New Rules for Australia’s Significant Investor Visa Program:
The new framework for Australia’s Significant Investor Visa, set to take effect from July 1, 2015, may require applicants to make invest in small-cap companies in order to qualify for permanent residence in the country. Further, existing restrictions on direct investments in the Australian real estate sector by such investors are expected to continue.
The new rules for Australia’s Significant Investor Visa has led to worries that the restrictive norms may discourage applicants from opting for the Significant Investor Visa, which was introduced in 2013. On the other hand, many industry experts opine that high net-worth individuals seeking an improved lifestyle and access to better facilities will not be discouraged by these changes.
Reputed financial institutions and wealth managers in Australia are planning to modify existing products and offer new options designed to help SIV applicants fulfill the investment requirements with minimal risk.
Considering that nine out of every 10 applications for Australia’s Significant Investor Visa is made by Chinese nationals, their response will determine the future of the program. Immigration lawyers are of the view that demand from China is unlikely to taper despite the new norms. Most SIV investors are prepared to sacrifice attractive returns on their investments as long as they are assured of permanent residence in the country.
While some experts feel that inflow of funds into the small-cap sector is a positive development, others fear the potential negative impact of inflow of billions of dollars into the hitherto capital-starved small-cap sector of the Australian economy. The property sector had witnessed a surge in prices due to inflow of funds from SIV applicants.
According to forecasts, small-cap funds could receive around A$1 billion under the new rules. Further, venture capital funds will receive an additional A$350 million from high net-worth individuals and investors. In 2014, the venture capital funds received just aA$100 million throughout the year.
Consultancy firms are of the view that the sector may simply be incapable of absorbing the sudden increase in availability of funds. The small cap sector has, historically, been more expensive than other sectors of the economy. Inflow of funds may cause valuations to rise to extreme levels in a very short period of time.
Under the new rules, applicants will be required to invest A$3.8 million out of the minimum required investment of A$5 million into small-cap and venture capital funds. Further, the rules determining eligibility of funds require that 80% of all assets under management of such funds should be invested in companies with market capitalization not exceeding $500 million. Currently, only a quarter of the companies in the ASX Small Ords index fulfill this requirement. This is why many existing fund managers have criticized the new norms as being impractical, restrictive, and unnecessarily risky.
However, the fact that the ASX Small Ords index has lost 18% over the past five years as compared to positive returns of 14% generated by the broader S&P/ASX index indicates that the Australian small-cap sector represent an attractive bet for investors seeking permanent residence.
The US EB-5 visa is unattractive primarily due to its two-year waiting list. The UK investor visa requires a minimum investment of $3.1 million. Canada requires an investment of $1.63 million in venture capital, and has a limit of just 50 visas. The prospect of good returns, relatively low risk, and the immense popularity of permanent resident in Australia may result in the SIV continuing to remain popular even after the introduction of the new rules.
Source: Reuters