How Citizenship by Investment Is Fueling Caribbean Hotel and Real Estate Development
By Joe Pike, Special Contributor
Citizenship by investment programs, which confer citizenship for buyers who meet a certain investment threshold, have been quietly fueling a surge in resort and real estate developments across the Caribbean.
At the forefront of that push is Range Developments, behind two of the most celebrated resorts in the region in recent years: the Park Hyatt St Kitts and the recently-debuted Cabrits Kempinski Dominica.
Mohammed Asaria, managing director and board member of Range Developments, says the pandemic has created new demand for CIP from investors, particularly from those in emerging markets.
So what does that mean for investors?
Asaria said some of his rules of engagement when it comes to making a secure investment in a CIP, which confers citizenship for buyers who meet a certain investment threshold, include knowing who owns the land the property is located on and making sure the developer has enough “skin in the game,” or money invested to be fully dedicated to the project.
In a recent interview with Caribbean Journal Invest (CJI), Asaria expanded on some of those points, noting that “skin in the game” equated to about 30 to 40 percent of equity.
Here’s what else Asaria and other tourism and investment experts had to say about capitalizing on a CIP during a pandemic.
The COVID-19 Effect
There are eight countries in the world that have a CIP, including five Caribbean nations. The other three are Turkey, Malta and Cyprus, Asaria said.
He said many emerging market investors, which include investors from South Africa, Vietnam, Nigeria, the Middle East and Russia, are actively seeking second citizenships as it will be tougher to obtain a visa if you are from these countries.
“I’m a firm believer that this has been a match thrown on a fire,” he said, referring to both today’s tense political climate and the ongoing pandemic. “You have social unrest and then you have people who have been locked up in their houses. The demand to invest in countries that offer citizenship by investment programs will be exponentially higher. It’s a hedge against social and political unrest.”
Gregor Nassief, proprietor of Secret Bay, The Residences at Secret Bay and the chairman and CEO of GEMS Holdings Limited, said the pandemic has actually created more interest in Dominica from investors, but has also slowed down the CIP process.
“COVID-19 has increased CIP demand as it proves the importance of mobility, and the need to quickly move to locations where there is relative safety and/or better healthcare,” he said. “At the same time, it has slowed processing of CIP applicants because of the paperwork involved from government institutions (birth or marriage certificates, police records, etc.) and the inaccessibility of such institutions during lockdown.”
Dean Fenton, U.S. director for the Antigua & Barbuda Tourism Authority, told CJI that Antigua and Barbuda’s CIP have also faced obstacles due to the pandemic.
“As would be expected, a global pandemic would affect the CIP, as it has all other business operations,” said Fenton. “While there has been some readjustment in the number of files being received, this is largely due to the inability of agents and immigration investment advisors to aggregate the documentation that is required for an application.”
He pointed mainly to delays in certification as one of the top hurdles in obtaining citizenship by investment in Antigua and Barbuda in a timely fashion.
“Government agencies, as well as private institutions, have had their operations severely curtailed,” said Fenton, “and so the ability to secure official documentation, and to have them certified takes a bit more time.”
But Fenton also said hope is on its way.
“What we have noticed, however, through our own modified electronic marketing, is that interest in the program is increasing,” he said. “As such, we anticipate that towards the middle of the third quarter through to the end of the year, we will see a marked increase in the number of applications received.”
Fenton also told CJI investors are generally interested in a clear understanding of the legislation that governs the program.
“They also ensure their familiarity with the application process for their own development as well as that of their potential clients,” he said. “Investors also have great interest in securing a local perspective on the market and the potential for growth. There is also generally an interest in understanding the government’s strategic vision for the sector.”
CIP Advantages
Fenton told CJI the citizenship by investment programs have been very beneficial to the tourism sector in Antigua and Barbuda.
At its inception in 2013, said Fenton, the program allowed eligible properties to become registered as approved developments, thus providing an immediate and relatively cost-free financing option for participating developments. More than 20 existing properties opted to apply for and were granted the designation of approved development, said Fenton.
