Veterans within the EB-5 industry have recently made comments that suggest that even among those individuals considered to have significant experience, there are misconceptions about Indian EB-5 retrogression.
According to a comment on Immigration Daily, it is estimated that approximately $500 million worth of EB-5 investments were generated in India in 2018; the country is also on track to generate double that ($1 billion) in 2019 and $2 billion in 2020. It is also estimated that, within the next two years, Indian EB-5 visas will be valued as a $3 billion opportunity.
The comment on Immigration Daily, though it does correct some of the misconceptions associated with the EB-5 visa allocation process, still omits a fundamental calculation: what are the ramifications of investing said $3 billion in more than 12,000+ visa applications (all from India), yet only 700 visas are issued every year?
|Potential India Retrogression Estimate|
|Potential EB-5 Investment from India-born estimated by ILW||A||500,000,000||1,000,000,000||2,000,000,000|
|# of EB-5 investors in ILW estimate, if $500k per investor||B=A/500,000||1,000||2,000||4,000|
|# of visas in ILW estimate, if 2 visa per investor||C=B*2||2,000||4,000||8,000|
|# of years to issue this number of visas, if 700 annual visa cap for India-born||D=C/700||3||6||11|
|Cumulative new visa backlog for India-born, in years, if ILW investment estimate realized||E=(D-1) + previous backlog||2*||7||17|
*New backlog: not counting the pre-2018 backlog for India-born, estimated at about 5 years by DOS
Though it would be ideal to make Row A of the table above a reality, and that would be wonderful, there are several constraints that have the potential of yielding a backlog of tragedies, rather than turning them into successful markets.
As such, though most of the commentary contain valid points, the conclusions drawn from the same contain error, mainly due to the following reasons:
1. Waiting times have a relative impact:
In India, it is estimated that it takes between 75-100 years for EB-2 and EB-3 wait times. This is 5 times as long as the longest projected time associated with the EB-5 visa (17 years, for example). From the point of view of the investor, the wait time associated with alternative visa programs means that the EB-5 is relative; as such, though a 10-20 year wait time may seem excessive to a Chinese investor, the same wait time would be considered normal for an Indian investor.
Therefore, despite the lengthy times associated with Indian EB-5 investments, it is still expected that they will continue roaring. In addition, around half of all applications made are from Indians already in possession of H-1B visas and already living/ working within the US. Because they are already in the US and not waiting to get in, these individuals have a different perspective on the wait for the EB-5 visa, especially when compared to investors not in the US.
2. The need for a multi-year perspective:
Indian applicants are expected to stand in lines ahead of the Chinese. This is because, from a country limit perspective, India has a 700 people country limit but will consistently receive 1000, 2000 or 3000 applications from there. When looked at from a 2-3-year perspective, the 700 number takes a different meaning; indeed, significant portions of Indian investors will not be standing, over a 1-3-year time-frame, behind Chinese investors.
As such, lawyers advising their Indian investor clients, particularly with regard to real-estate project advice, should explain EB-5 retrogression and wait times from the perspective of multiple years, not just the one year. Therefore, retrogression will only be a factor for those looking to raise money in 2021; therefore, it will not be one in 2019 or 2020. Further, it should also be noted that, if the time taken to process the EB-5 is shorter than processing I-526 applications, then retrogressed time becomes irrelevant.
3. Volatile DOS waiting times:
Charles Oppenheim estimates a 5.7-year average waiting time. The scholar bases this on the average number of dependents per application and notes that it is assumption different to the Indian EB-5 reality.
Specifically, at least half of all applicants are on H-1B visas in the US already and offspring who are US citizens (these children are outside of the quota count). Yet many investors are single. DOS predictions of waiting times can be volatile where regression for a specific country or visa category commences. Typically, DOS waiting time estimates require around 12 to 18 months to reach stability. Thus, the 5.7-year prediction must be considered in light of the estimate’s potential weaknesses.
India to remain a hot EB-5 market
In short, for the coming two years, India is set to remain a hot EB-5 market. In other words, with almost 50% of the world’s market, it is important for issuers to focus at least half their resources on India. For stakeholders apprehensive about retrogression for EB-5 visas relating to applicants from India, the following salient points must be considered: 1) the “relative” impact of waiting times, 2) The “need” to use a multi-year perspective, and 3) the volatility of DOS waiting times.
Retrogression a misunderstood concept in the EB-5 industry
A $3-billion-dollar opportunity exists. One nation, India was able to generate almost half a billion in 2018 EB-5 investments. It is expected that by the end of 2019, based on current figures that one billion will be generated. Moreover, double that amount will be realized in 2020 according to predictions. Thus, the Indian EB-5 market appears to be a $3 billion opportunity. In September 2018, India had by and far been the number one petition source at 284 petitions. The number eclipsed China and Vietnam that had 165 and 137 respectively.
