The Case for Fund Investment for Chinese Golden Visa Applicants in Portugal

Michael Wolf
Sponsor


Investment immigration in Mainland China spans more than 30 years, during which the Mainland Chinese market has become the largest source for investor migrants globally. 

One of the most popular RCBI programs within the Chinese market is undoubtedly the Portuguese golden visa, in which Chinese applicants are the vast majority, contributing heavily to the 5.6 billion euros that golden visa has brought into Portugal’s economy. This figure makes the golden visa the second-highest-grossing RCBI program after the US EB5. It is no surprise then that nearly 300 institutions promote the golden visa in Mainland China.

In 2020, the COVID pandemic significantly disrupted the investment migration industry, along with the progress of most RCBI projects. Yet despite the travel restrictions, security issues, and other hindrances, the golden visa market kept going strong as high net worth individuals eagerly looking for opportunistic property investments and potential financial havens. 

“Customers began to focus on Europe, in particular for Portuguese golden residence cards,” said Michael Wolf, a Senior European project expert. “In the pandemic, customers have realized that [gaining citizenship under investment regulations] has an advantage against geopolitical risks and fluctuations. They want to invest in stability, they want their children’s choices for the future.”

Many governments responded to the economic crisis the pandemic brought by expanding residency and visa options throughout the past year. Governments applied this same tactic after the 2008 financial crisis to cover tax losses.

Portugal’s golden visa excels in this regard, as since its launch in 2012, it has consistently been one of the most popular residency by investment programs that attract foreign investment, and subsequently, taxes for the markets of Lisbon and other smaller cities. The Portuguese government’s plan and policy to resuscitate economic growth through the golden visa proved an overwhelming success. 

However, the golden visa may have the side-effect of raising demand for properties, as well as their prices. The Portuguese government sought to remedy that issue in 2020 and announced a string of changes that will come into effect in 2022; chief among them was that residential properties in Lisbon and Porto were no longer eligible for the golden visa. The aim was to curb price inflations in major cities while simultaneously boosting foreign investment in low-density areas throughout the country. 

Chinese investors responded quickly by flocking to Lisbon to obtain real estate under the current set of rules. The Chinese contingent is the largest source of foreign investment into Portuguese real estate and leads the property purchase charts in Lisbon, Porto, Cascais, and other major cities with little supply but ever-growing demand.  

As the housing market becomes exhausted, and investors worldwide, especially in the Asia Pacific region, continue to require the golden visa through a simple investment process, the answer comes in the form of investment funds.

Starting next year, golden visa applicants who choose the fund option will need to invest 500,000 euros instead of the currently available 350,000. But due to the simplicity and convenience of investment funds, they will become the most attractive option among the golden visa’s eight investment routes. 

The Portuguese government has two main objectives for including the investment fund option in the golden visa:

  1. Attract international capital into tangible assets, companies, and stock markets through fund channels.
  2. Encourage the establishment of new investment funds, especially in strategic development sectors, to stimulate the Portuguese economy.

Overview of golden visa investment funds

What are the requirements for a fund to be eligible for a golden vsia

There are two criteria a fund must meet to qualify for the golden visa; the fund:

  • Has a diversified portfolio and ensures that any investment in a single company, asset, or equity does not exceed 30% of the fund’s portfolio. 
  • Does not guarantee stable dividends

What are the types of investment funds in Portugal?

There is a large variety of investment funds to choose from under the golden visa. The main types of funds available to investors are:

  • Real estate investment funds
  • Securities funds – mainly investing in stocks
  • Venture capital funds – mainly focused on startups and enterprises

Risk levels, operating strategies, and ROI significantly vary between these types of funds. 

There are some fascinating funds to choose from, such as the Crown Capital Fund (CCF), established by YKcrown, is an industrial fund that mainly invests in real property and precious metals. The investment recuperation period is far shorter than that in securities or venture capital funds, making it an excellent option for foreign investors. 

