Investor programme due dilligence

James Bowling, CEO of Monarch&Co, discusses the key areas to investigate before investing in a citizenship or residency by investment programme

Before an investor thinks about investing in a residency or citizenship programme, they need to ask themselves what the purpose of their investment is. This is according to James Bowling, CEO of Monarch&Co, a company that specialises in residency and citizenship by investment programmes in a number of territories around the world.

Bowling says that investment into these kinds of programmes is generally either for personal use, purely for investment purposes, but very often it’s for both reasons. “The reason why this distinction needs to be made is because if the investment is for personal use, the decisions are based on emotions and driven by the investors’ personal consumption requirements,” Bowling explains.

On the other hand, he says, should the investor be considering a residency or citizenship programme for investment purposes only, the criteria that would be applied to their personal use investment decision would not usually match the investment purchase analysis.

Bowling points out a few areas in which investors need to undertake their due diligence when considering a residency or citizenship investment:

Choosing a country:

If the investment in a residency or citizenship programme is for personal use, the investor needs to decide which country they want or need to spend time in, and which country will offer the best benefits for their investment. “This would be influenced by factors such as lifestyle and travel opportunities, access to educational institutions and healthcare facilities, quality of life standards and any other personal tax or financial considerations,” says Bowling.

Investment decisions on the other hand are based purely on growth potential and returns that can be achieved. “While everyone wants to make a sound investment that grows in value, when the residency or citizenship programme is purely for investment purposes, investors tend to pay far more attention to the economic details such as which countries have the most promising economy favourable to investment and offer the most potential for growth,” says Bowling.

Understanding the conditions and restrictions:

Once an investor has investigated which countries they would like to invest in, they should research the programme offerings and be sure they understand any conditions or restrictions that a specific programme may include. “For example,” explains Bowling, “some programmes require investors to spend a certain amount of time in the country. This stipulation might suit someone investing for personal use, but may not work well for applicants who are looking for a pure investment.” Other conditions and restrictions may be placed on working or studying in the country or may be around the type of investment that will need to be made in order to qualify for the programme.

Purchasing a property:

Investors who are applying for a residency or citizenship programme are often required to invest in real estate in the country of choice in order to comply with the application criteria.

When investing in an international property to gain a residency or citizenship for personal reasons, then all the emotional considerations weigh into the decision such as views from the property, its proximity to the ocean or other attractions, its level of privacy, the size of the rooms and type of finishes that have been used.

If investors are looking at residency or citizenship for investment reasons then the personal considerations should be less important. In this situation, the primary driver for the property investment should be capital appreciation. With a property investment, the net rental yield also needs to be taken into account.  “When it comes to purely investment-based residency or citizenship, the focus shifts to discount off market value when purchasing a property; potential value to be added; income streams; desirability to potential tenants; cost of purchasing and maintaining the property; positioning relevant to key tenant drivers such as universities, tourist amenities, local industry and the like,” Bowling explains.

“High tourism interest coupled with low tax benefits that many countries with residency or citizenship programmes offer make purchasing property in these jurisdictions a very sound investment option. Properties situated within locations that offer these benefits often provide good capital growth potential as well as an attractive rental yield,” he says.

Bowling notes that often the best performing investment properties do not meet the same criteria as the ones bought for personal use. “The biggest hurdle in advising property investors on their selection is getting them to remove their emotional decision-making considerations from the selection process,” says Bowling.

However, he says that investors should remember that should the purpose of the property selection (investment or personal use) change and the property does not meet the new purpose, it’s generally very easy to sell the property and purchase a new one that does.

Being prepared for the ongoing commitment:

Some programmes will only allow investors to convert their residency into a citizenship after a set period of time. Many of the residency and citizenship programmes also stipulate that investors may not sell their property within the first five years of investment. “This means that in order to qualify for the programme, investors need to be prepared for the long-term commitment,” says Bowling.

Counting the cost:

Whether investing in a residency or citizenship programme for personal or investment purposes, applicants need to know exactly how much the programme is going to cost them upfront. “These costs include application fees, legal fees, the cost of the property purchase or other investment as stipulated by each specific programme, as other associated fees such as finance costs,” says Bowling.

Working with a reputable service provider:

Before committing themselves to using the services of an international investment facilitator, residency and citizenship applicants should ensure that they are working through professional investment facilitators, estate agents and developers. “One way to determine this is by checking their membership status with the relevant professional industry bodies,” advises Bowling. “Applicants should also ask questions about the company and its track record and do some research online where both the company and its directors or founders can be researched.”

Bowling points out that investors should also request client testimonials and find out in detail about the services the company offers and what exactly it entails as some facilitators provide a more comprehensive service offering than others. “It’s always best to get details on the company’s service offering and terms of business in writing,” he says.

Bowling concludes by saying whether for personal use or purely investment purposes, residency and citizenship programmes require a substantial investment and should therefore be researched thoroughly. “Investors would be far better equipped for this kind of investment once their basic due diligence has been undertaken.”

For more information contact:

South Africa

James Bowling at Monarch & Co on 011 883 9018

West Africa Office (Lagos, Nigeria)

+234 (0) 1454 6929

Jerald Lebechi: geraldl@monarchandco.com

Or visit www.monarchandco.com