Virginia, US
For over 30 years, governments across the world have offered residence permits or citizenship to high net worth individuals (HNWI) willing to invest substantial sums in their economies, but the number of countries with immigrant investor programs has increased dramatically in the past decade. Models reflect governments’ specific economic objectives, as well as their search for a competitive edge as the market for investment-linked visas becomes more crowded. All of these programs purport to ‘stimulate growth and employment through attracting more foreign capital and investment by way of offering a citizenship/residency status to [HNWI]’. 
An increasing number of programs include an offering of citizenship, permanent residence or residency leading to citizenship in return for investment in real estate, and these programs are proving popular with HNWI. 
Programs offering a real estate route to residency  
Across Europe, a significant number of countries offer property purchase based residency permits, which in some cases confer citizenship of an EU country and the rights of free movement that entails and in others offer residency granting also access to the Schengen countries.

Cyprus offers citizenship for those investing in real estate with no residency requirement, leading to free movement across the EU, for an investment of at least EUR 5 million (or EUR 2.5 million as part of a collective investment) in real estate. Portugal and Spain both offer residency on the basis of real estate purchase of at least EUR 500,000. Latvia too offers residence on this basis but with a lower investment threshold of EUR 250,000.

Saint Kitts and Nevis, one of the longest running programs (established in 1984) has long offered immediate citizenship for an investment in approved real estate of USD 400,000. Antigua and Barbuda offers the same, as does Grenada (property purchase value of at least USD 250,000), and Dominica has also recently introduced a real estate investment option (property value must be at least USD 200,000) in addition to its original requirement of a direct contribution to the government.

Impact of foreign property investment on real estate markets

Liam Bailey, Global Head of Research at Knight Frank, comments, “It is important at the outset to state that property demand by foreign buyers is boosted by these programmes, but they are not the whole story. The vast majority of purchases by foreign buyers in the main markets, UK, US, Europe and Asia - are driven by a desire for investment returns or wealth preservation rather than residency issues.”

The various residency programmes which have grown up in recent years have undoubtedly added to demand - but aside from some special exceptions they are not critical in driving price performance.

The impact on the Spanish and Portuguese markets has been to increase demand for property at a time in the cycle when the market (post-crash) was suffering a significant oversupply of stock after the building boom in the 2000s. The net impact of the programmes has been to raise demand when unsold stock levels were high.

In a market like London - foreign demand, a marginal amount stemming from would be residents, has undoubtedly pushed prices higher, however as most is focussed on new-build property it has arguably helped to support construction activity through the downturn following the 2008 crash and into the more recent market upturn.

HNWI investors like property investments. Research from the Knight Frank Wealth Report has confirmed that wealthy investors have placed a larger share of their assets in tangible investments since the financial crisis. Those looking for residency have an additional need for housing in their target country.

Demand is only likely to increase in 2016 - the range of push factors (geopolitical crises in different parts of the world) and pull factors (economic opportunities) is rising - we expect to see more demand from these programmes. The fact that Chinese property owners are in many cases seeing a squeeze on their domestic asset values shouldn't undermine demand from that source.

A cautionary tale

Singapore first introduced investor options in 2004 (the Financial Investor Scheme (FIS) and the Global Investor Programme (GIP)) with aim of attracting wealthy and capable foreigners at a time when Singapore was at a particular stage of development, trying to build a critical mass for the wealth management industry.

The FIS was an asset based programme, allowing HNWI from overseas with net personal assets of $20 million - and at least $10 million of assets held in Singapore for five years - to get onto a fast track and apply for permanent residency status through private banks or other financial institutions via the Monetary Authority of Singapore (MAS). Up to $2 million could be used to buy private residential property. Singapore is said to have one of the world’s most interventionist housing market policies and the MAS rolled up the FIS in April 2012 amid criticism of the influx of immigrants and its impact on asset prices.

Residential property prices in Singapore surged 15.75% in Q3 2009, and from a six-year low of 953 housing units sold in Q4 2008, sales soared to 10,120 units in Q2, and 11,518 units in Q3 2009 . At its height, the residential property price index saw a 38.2% price hike (34% in real terms) during the year to Q2 2010, a period which saw the fastest price-rises of the recent boom .

Nicholas Holt, Knight Frank's head of Asia-Pacific Research commented: “From 2000 to 2009 an average of 19.7% of private properties in Singapore were sold to foreign buyers. Private housing stock makes up about 20% of the total housing stock (the rest being Housing Development Board) – so in reality foreign buyers made up around 4% of the market during this period”.

Malaysians and Indonesians were the biggest foreign buyers in Q3 2009. Chinese buyers dislodged Indians from third place, with the latter moving to fourth place. In 2007, Indonesians accounted for 23% of all foreign buyers, followed closely by Malaysians at 17%. Other nationalities such as Indians (12%), Britons (8%), Chinese (7%) and Koreans (7%) were also represented.

Following the closure of the FIS, other measures were introduced in October 2012 to limit mortgage tenure to 35 years, and to lower the LTV ratio for loans longer than 30 years to 60%, with similar measures for loan periods extending beyond age 65. Other property market cooling measures include a 5% to 7% across the board rate hike in Additional Buyer’s Stamp Duty (ABSD), tighter loan-to-value (LTV) limits and a 10% to 15% increase in the minimum cash down payments for potential buyers with at least one existing housing loan . In reforming by abolition the FIS, the government commented that their focus was on engaging and entrenching quality individuals who could contribute to Singapore and were keen to be rooted in Singapore, but it was clear that trends in the housing market in particular had become a very major concern to the government. Unlike FIS, where assets held in Singapore were the main criterion, GIP is aimed at entrepreneurs who have a track record in corporate circles, and is a scheme that is expected to boost employment locally.

Nicholas Holt, added on the market impact in Singapore: “In terms of impact on the market, there is no doubt that the investor schemes supported the high end of the market. It was however the introduction of the tough mortgage restrictions – “Total Debt Service Ratio” – in June 2013 that turned the market (impacted domestic buyers) – not the ABSD on foreign buyers. So essentially – blaming foreign purely for strong price growth was proved to be wrong – it was domestic buyers who had been fuelled by the low cost of debt in the 2000s.”

Looking to 2016

Nadine Goldfoot, notes that: “Although we expect to see in 2016 a sustained sizeable uptake in programmes linked to property purchase by the predominant sending nationalities, particularly China and Russia; we nonetheless see continued interest from the same sending countries in the longer established programmes in the UK, USA, and Australia where property purchase based residence is not on offer. Interestingly also, in recent reforms in both the UK and Australia, there have been no steps to introduce this option to their investor migration programmes, and despite that fact, applicant numbers remain very high, particularly in the USA where the EB-5 quota for Chinese applicants was hit early in the last fiscal year.”