“As a consequence, they were able to market sale of individual units or shares in their developments to potential CIP applicants whose interest was in holding real estate,” said Fenton. “Of equal importance to the sector was the incentive the program gave to existing properties to expand their room stock and the new projects that commenced in response to the program. More than 15 new properties have been approved under the program.”
So, what benefits are available for those investors looking to enter a CIP in Antigua and Barbuda?
“For potential investors in a country, participation in the citizenship by investment program provides an opportunity to raise complementary, low cost capital for the project of business,” said Fenton. “In the case of Antigua and Barbuda, investors in both real estate and other businesses are able to secure non-traditional financing or equity through their participation in the program.
“This, in turn, increases the financial viability of their enterprises,” added Fenton, “and allows them to scale up operations more quickly than if they relied solely on operational capital.”
Nassief also said both his The Residences at Secret Bay and Dominica, in general, provide a lot of benefits for investors looking to apply for a CIP.
“From a real estate perspective, Secret Bay is an existing operation with built villas and with a history of rental demand and financial returns, and the fact that it is being sold to CIP and non-CIP investors, offers a broader market for resale on exit,” said Nassief.
He also noted that he is seeing increased interest and demand due to the fact that Secret Bay’s villas are freestanding, each located on their own parcel of land, with private pools, “as opposed to the traditional clustered hotel room structures, or, in other words, a physically distanced experience, where privacy is the new luxury.”
“From a general CIP perspective, Dominica’s offering is very competitive,” he said, noting that the country offers visa free access to more than 130 countries, including Singapore and Russia, other countries in Europe, countries in the U.K and Hong Kong.
Nassief told CJI other benefits the CIP offers potential Dominica hotel investors include a favorable tax regime with no wealth, gift, inheritance, foreign income or capital gains tax; a stable political climate where dual citizenship is allowed and there is no requirement to reside in Dominica before or after citizenship is granted. Lastly, the application process is confidential.
In fact, Nassief told CJI that the citizenship by investment program “has given a significant boost to the construction pipeline as new hotels were built and are being built.”
“In the case of Secret Bay and The Residences at Secret Bay, we were an existing operation, but are expanding through a shared ownership model, which includes CIP and non-CIP ownership investment,” said Nassief.
One of the main advantages with Grenada’s, Dominica’s and St. Kitts’ CIP, said Asaria, is that an investor can sell their investment unit to another investor who also wishes to apply for citizenship of the respective country after a legislatively prescribed holding period. The new investor purchases the investment unit, but the former one gets to keep his/her citizenship, said Asaria.
Those three islands, said Asaria, are also extremely cost-effective. To put that in perspective, Asaria said the cost for a CIP in Grenada, Dominica and St. Kitts is $220,000, compared to roughly $2.5 million in Cyprus. Citizens of Grenada also have the benefit of visa-free travel to China. In fact, Asaria said Grenada is only one of five countries in the world that can say that. Grenada’s additional and unique benefits, said Asaria, “is that it provides its citizens a migration avenue to the U.S. under the E-2 Visa program.”
“It is important to understand that investment in CIP real estate projects is a qualifying investment for citizenship, and that citizenship can be obtained through the less expensive donation option,” said Nassief.
Asaria said the donation, or contribution, in Grenada and St. Kitts is a minimum cost of $150,000 per single person. It is $100,000 per single person in Dominica. All three islands’ donations equate to $200,000 for a family of four and the cost for a couple is “somewhere in between,” said Asaria.
“So, a CIP investor looking at real estate is spending more than they need to,” said Nassief, “and is, therefore, looking for a prudent investment with an experienced developer, a track record of success, the possibility of returns and capital appreciation, and a reasonable exit strategy.”
Range Reopening Dates
Some of Range Developments’ most notable luxury hotels include the Cabrits Resort & Spa Kempinski, Dominica; Six Senses La Sagesse, Grenada and The Park Hyatt St. Kitts.
Asaria said that excavations and structural work at the Six Senses will commence “very shortly.
He noted that Range was in the final stages of the award of the excavation and structural works contract “and these negotiations are currently drawing to a conclusion” with an opening date slated for the end of 2022.
