This report discusses the results of my recent trip to China and the response from Chinese marketing agents regarding recent issues involving both retrogression and the so-called “Johnson Letter,” which is available below. Jeh Johnson is the Secretary of Homeland Security and has issued a position paper on behalf of Homeland Security that was forwarded to Senators Grassley and Leahy. It is difficult to predict the effect of the Johnson Letter and whether the positions taken therein are the same as the two (2) Senators of the Judiciary Committee.
It is apparent from the Chinese marketing agents that there is a serious concern about the uncertainty of the new legislation that is likely to occur when the EB 5 Pilot Program is anticipated to be extended by the end of September, 2015. Agents seem comfortable that the Program will be extended, but they are not comfortable as to the potential legislative changes that could be adopted. In particular, the following concerns exist:
- Retrogression will result in a significant delay (up to 2 or 3 years) for Chinese immigrants receiving their I-526 visas. Some investors in China may look for other countries to migrate to instead of waiting a long period of time compared to the pre-retrogression time period which traditionally is much shorter.
- The Chinese market anticipates an increase in the targeted employment area (TEA) minimum investment amount. As Secretary Johnson notes in his recent letter, the TEA amount of $500,000 has not changed in the past 25 years and does not represent any increase based upon a CPI formula. I understand there have been discussions about increasing the TEA floor to $800,000 and increasing in $1 million regular investment amounts to $1,200,000. Although, there are no assurances whether these numbers will actually be adopted or whether there will be any increase at all. The uncertainty in the Chinese marketplace will be discussed further below.
- The Johnson letter likewise takes the position that there has been some degree of “gerrymandering” with respect to the determination of what constitutes a TEA area. It suggests using a specified number of census tracks to determine whether the location comes within a TEA designation, thus reducing the potential for a TEA designation in a highly urbanized area.
- Some of the agents do not believe the increase in the TEA investment amount will necessarily have any serious effect on the Chinese market. Although, some agents have indicated that such increase would reduce their investor base by around 10%.
- As a result of the above pending legislation and the anticipation of changes in the Program, many of the agents in China indicated that they will not commence undertaking any new projects that are currently in the process of being documented until the legislation is resolved, which could be as late as September 30, 2015.
- A very interesting issue involving the increase in the TEA amount would be how the legislation change would affect current programs. For example, the following solutions could apply:
- Petitioners that have filed their I-526 petitions would be grandfathered at the current investment amounts; or
- Those projects for which an I-526 petition has been filed it would be grandfathered; or
- Only those petitioners that have received I-526 approval would be grandfathered.
We believe that subparagraph a. would be the most workable solution. It is noteworthy that there may be a significant push in China, and elsewhere, to have projects actively marketed now with I 526 petitions filed before the effective date of any new legislation.
It is hopeful that Congress will address the various proposals sooner rather than later in order to bring predictability to the marketplace.