Les Khan on Blacklisting Discounters, Weeding Out Ghost Developers, And The Application Surge of 2021

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Speaking to IMI in an exclusive interview, Les Khan – CEO of the Saint Kitts & Nevis Citizenship by Investment Unit – reveals never-before-published details about the CIU’s blacklisting practices: What types of discounting is permitted, what is not, what exactly it takes to get blacklisted, and how market participants can report illegal practices to get firms blacklisted.

See the 3-minute highlight reel below, or watch the full 32-minute interview in the IMI Club Members’ Lounge.

Khan also answered questions about how he’s dealing with trickery under the program’s real estate option – developers taking investment without actually building anything – and outlines the steps agents and applicants can take to protect themselves against handing over money to ghost projects.

Processing, Khan points out, continued largely uninterrupted during the pandemic, though there was a period recently in which work was delayed for COVID-related reasons. He explains how the Unit was able to overcome the challenge and how processing routines have changed – especially as they relate to paper versus digital documents – to meet the demands imposed by the pandemic.

Weeding out developers who don’t develop

“We’ve learned from the past,” says Les Khan about the changes they’ve implemented in the last year-or-so for the program’s real estate option, notably as they related to the escrow law and payout schedules, which he indicates are deterring less serious property developers from raising capital through the program.

“We’re not seeing the large number of developers that were there in the market before. We’re seeing a limited number of developers, and these are the ones who are building, and these are the ones who are selling shares.”

Questioned as to Saint Kitts & Nevis’ checkered past of incomplete CBI hotel developments and what foreign investors can do to avoid investing in properties that, eventually, go unconstructed, Khan offers the following guidance:

“Get yourself an agent who’s registered with us. Because that means he’s gone through our due diligence, he’s shown us that he is doing the proper screening on clients, he’s looking at AML and KYC. He has also done his due diligence on the real estate development that he wants to sell so that he can understand who is at what level of construction.”

Investors should also request that agents show them videos that demonstrate the stage of construction the various developments have reached. Khan encourages prospective clients and international marketing agents to consult local service providers who can attest to what’s really going on on the ground and, as a final resort, to call up himself (Khan), directly.

In the interview, Khan also offered instructions on how clients and agents should proceed to report a firm for blacklisting if they observe the discounting rules being broken. He also shares an anecdote from a few months ago, in which he had to admonish an international marketing agent about the illegal discounting activities of its sub-agent, warning that if the activity did not stop, the IMA would itself be blacklisted.

Sharp growth in applications in 2021, especially for one investment category

As regular readers of IMI will know, Khan politely declines to share specific numbers on program performance – exact application and approval numbers, for example – but, during the interview, he did divulge details on the changing nationality distributions: One of the program’s previously biggest markets has seen a drastic decrease in application volume but Khan points to four other markets that have seen a sharp increase that has more than made up for attrition elsewhere. Overall, he says, approval volume so far in 2021 has outpaced that of 2020 (itself a good year for the program) by 30%.

Speaking about the balance of investors’ preferences in terms of real estate versus the fund option, Khan reveals (in the full interview) that one of the two is now accounting for the lion’s share of applications in a 75/25 percent split.

“If they advertise prices that are below the government prices, they will go on the blacklist“

Many agents lament the frequent occurrence of agents promoting entirely unauthorized discounts for the Saint Kitts & Nevis program and want to know what Khan’s CIU is doing to prevent such practices. Khan does not equivocate in his response:

“First things first: Anyone who advertises a price that is not the government-regulated price of US$200,000, US$400,000 [real estate], or the fund – of US$150,000 for a single applicant – is illegal, as far as I’m concerned, if they are advertising. They will get blacklisted.”

Khan says he has no compunction about naming, on his CIU’s public blacklist, those who engage in the practice, “as long as we have enough proof.”

Khan’s assurances notwithstanding, industry veterans have pointed out that only about a dozen companies feature on the Saint Kitts & Nevis CIU’s blacklist, a number they say is much too low to reflect the true extent of the problem. Pressed on the question of how far an agent needs to overstep the bounds to get reprimanded and, effectively, what it really takes to get blacklisted, Khan reiterates his previous stance but provides some additional context:

“If they advertise prices that are below the government prices, they will go on the blacklist. Now, I know that agents have pricing sheets. That’s not an advertisement; that’s a quotation. And we have to be very clear [about the difference] between the government-regulated prices and what a developer is willing to negotiate for – their commercial terms.”

What Saint Kitts & Nevis has done to address this through the Escrow Bill, Khan points out, is adopt a strict payout schedule.

“What this means is that regardless of what price this is sold at in the market, if that application has met all of its requirements in terms of documentation […] and the application ultimately gets approved, the developer has to put the full amount into escrow. The full amount, regardless of what price he sold at. And that money is going to be released based on the payout schedule that has been agreed to with the government.”

In the past, he comments, some agents would place the money in escrow and take it back out as soon as the application had been approved. That’s no longer possible, because of the escrow law and payout schedule system, Khan maintains.

“The days of coming in and going out of escrow are done.”

The escrow bill brought a “tightening”, he says, pointing out that the number of approved escrow agents has been reduced from more than 60 in 2018 to just three now.

“I also say to the clients and to the agents, ‘if you see an agent offering you the fund at less than US$150,000, then it’s illegal.”

IMI Club members can watch the full, 32-minute interview with Khan in the IMI Club Members’ Lounge by clicking the “Exclusive Interviews” tab. You must be logged in to access.