Advantage of funds over real estate

Funds come with numerous advantages when compared to investing in real estate, here are just some of the main ones:

  • Currently, funds have a lower investment scale of 350,000 euros instead of the 500,000 euros price tag associated with real estate
  • Funds are a great way to diversify your investment instead of just buying one or two properties.
  • Many funds come with possible tax incentives.
  • Proceeds of your fund investment may not be taxed in certain circumstances, while property rental income is taxed at a rate of 28%
  • There is no withholding tax associated with funds.
  • Lower acquisition costs consisting only of transaction fees.
  • Professionals automatically manage your investment in funds, unlike real estate, where you either manage it independently or pay a third party to do it on your behalf.

How to choose an investment fund

Choosing the right investment fund may seem like a challenge if you are not a finance professional or seasoned investor, and there are a lot of issues that may make the entire process confusing. 

Assessing risk is the key to choosing the right fund. Mitigating risk means you get a higher chance of preserving your invested capital, and fund management companies now offer different funds ranging from very low to very high on the risk specturm.

The first thing to do is consider what risk level you are comfortable with, what type of fund you want to invest in, and your investment objectives. 

High-risk funds

If you are a risk-taking investor, there is an abundance of funds focused on startups or companies in innovative sectors. If a startup does indeed succeed, the value of the company portfolio of the fund you invested in may skyrocket. 

However, there are also viable risks that accompany these types of funds, as their investments go into more complex projects, than say, real estate developments.

Conservative investors

There are also funds for the risk-averse investor; these funds are usually asset-supported, and they normally invest in property, albeit through indirect channels. 

Real estate will always maintain a certain degree of value, whatever happens to the market, and that is why these funds are more suitable for conservative investors looking to hold on to their investments rather than hope for high returns. 

Analyze the fund

As we explained, different types of funds deploy different strategies for configuring cash flows and creating portfolios; some will focus on real estate while others may choose startups, securities, or otherwise.

You should meet with the fund manager and ask all the questions you have, as you can do the entire investment process yourself, and you should do your due diligence prior to putting any money forward. However, the best route is to employ the services of a seasoned consultant who can assess funds and pinpoint opportunities for you, saving you time, money, and any potential headaches you may encounter. 

Questions to ask any find manager

Here are the main questions you should ask the manager of any fund before investing:

  • What areas and investments will the fund focus on?
  • If it is a real estate fund: in what region or asset category?
  • If it is venture capital fund: what industry or investment stage?
  • How will the fund ensure diversification?
  • What is the target return?
  • What is the foundation for the payment of dividends? How long, based on what?
  • What is the expected yield at maturity?
  • How much capital is the fund trying to raise?
  • How much capital has already been raised?
  • Where do existing investors come from and how are they doing?
  • What fees will the fund investment involve?
  • What is the one-time subscription fee?
  • What is the annual management fee?
  • How much is the performance fee that the fund manager will receive at maturity? Is there any obstacle?
  • Who is the fund auditor?

Red flags to avoid

There are some issues that you should avoid at all costs when seeking investment funds; here are the main ones:

Insufficient funds – some companies raise the minimum committed capital threshold to advance investment, and this leads to insufficient funds to go ahead with the project. 

Fund management – not all fund managers will actually manage the fund, but just oversee it technically, as a third party will manage the fund. Always review the company that is actually managing the fund, and keep an eye out for any conflict of interest that may exist. 

Intercompany sales – some real estate companies may sell their own development to the fund. This means that the company will earn income when they sell their projects to a pool of funds backed by investors like yourself. These companies will still look for any extra profit, but don’t expect them to be motivated to go above and beyond. 

There are exceptions, of course, but be very careful.

Criteria to consider when choosing a fund for the golden visa

When deciding on an investment fund for the golden visa, it is crucial to weigh any possible risks, and to do so efficiently you must take note of these factors:

  • The qualification, leverage, liquidity, and legal standing (documents, certificates, etc.) of the Fund Manager;
  • Investment authorization;
  • Some funds may have lower ROI, but have lower risk;
  • Investment funds can withdraw early, but investors should can expect to recoup investments and all the profits after 5-10 years;
  • Industry exposure and diversified portfolios will determine the risk-return ratio of funds of each nature;
  • Unlike real estate investments, you are not the sole decision-maker for the fund; you need to understand if the fund has any potential expansion periods and when the fund manager can extend its duration.

