Vanuatu’s Parliament this Monday approved long-awaited legislation that will enable the country’s citizenship program to offer a real estate option (REO). The amended Citizenship Act passed the national assembly by 27 to 17 votes.
An explanatory note from the Prime Minister, which accompanied the new legislation, pointed out that this is not the first time a real estate option had been approved for citizenship by investment in Vanuatu:
The Real Estate Option Program (“the REO Program”) was a Program that existed in 2014 but was then repealed by Parliament in 2015. The purpose of this amendment is to reinstate the REO Program under the Act.
The Prime Minister also appeared to point out that Vanuatu, secluded though it may be from the vagaries of the wider world, did not exist in a competitive vacuum and that devising measures aimed at making the country’s program attractive relative to similar CIPs elsewhere was crucial.
Vanuatu exists within the Global Economy and, to attract the necessary major investments, it must compete with the rest of the world in offering incentives to major investors. Without the assistance of the Government, these major investors will go elsewhere.
With this in mind the Government has developed a policy to attract both major and minor investors by designating important projects that meet stringent Government imposed conditions as Vanuatu Government Approved Projects (the “VGAP”).
The statement also indicated Vanuatu may depart from CBI convention by looking beyond hospitality to projects to also develop critical health and education infrastructure.
The overriding consideration with the policy is that all investment facilitated by the policy must provide substantial benefit to Vanuatu in terms of expansion of infrastructure, growth of the economy and increase in employment. In addition, there must be commitment by the major investor to build and expand existing health and education facilities within Vanuatu.
As the aim of the policy is to maximize economic growth with a focus on providing the necessary infrastructure to cater for growth of the tourism industry, the major investor will only be allowed to sell constructed houses, apartments and condominiums and will be prohibited from selling vacant land.
A “real estate option” is an agreement that grants the party owning the option (“the optionee”), the exclusive, unrestricted, and irrevocable right to purchase property from the party selling the option (“the optionor”), during the specified period of time that the option is in effect. When an optionee buys a real estate option, he or she buys an exclusive, unrestricted, and irrevocable right and option to purchase a property at a fixed purchase price within a specified option period.
The advantage of the REO Program is that Vanuatu, like other countries, has a greater potential to attract retired investors or wealthy individuals in the real estate option sector. Its prestige scenic and natural environment is an inherited asset that entices foreign investors and wealthy individuals to come to Vanuatu and seek a place for a peaceful holiday from busy working environments. This investment model enables the investor to tap the real estate market without the responsibilities of managing physical property.
While Parliament has taken the necessary legislative step to permit the introduction of the REO, the job of formulating detailed requirements – such as which criteria would make a project eligible or minimum investment amounts – falls to the Prime Minister, whose office is also responsible for the Citizenship Commission. The legislation also limits the Commission’s REO application processing time to three months, although similar constraints among other CIPs are regularly flouted without consequence.
Urging prudence in project selection
Vanuatu-based Daniel Agius, a government-designated agent for the Development Support Program (DSP), welcomed the news but pointed out that the degree to which the REO is successful will depend on judicious implementation on the part of the government.
“Citizenship linked to real estate investment is one of the most frequently enquired about options in the international market. However, I hope the government is highly selective and stringent in vetting who it permits to be involved as this moves forward. There are plenty of examples of mismanagement in other REO offerings around the world. If the government is prudent in carefully considering the track record of potential participants in this initiative, it could be a great boost not only for the citizenship program but also for the local economy.”
Agius commented that no additional information on the program was available at this stage but that he understood the government would likely seek expert advice to develop the REO.