During the summer, the government of Quebec hosted a consultation round with the industry. I and many others came forward, in part, to notify the government that its decision to admit fewer investors would lead to a longer processing time; jumping from six to eight years.
The new government had the primitive idea of dumping its entire backlog for the economic immigration stream to start anew. Obviously, that would be impossible with immigrant investors as it would mean refunding CAD 15,000 per file. Nevertheless, the government put the ministry in a pickle and recently announced the suspension of the QIIP (Quebec Immigrant Investment Programme) for the year pending review.
The current government is, of course, responsible, but when a program starts having an absurdly long processing time, it starts to decay.
It is important to highlight the case of Quebec as it was the first to implement a file quota for its financial intermediary program a few years back. This move allowed the government to control demand by receiving precisely the number of files it desired. Once they gained control of the backlog, the government could deplete it with time.
Throughout the years before the last election, the processing time slowly decreased, renewing hope for the program. The 2018 election not only brought in a new government but also a decision to reduce the number of immigrants allowed into Quebec, which caused the program to relapse.
It’s not an isolated incident
Most will remember how the Federal government of Canada closed the CIIP (Canadian Immigrant and Integration Programme) and dumped tens of thousands of investor applications. In the same way, people have kept a close eye on the US EB-5 and its preposterous wait times, also driven by oversubscription.
Australia is also a good example of increased backlog and processing time due to its increasingly popular Business Innovation and Investment Program (BIIP). The looming issue is that any popular program is at risk of developing a backlog. As with certain types of cancer, if treated early, the patient can recover but, if left unchecked, the damage can be irreversible.
Most immigration streams have quotas. Sometimes the residence by investment program has a quota, and sometimes it’s the broader stream category (e.g. economic migrant). Immigration departments often receive more applications than its quota amount, or processing capability, due to administrative constraints.
Backlogs, therefore, are formed when the demand for a scheme is not aligned with its supply. An immigration professional can receive calls from disgruntled clients still waiting for their investor visa five years later. This problem not only affects consumer confidence in the product but also in the brand as a whole.
Here’s the big problem
The demand for RCBI (Residence and Citizenship by Investment) products has grown significantly over the past few years. New programs in Europe have also emerged to complement the existing offerings. But, as we know, demand and supply are not in equilibrium. Demand for RBIs perpetually exceeds supply, and backlogs continue to build in many of the programs.
Agents are signing clients and sending applications for a product that possibly has not been created yet. For example, the EB-5 product (typically a regional center) will only be created in five to ten years’ time. Nonetheless, the agent collects the fees and does part of the work in anticipation of the product becoming available in the future – essentially betting on the availability of a future commodity.
This template is risky as five years can mean up to two government changes. Even if agents take the associated risk into consideration with their service fee, a contingency plan should be in place in case the EB-5 backlog goes bust – paired with the possibility of other programs becoming increasingly toxic.
And here’s the huge problem
Let’s say the industry was sending 25,000 applications per year to ten programs but, in reality, only 10,000 slots could be supplied. The backlog would grow by 15,000 per year. In this case, the industry would earn the amount for 25,000 applications a year instead of the actual 10,000 seats. In other words, the industry would make money on an extra 15,000 applications every year on the presumption that they would be processed in the future.
If we follow the logic that too big a surplus in applications will inevitably shut down the most popular programs, the number would decrease from ten to seven – in other words, 10,000 real seats shrink to 5,000. In this case, the agents are likely to reroute clients towards the best remaining programs.
As fiction catches up with reality, the industry could realize it’s been selling far too many imaginary products to its clients. When that bubble bursts, it inevitably leads to a recession. Between China liberalizing its Entry-Exit regulation and the EU showing eagerness to curtail RCBI products in its jurisdictions, there could be an even larger disparity between demand and supply.
Over the last decade, the industry has experienced rapid growth, perhaps too much for the supply chain to sustain. The largest stumbling block, in my opinion, has been the government’s inability to adequately structure and build programs that have resounding success to the point of consensus.
As programs have been poorly designed, they have been easy to criticize. Due to this criticism, the schemes are not as popular as they could and should be. Europe could supply more than 30,000 main applicants a year if RBIs had a higher success rate.
What can be done?
There are several available options to improve and push the investment migration industry in the right direction;
- If the program adopted a structure similar to the QIIP and included a dozen solid and respectable companies to act as intermediaries, these companies would receive the application first, filter them, and scan for any irregularities before delivering them to the government. This process would then enable the government to control its application flow and, more importantly, hold someone accountable.
- Governments could realize that the concept of investment migration is not the issue, but rather their management of it. To take a few government workers with little to no expertise in the field and expect them to build an economic development policy with exceptional impact for €40,000 a year is completely irrational. It’s like expecting the Andorra national football team to bring home the European championship.
- The industry needs to look out for new programs and start selling second-tier programs. As the days of selling Canada and the US are over, it will be more difficult to find new, viable programs. However, there are still a few interesting places with untapped potential simply because no one has figured out how to make money from them yet.
- Agents need to take a good look at their books and see how badly they are exposed. If a hard recession hits the industry, will agents fold, tighten their belts, or go on a buying spree?
More from the Tajick’s Takes column:
- Who’s to Blame When Investment Migration Programs Have Little Economic Impact?
- Startup Visas: Governments Want Them, But Your Clients Don’t
- The RCBI-Industry’s Role in Shaping the New Global Economy
- 3 Reasons the EU Could Learn to Love Citizenship by Investment
Stephane Tajick is a researcher in the field of investment migration, the developer of the STC database on more than 200 residence and citizenship by investment programs worldwide. He is a regular columnist at Investment Migration Insider.