The Exchange Rate and EB-5: How Can EB-5 Protect Investors from High Inflation Risk Currencies?
There are various reasons why a foreign national may want to pursue an EB-5 visa. These include the ability to live, work and study in the US, benefits extending to the spouse and unmarried children under the age of 21, and the opportunity to obtain permanent residency and eventual US citizenship. There is another reason not as widely touted for EB-5 investors, and that is the fact that the $500,000 minimum required to invest in a Regional Center may be a good use of funds, if you are concerned about foreign currency valuations. An EB-5 investment may help protect investors from high inflation risk currencies. As investors know, high inflation can wreak havoc on investment decisions.
A More Stable Currency
The US dollar has been a relatively stable currency for the past number of years. Investors from countries with less stable currencies, including the South African rand, the Brazilian real, the Indian rupee and the Turkish lira, may have witnessed significant inflation (and decrease in value) in their currencies in recent years. When investors place their money in an EB-5 project, they are preserving their capital in US dollar, which may be more stable over a longer-term period.
Currency Rate Fluctuations
EB-5 investments must remain at-risk for the duration of the project, so there is no guaranteed rate of return. Still, most EB-5 investors will generally realize some income or gain. Perhaps this gain appears relatively low, in the area of 0.25 percent annually. However, the EB-5 investor cannot accurately compare this rate of return to the higher percentage offered in fixed deposit accounts. Even if these fixed deposit accounts pay as much as 7 or 8 percent, the currency exchange rate fluctuation may mean they are actually earning less than the gain from their EB-5 investment.
Let’s take a look at how much US $500,000 was worth in different currencies over the past several years. In May 2014, one US dollar was worth 2.2 Brazilian reals, so US$500,000 was the equivalent of 1.1 million reals. Fast forward to March 2019, and one dollar is equivalent to 3.9 Brazilian reals. That means in less than five years, it would cost a Brazilian EB-5 investor the equivalent of $1.95 million to make that same $500,000 investment – a difference of an additional 850,000 Brazilian reals. While currency exchange rate fluctuations change over time, Brazilian investors will surely recall that their currency lost nearly 129 percent of its value compared to the dollar between the years 2010 and 2015.
Other currencies fared similarly. During most of March 2014, the Indian rupee hovered at about 61 to the US dollar, making a $500,000 investment the equivalent of 30,500,000 Indian rupees. In March 2019, the exchange rate was 69.7 Indian rupees to the US dollar, so that $500,000 investment would cost 34,850,000 Indian rupees.
During the month of March 2014, the South African rand hovered at about 10.5 to one US dollar, so $500,000 would convert to 5.252 million South African rand. In March 2019, the exchange rate was approximately 14.5 South African rand to the US dollar, so $500,000 equates to 7.25 million South African rand.
The Turkish lira was 2.1 to the US dollar in March 2014, so the $500,000 equivalent was 1,05,000 Turkish lira. By March 2019, the Turkish lira had risen to 5.7 per one US dollar, so $500,000 is equal to 2,850,000 Turkish lira.
Some countries limit the amount of money that citizens can convert to foreign funds. China, for example, restricts the amount of yuan a person may convert to the equivalent of $US50,000 annually. To finance an EB-5 visa application, an individual may use friends and family abroad to complete the deal, transferring $US50,000 from ten individuals. It is then incumbent on the investor to provide a burden of proof in tracing the 10 transactions to friends and family, as well as tracing the transactions of each of these 10 individuals to their overseas accounts and then trace the funds from the overseas’ accounts to the Regional Center. The EB-5 investor must obtain all relevant bank statements showing these transfers, along with any receipts from the use of a currency exchange service. From the perspective of the US Citizenship and Immigration Services (USCIS), it is wise for the investor to provide statements from the people involved in helping them transfer funds so the USCIS can clearly see how the funds were moved.
How Lightstone Can Help
Lightstone helps EB-5 investors make the most of converting their funds to US dollars. We currently have US $6 billion assets under management and development and over US $400 million of EB-5 capital raised over seven past and current projects. We collaborate with major brands including Marriott and TAO Group in the heart of Manhattan, Miami Beach and other elite real estate locations.
THE CURRENCY EXCHANGE RATES DESCRIBED ABOVE ARE BASED ON HISTORIC AND HYPOTHETICAL RESULTS AND ARE INHERENTLY LIMITED. FUTURE CHANGES IN CURRENCY EXCHANGE RATES CANNOT BE PREDICTED, AND MAY VARY DRAMATICALLY FROM THOSE DESCRIBED ABOVE. CHANGES IN CURRENCY VALUE MAY HAPPEN QUICKLY. ANY TRANSACTION INVOLVING CURRENCIES INVOLVES SIGNIFICANT RISKS INCLUDING, BUT NOT LIMITED TO, THE POTENTIAL FOR CHANGING POLITICAL AND/OR ECONOMIC CONDITIONS THAT MAY SUBSTANTIALLY AFFECT THE VALUE OR LIQUIDITY OF A CURRENCY, AND IN TURN MAY AFFECT THE VALUE OF YOUR INVESTMENT. THE VALUE OF THE US DOLLAR MAY DECLINE SUBSTANTIALLY RELATIVE TO OTHER CURRENCIES, AND THERE CAN BE NO ASSURANCES THAT THE US DOLLAR WILL MAINTAIN ITS VALUE RELATIVE TO ANY OTHER CURRENCY, INCLUDING THOSE LISTED ABOVE. THE FOREIGN EXCHANGE RISK IS IN ADDITION TO ALL OTHER RISKS INVOLVED IN THE INVESTMENT.