don't have the intention to migrate and they don't want to have to go through the necessity of maintaining the green card. And so they're just not interested in the US for themselves.
Ali: [00:12:36] Let's just make an example. Is this kind of the person down the street that owns maybe a chain of retail stores? Is it the family that got some inheritance money? Were they getting their money to Where is that coming from?
Sandhya: [00:12:48] So they're typically professionals. These are like CXOs of large Indian companies or multinational companies in India. Typically, they are not business families.
Ali: [00:12:58] They're not business owners usually. Or are they executive of telecom?
Sandhya: [00:13:04] Mostly their executives.
Ali: [00:13:06] Got it. So why not business owners?
Sandhya: [00:13:08] Well, one of the reasons is that I think business owners, they typically just re-invest their money back into their company. Very rarely do they take personal distributions. So their mindset is very different from professionals. And then, of course, there's always the age old Indian thinking that, well, my kids, they can always come back to India and work with me in my business. And I'm not saying that this applies to everyone. There's a lot of people who think out of the box and have made it a point that their children do not come back to India and work in their businesses and they have like some exposure outside. But I think that's primarily it. They can always come back here, they can work. They have a good life here.
Ali: [00:13:48] Are they hedging, Sonia? Are they running two different parallel courses like H-1B, and also EB-5 at the same time? Are you seeing that?
Sandhya: [00:13:55] Yeah. I mean look, where an investor and can apply for an H-1B as well, they do, right? Because there's no harm in having two parallel courses and because the H-1B is a dual intent visa, it doesn't interfere with the EB-5 application. So if you can have two irons in the fire, why not? Now? This became especially relevant, Ali, when the program lapsed, it was unclear when it would be reinstated and in what form or fashion. And at some point it was even unclear that the previous applications would be grandfathered in. So at that time, it became very relevant because anyone who had a parallel H-1B application in the pipeline, they just had a safety net.
Ali: [00:14:41] That makes sense. So you do see that often with these folks. And are you seeing most of these folks already have a presence in the US? Like is it current students or are you seeing it more like you said, the 13 year old before they come to the US? They're filing an application.
Sandhya: [00:14:57] A little bit of both. I think the 13 year old was maybe that was right before the November deadline when the amount increased. So I think that it was a factor of that as well. Maybe the parents would have waited a couple of years before filing if that was not the case. But typically it is students who are now already in the US.
Ali: [00:15:16] Yeah, that's what I was thinking is you want to keep your child studying and keep them in the US after and keep them there after they get there, after their student visa expires. So pushing this into the last two years, we know EB-5, there's a transition period and there's a point in which it was not selling because it wasn't around. Was there other investment programs that you thought would be like second best or third in that time period?
Sandhya: [00:15:45] So if you're asking, was there another investment program which was a substitute to EB-5, I think the answer is no. I don't think there is any substitute for this program because other avenues that our investors have considered and this is, of course, even before the program lapse typically. If I'm in the U.S. as a student, I will first see if I can get an H-1B or if I'm a person looking for employment. I will first see if I can get an L-1 or EB1C, So so those streams have always been there, and I think most investors first always explore those before they start thinking about EB-5. But as most categories are oversubscribed and success rate is not very high. So that's when I think the investor has become more serious about EB-5. Now, when the program was lapsed, I know, for example, the E-2 visa was being marketed as a substitute for EB-5 as kind of a cheaper and faster alternative. And this is actually even before the program lapsed. I mean, this is from the time when the investment amount went from 500,000 to 900,000. But they're different. I mean, the E-2 is a nonimmigrant visa and the EB-5 is an immigrant visa and it grants the investor a green card. Now an E-2 application can sometimes be used as a base for an immigrant visa in the future, but that's not always possible. And also success is not always guaranteed. Having said that, the E-2 does grant you the right to live and run a business in the US as long as the underlying business investment is maintained. But keep in mind the profile of the investor is very different. So first of all, for an Indian investor, it necessitates a change in citizenship, right? Because India does not have an E-2 visa treaty with the US. So the first step for an Indian investor would be to change their citizenship to a country which has an E-2 visa treaty and.
Ali: [00:17:44] You Caribbean go first and then.
Sandhya: [00:17:48] So it would be change your citizenship to Grenada and then apply for an E-2. So first that has to be done.
Ali: [00:17:53] Sandhya How long does that take for them to get their Grenada citizenship?
Sandhya: [00:17:57] Grenada has also become backlogged in the last few months since they had their election and there have been changes in the government and the program. So now it is taking about 6 to 8 months
Ali: [00:18:10] Grenada. And then after that you apply for an E-2 correct. Why would you choose Grenada over the other a handful of countries out there.
Sandhya: [00:18:19] Over the other Caribbean countries?
Ali: [00:18:21] Yeah.
Sandhya: [00:18:22] Because it's the only one that has treaty with the US.