YK CROWN Portugal Company profile

YK CROWN is a localized European real estate development and sales company headquartered in Luxembourg with branches in Portugal, Greece, and Turkey. YK CROWN provides quality real estate investment migration services to its many international clients.

YK CROWN Co., LTD., founded in Lisbon in 2016, provides us with a localization and in-depth understanding of the Portuguese real estate market and immigration policy. This intimate knowledge enables us to provide comprehensive and intricate services that meet the varying needs of different international clients. We assist clients to explore options, invest in top-notch ventures, and obtain the golden visa. 

YK CROWN Portugal’s mission is to make global investment and obtaining long-term EU residence a simple matter for international investors. We provide great value in the Portuguese real estate market in the shape of land, apartments, townhouses, single-family villas, office buildings, shops, and other kinds of properties.

We established a low-risk fund focusing on real estate projects that boasts stable returns. Our years of development experience has helped us form a strong team of local professional immigration consultants, real estate advisors, lawyers, copywriters, and after-sale personnel. We also boast a strong portfolio of investment projects that can be tailored to meet any client’s needs, and we pride ourselves on our thorough after-sales follow-up services. 

YK CROWN enjoys strong relations with relevant European government departments and cooperative agencies within the industry and has formed a strong, good reputation and brand in the market. 

Crown capital Fund Benefits:

 Here are the main benefits of investing in the Crown Capital Fund

The full Act support

Immigration through the golden visa with a fund application as per ACT 102 that came into effect on the 26th of November, 2017, allowing non-EU national citizens to obtain a Portuguese “gold visa” through capital transfer investment.

Multiple regulators

The establishment of a Portuguese investment fund is subject to the approval of the CMVM, which closely supervises the subsequent operations of the fund. 

The main function of the Portuguese CSRC (CMVM) is to protect investors and ensure the improvement and development of the financial market. 

The fund security is closely supervised by the Portuguese Central Bank (PCB) and EU Central Bank, ensuring that investors’ money is in safe hands. 

The National Financial Regulatory Commission (CNSF) also plays a part in coordinating the regulators mentioned above to improve regulatory efficiency and better protect investors.

The BDP has two main tasks, maintain stability within both national prices and the financial system. As a regulatory body, the BCP is part of the European Central Banking System and the Euro System, a unified regulatory mechanism and unified financial front. 

This framework encompasses monitoring operations of credit institutions, financial companies, payment institutions, and electronic currency institutions to ensure the safety of custody funds – such as FCR funds – and aid in developing preventative mechanisms against various illegal operations. 

Excellent fund management agency

Insula Capital, a multinational investment management company boasting a stable risk control strategy along with sound investment policies and a top-tier research system, is more than qualified to manage funds on your behalf. The company also holds EU public and private practice licesnces. 

Established on the 30th of July 1987, Insula Capital has since been under the supervision of the CMVM. Since the companies recent restructure in 2019 it has focused on highlighting the advantages of real estate funds, and has since managed assets of 600 million euros allocated to seven different funds. 

The advantage of the Portuguese EUR 350,000 fund for investment in immigration compared to other immigration investment methods.

Identity Security

Funds are supervised and secure, while other investment options are non-standardized products that heighten identity processing complexity. With funds, it’s simple; the Immigration Bureau approves the fund qualification, the subscription process is hence quick, and is it is not affected by the progress of a single project.

Scale effects disperse the risk.

Other investment options are centralized in a single project or asset, which denies them the flexibility to adjust according to market changes. On the other hand, funds have the advantage of flexibility and the ability to scale effectively, which in turn reduces risk through diversification.

We operate in mature property projects, not development projects.

Development projects, which, as their name implies, are still under development, wait longer periods for revenue growth, and are plagued with unpredictable development-stage risks. 

Mature property, which Crown Capital Funds invests in, produces consistent, predetermined returns that reflect local inflation levels. This strategy leads to growth in asset valuation as time passes. 

The exit strategy in mature products is more secure as well, as you have a tangible asset in hand. 

Mainly investing in cash flow assets increases leverage without increasing financial risk, and allows you to realize a closed-loop investment cycle of cash, real estate, and cash. 

If you want more information about YK Crown, Crown Capital, please contact dan_1 @sapo.pt directly.

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