The recent announcement by Malaysia that it would reopen its popular MM2H (Malaysia My Second Home) program after almost two years of suspension is both welcomed and worrisome.
MM2H has been a leading choice within the investment migration industry for years. In fact, it has not only rivaled the US-EB5 and Turkish CIP in terms of client interest, but was at one point the world’s largest investor visa program, but that was pre-pandemic in 2019.
Three changes to MM2H are worth noting:
- Mandating a new 90-day per year physical residency requirement.
- Raising the fixed-deposit requirement to US$236,000.
- Raising the liquid asset requirement to US$350,000.
The first change makes participating in the program increasingly difficult if not impossible for seasonal vacationers that work elsewhere. The latter two changes simply place MM2H on the level of other citizenship by investment programs, but without the benefits.
Taken together, the changes put MM2H out of the reach of existing program holders, who are now being forced to find alternatives.
What the changes to MM2H demonstrate is that governments everywhere are quite capable of acting in a high-handed and bizarre fashion in order to garner votes, especially when they feel threatened.
In this case, Malaysian Prime Minister Muhyiddin Yassin is facing a widespread collapse of political support due to his complete mishandling of the economy and the country’s COVID response. As a result, the country has experienced a 5.6% GDP contraction in 2020, its worst performance since the 1998 Asian Financial Crisis.
The usual results have ensued, including currency devaluation, the collapse of personal buying power, and general political instability through suspension of the country’s democratic system of government.
Sticking it to a non-voting population
With the possibility of his parliamentary coalition collapsing, Mr. Yassin’s political life is at stake. So, he is looking to shore up his nationalist base. MM2H recipients are an easy target as their investments over the years have driven up the price of real estate, making it more difficult for locals to purchase homes. Hence the MM2H ‘reforms’, which target people that are not voters!
Halfway around the world, in Europe, we find a similar governmental response with cataclysmic results.
Cyprus abruptly closed its CIP last November because of a passport-granting scandal involving all aspects of the political system. The government of the day tried to limit the fallout prior to an upcoming parliamentary election.
The results have been stark. Ten months on, the government is still around but the Cypriot real estate market has essentially collapsed because the CIP was the main economic driver of the boom. Yes, the country does have a permanent residency solution, but it is simply not competitive in comparison to Portugal’s program, which represents a textbook example of a country getting investment migration ‘right’ – and keeping it so.
Portugal was the first EU jurisdiction to offer a residence by investment program, coining the term Golden Visa.
The Golden Visa program offers residence in Portugal, with the opportunity to apply for permanent residency or Portuguese citizenship after five years. The initial residence permit is issued for one year and is renewable for periods of two years thereafter.
The investment in Portugal covers the principal applicant and immediate family members; spouse, children, and parent dependents (over 65 years). There are several available options in terms of compliant investments: for example, investing a minimum of EUR 500,000 in real estate, or EUR 350,000 in a private equity fund investment option. Physical presence requirements are limited to two weeks in the first year and seven days thereafter. A short vacation with a wine tour will suffice. As Portugal is in the Schengen Area, recipients have unfettered access to Europe.
The Portugal program has been highly successful since inception and has greatly spurred job growth.
Nevertheless, Portugal, like other countries courting investment-migration-driven FDI, has experienced over the years a jump in real estate prices (primarily in Lisbon, Porto, and on the coast). This is because the Golden Visa program has been heavily property-focused, although there is now a growing investment fund market.
This has not gone unnoticed by the minority government of Prime Minister António Costa, which in 2020 announced that it would amend the Golden Visa program in order to take into account voter concerns.
However, Mr. Costa and his colleagues wisely did not do away with the program (as did Cyprus) or make it an unaffordable sham (as did Malaysia). Rather, the Portuguese government moved the property development options under Golden Visa away from Lisbon, Porto, and the coast to the interior of the country, and marginally raised investment thresholds for qualified categories such as funds, deposits, etc. Additionally, birthright citizenship is now available to children born in Portugal to foreign parents.
Thus, PM Costa tweaked the Golden Visa in a positive way.
In my opinion, PM Costa showed great political foresight to continue to support an industry generating much-needed FDI whilst being highly respectful of Portuguese citizens and their needs.
This brings me back to Malaysia and the MM2H.
What the Malaysian government has done is simply adverse to any form of functioning democracy that honestly believes in respecting people. Unlike Mr. Costa, Mr. Yassin is turning his back on thousands of investors that over the years have placed capital and created a second life in Malaysia, and helped to spur economic growth. The trust that Malaysia is a good place to invest in is now gone. It will not get better.
With respect to the affected MM2H holders, they should seriously consider fund options in Portugal, which remain at EUR 350,000 for the remainder of the year. The threshold is in keeping with the MM2H, and most importantly provides a pathway to Portuguese citizenship for them and their families. Most notably, Portuguese citizenship gives the holder the option to live, work or study in any one of the 27 EU countries. Starting in 2022, both funds and real property investments will be the same at EUR 500,000, so it simply becomes a question of investor choice and interest.
The minority government of PM Costa in Portugal has demonstrated a sensitivity to both foreign investors and citizens that is a welcomed change in the crazy pandemic world in which we now live. Since Portugal is a stable country and – without question – the euro is a highly stable currency, the Golden Visa is simply superior to MM2H.
Steven is a director and co-founder of Saratoga Capital Partners, a Nicosia-based private equity group focused on Europe and its peripheral markets. In addition to normal PE and asset management, Saratoga fosters 2nd citizenship and permanent residency compliant fund products, which are a useful vertical to the tax planning and family wealth needs of the discerning client.