Ali: [00:18:25] Got it. Thanks for clarifying that. So the other countries like St Kitts and everyone do not have the E-2 option.
Sandhya: [00:18:32] That's correct.
Ali: [00:18:33] That's why it's so hot. Is that the reason why it's in backlog with the Grenada?
Sandhya: [00:18:38] Well, I think there was a very high volume of applications in any case at the beginning of the year because we received approvals in three months at the beginning of the year. But then after that, it got severely backlogged and then there was an election in June. And changes have obviously followed and things have just been backlogged since then.
Ali: [00:18:58] So I'm not an E-2 expert, but tell me a little bit about this process. So let's say 6 to 8 months, they turn into a Grenada citizen and at that point you spend what you purchase a business or you start a business for, what, 100,000 or so?
Sandhya: [00:19:13] Yeah. So there is no minimum amount as such for the E-2. It really also depends on the nature of the business. So obviously capital intensive businesses, it would logically require a higher investment amount or maybe a consulting firm. Et cetera. But it should be a business that should be able to generate a revenue for the investor and their family to be able to live in the US. So there's no minimum amount check point. Most investors put anywhere between 150,000 to about 300,000.
Ali: [00:19:41] Is it an active business or can it be a passive business?
Sandhya: [00:19:44] It is an active business, but like EB-5, there are E-2 investments that you can make which would require you to take on a more passive role.
Ali: [00:19:53] I guess this is kind of like a mix between it. And is there also companies and other groups out there that have potential partnership options versus starting something from scratch? Is there some options?
Sandhya: [00:20:05] Yeah, so that's what I was saying in the previous point that like EB-5, they also have ready E-2 projects where an investor can put down money and that would require them to take on a more passive role and that is for E-2 purposes. And then they can maybe switch their attention to another business that they want to invest in. But what is clear is that an E-2 investor cannot take up employment. So that's when we were talking about investor profile. That's another thing I wanted to mention, which is that they have to necessarily either be involved in this business or multiple businesses, but the E-2 visa does not allow you to take up employment in the US. It's a business visa.
Ali: [00:20:42] I see what you're saying. So it's mostly getting your visa for five years. Yeah, but you're employed by the E-2 company that you've started. Correct. You're getting payroll from that company.
Sandhya: [00:20:55] Yeah. And one of the other choices for the E-2 is also that it does not because it's not an immigrant visa and does not grant you a green card, you don't by default. All into the US tax net. Right. So if an E-2 investor spends less time in the US than is required to pass substantial presence, then they're not tax resident in the US for that year. So that's again, when you're looking at the investor profile, the EB-5 investors are looking for very different things from the E-2 investors because like I said, typically 80% for kids are looking for employment. They're not necessarily looking to start their own businesses. They want a green card, they don't want a business visa.
Ali: [00:21:36] So so not not to get too technical about this distinction, but let's just say I'm in an E-2 investor from India. I use a Grenada program through your company and officially I'm an E-2. Does that mean that I can't go get a job at another company and have a payroll from another company as well?
Sandhya: [00:21:57] Yeah, you cannot seek employment.
Ali: [00:21:59] That's a huge debilitating factor to this whole program, Right?
Sandhya: [00:22:02] It's a business visa. It's not a permanent residency.
Ali: [00:22:06] Right. So your business better be successful, basically.
Sandhya: [00:22:10] Yeah.
Ali: [00:22:11] Or you're calling home for money.
Sandhya: [00:22:13] Correct.
Ali: [00:22:14] Okay, cool. So thanks for digging in deep on that issue. It's not often we ever talk about that on our podcast. And that's so that's a good option that's been around. But more importantly, on the EB-5 side, I'm worried about the currency right now at this point juncture in the rising interest rates, as you know, across the world, currency devaluing. Now the number is 800,000 for this investment. And so the investor kind of changed to a little bit of higher net worth investor, I'm guessing, because that number one up by 300,000. Were you guys worried about currency issues and volume of people wanting to get into EB-5 because the number is increased and maybe the currency has been maybe, I'm not sure I haven't looked at the Indian currency-- but is there issues with that right now?
Sandhya: [00:23:03] Well, you know what?
Ali: [00:23:04] People super wealthy, they're like, oh, whatever, 300 grand extra.