Make Sure You Understand Mechanics of Retrogression
Persons in the EB-5 industry appears prone to misconceptions and misunderstanding of the way retrogression works. Some of the EB-5 industry players seem to believe that the retrogression that will hit India somewhere in the middle of 2019 will simply ring the burial of the number one Indian EB-5 market. Moreover, as soon as retrogression strikes, the applicants from Indians that are nowadays standing in line will just line up behind the Chinese (who, by the way, are standing in a 15+ year long line).
These beliefs are far from the truth and can lead one to miss the huge opportunity of some estimated $3 billion in the Indian EB-5 market.
Understanding Retrogression Step-by-Step: The Principle of “Different Gates, Different Lines”
To start with, one has to keep in mind that each employment category and each family category has a total worldwide limit of visas every year. There is also an additional limit for each country. Moreover, applying for a type of visa automatically puts you in a specific waiting line in your country, as per the date of your application.
Now, let us depict the retrocession mechanism step-by-step: So, each country has its own per year quota of visas; and there is a world quota. Suppose that the world quota per year is not exhausted. What then happens to the remaining visa numbers? Well, they are simply allotted to the oldest applications in line, regardless of the country of origin, but keeping the category of visa unchanged. A pictorial representation might be of use in explaining the mechanism: Let us figure out that each country has a separate gate to enter USA, and people in that country just line in front of that gate; moreover, people with different type of visas pertain to different lines, of different lengths. It is clear that the length of these lines (for each visa category) varies from country to country. So do the waiting times; moreover, this waiting time is different for different visa categories.
There are separate gates and separate lines (for each type of visa) for the different countries.
For example, the line for German EB5 applicants is very short compared to the line for Indian EB5 applicants. When the country quota is allocated, it is obvious that the German line will gallop forward, while the Indian line will barely move! Suppose now there is some retrogression in India: it is obvious that as long as the retrogression time window is shorter than the time it takes to process a visa application, then retrogression has no impact at all on the dynamics of the line. Some figures will be useful in clarifying these elements further.
Example no. 1: the EB-5 Waiting Times for China vs India
Each year, there are 10,000 EB-5 visas all-in-all and some 650 visas per each eligible country. In our pictorial representation, India and China are standing at different gates, in different EB-5 lines. First round: each country is allotted its visa quote of the year. This means that the 650 oldest of the Chinese applications and the 650 oldest Indian applications are allotted. Suppose now that out of the 10,000 global EB-5 quotes, 2000 remain to be allotted, i.e., were not allotted during this first round. According to the existing rules, they will be allotted to the oldest applications, regardless of the country. In this case, given that China has such a huge 15+ year EB-5 waiting line compared to India, these 2000 visas will be allotted to China.
In summary: Indians do not lie behind Chinese in the EB-5 line. Each country has its own EB-5 line, with its own dynamics related to the specific waiting time. The 650 country-allotted visas per year will make the Indian line gallop rapidly and yet barely move the Chinese line. As such, hundreds of Indians will not lie behind Chinese, but will actually move forward before hundreds of Chinese that are waiting their turn, in a huge queue, since a longer time.
Moreover, as already noted above, as long as the retrogression time window is smaller than the processing time for a visa, then it has no material impact on the visa delivery process. More precisely, a more elaborate analysis shows that until there are about 12 consecutive months of retrogression time higher than the visas processing time, there is no impact on the flow of Indian EB-5 capital.
A last argument addresses the waiting times for the EB-2 and EB-3 visas, that represent the main alternatives to EB-5. These times are around 25 and 75 years for India, and as such, even if the EB-5 waiting time will rise by 5-10-15 years, EB-5 will still remain the preferred option obviously. This is not the case of China, that has much shorter EB-2 and EB-3 waiting times. We saw above that the basic element in understanding the visa repartition mechanism is the fact that there are separate gates and separate lines (for each visa type) for each country. This is brilliantly illustrated by the example of EB-3 for India and Philippines.
Example no. 2: EB-3 Waiting Times for India and Philippines
Let us consider now the EB-3, a visa category which has been hitting its country quota in both India and Philippines for more than a decade. In India, the nowadays waiting time for EB-3 is 8 years; for Philippines is 1.5 years. This is essentially due to the fact that the number of Indians in the Indian line for EB-3 is very large compared to the number of the Philippines people in their national EB-3 line. Although both India and Philippines have been in retrogression for many years, that did not make Philippines national stand in line behind Indians for EB-3 – indeed, each country has its own gate, its own line and their separate dynamics.
We presented several detailed considerations that will allow you to discard any misconceptions related to the Indian retrocession and its impact on the EB-5 market. For the next two years at least, India will remain a huge opportunity for the EB-5 market, with an estimated $3 Billion value, representing 50+% of the entire-world EB-5 market and an estimated growth of 100% each year.