Sandhya: [00:23:08] I wouldn't put it like that. I wouldn't say that they're agnostic to currency devaluation, but at the same time, would that deter them from investing in the program? I would say no. And it's interesting how this whole decision making, the way it takes place and sometimes it takes years for the investor to make up their mind that they want to move ahead with the investment, and rightfully so, because it is a large amount and it's going to be parked aside for a bunch of years. It's not going to give them any return. So they need to be very clear in their head that that is what they want for themselves or for their children. But I must say that once their mind is made up, this does not deter them. Yes. Would they prefer to have invested when the currency was better valued? Sure. But at the same time they put a brake on the process because of what's going on? I would say no. I mean, we've been asked this question at different occasions, actually, like when the investment amount went up from 500,000 900,000 in November. And of course, initially there was a complete lull because it was a big change in amount to digest. And then, of course, for the longest time, because of all the lawsuits that followed, there was hope that possibly it could come back down to 500,000. And it did for a very brief period of time. So because of that unclarity, a lot of I think we didn't see much movement in the market. But I think post that post going back up to 900,000 and before the program lapse, we had investors who we had already started working with on their source of funds and they were definitely interested in moving ahead. Yes, the volume shrinked to some extent, it did, but at the same time, did this change in investment amount completely deter investors from moving ahead with EB-5 once they were clear that is what they wanted for themselves or for their children? No, it did not.
Sandhya: [00:25:02] So. Same thing happened when little things keep happening. Demonetisation happened in India. Again, there was a lull for like a couple of months and then things were back. India imposed a TCS of 5% on outward remittances. There, too. There was a little bit of a lull for a bit in each case. It takes a while for obviously the investors to realign their thinking to now the investment being more expensive. But once that is there, once that happens, then they will move ahead and they will make the investment. And, you know, I'll give you examples of where we've spoken with families maybe four years ago when the amount was 500,000 and they had two kids. And at the time, if they had made the investment, they could have easily covered both the kids in 500,000. But they chose not to move ahead because they were just not sure that that is what their children wanted or that's what they wanted for their children. But now they are willing to make that investment for one child because now the kids are too old to come under the same application and they're willing to make that investment. for one child at 800,000 when they are clear this is what the kid wants or this is what they want. So that's really the way it works. They need to be sure in their head. They need to be clear that this is what they want. And then after that, yes, the investment becoming a little more expensive. That will not stop them.
Ali: [00:26:21] That's interesting. So, Sandhya, you've been one of my favorite podcast guests here because of all the wealth of knowledge. And I think we need to do a part two at some point here. Sandhya Part two. I'm looking forward. There's a bunch of developers coming with us, centers, developers, etc., lawyers coming with us to India in the next couple of weeks. So we're going to be publishing this prior and letting people know you're out there. Is there any kind of advice you want to give in general to developers coming or the regional centers coming in to the market that are new? And I say this because we get calls all the time from new centers/developers entering into the market. And since you've been around for quite a while and have the Indian market under your knowledge, what kind of advice can you give them regarding their project? Is there a tip that you want to give them? Hey guys, make sure you have 20% equity in your deals, or because you're talking about underwriting a lot recently. And I wanted to jump back into that really quick for the folks that are going to be coming.
Sandhya: [00:27:27] I think this is a lesson learned the hard way, even with the regional centers that have been in India now for about five, six years, is that this market is very different from the Chinese market, for example, where I think language is a barrier and investors, they're ready to invest in project because their friend or their brother or their sister has invested in the project. So India does not work like that. Every investor is a personal sale. Indian investors are extremely sophisticated. They ask a lot of questions. They expect you to have the answers. You can't give answers like, Oh, I'll get back to you. They expect you to have the answers at the tip of your fingers. And that was something that came as a shock to the regional centers that came here five years earlier. Because they were not used to these kind of meetings. They were not used to being asked so many questions. They were not used to investors actually going through the offering documents, the PBM, the loan agreement, the operating agreement, I mean, every single document.
Ali: [00:28:24] These are the diligence level is A lot higher.
Sandhya: [00:28:26] It's a lot higher. Yeah.
Ali: [00:28:28] Wow. That's good for them to know, because I know a lot of folks, they culturally, you're not used to English speaking EB-5 investment countries, but India is.
Sandhya: [00:28:39] Yeah, India is. And also I think it's just the nature of the Indian investor. Like I said, they're sophisticated. They can teach us a thing or two, right, about evaluating investments. So you need to be prepared for that. Otherwise, otherwise you just sink.
Ali: [00:28:54] Yeah, be prepared to get your deal analyzed, basically.
Sandhya: [00:28:58] Correct.
Ali: [00:28:59] That's great. Well, Sandhya , thank you so much. I look forward to seeing you in a couple of weeks and hopefully we're coming to Delhi in March. So plan on also maybe doing a podcast with you before that event as well.
Sandhya: [00:29:12] Sure. Sounds good.
Ali: [00:29:13] Thank you so much for everything you do out there and stay safe.
Sandhya: [00:29:17] Great. Thanks, Ali.
Ali: [00:29:22] This has been the voice of EB-5 by EB5 Investors magazine. To learn more about the steps so please visit eb5investors.com/podcast. To stay up to date with the latest EB-5 discussions. Be sure to subscribe to the show wherever you listen to the podcast. And if you like the show, please consider leaving us a five star review. It helps us out a lot. See you next week.