Korea has implemented the immigrant investor in real property program since 2010. However, there are several problems caused by imbalance among regions and investors’ nationalities. The necessity of regulation on the total number of permanent residency of investors in real property is increased to resolve these problems, especially regional imbalance. The regulation on the total number of permanent residency of investors in real property can prevent the imbalance between investment regions by scattering the investors. In order to make the investment even, regulation on excessive investment and deregulation on stagnant regions should be enforced at the same time. In addition, excessive issuance of permanent residency can violate local sovereignty. Regional sovereignty is important to protect local residents and the environment. Canada and Hong Kong also conducted the immigrant investor in real property program. Both countries had problems in controlling the overheating of immigrant investment to the extent they discontinued the program. Setting aside the effectiveness of the program, the cases of Canada and Hong Kong illustrate the need for a regulation of investor immigrants.
In Korea, the Immigrant Investor Program in real property has been enforced since 2010. The program grants an F-2 visa (residential qualification) to foreign investors who have made investments above a certain amount, within regions designated by the Minister of Justice. An F-5 visa (permanent residency) is issued after 5 years. The purpose of this program is to attract foreign capital and revive the local economy. Six regions are currently carrying out this program: Jeju Special Self-Governing Province, Gangwon-do Pyeongchang-gun, Jeollanam-do Yeosu-si, Incheon, and Busan. This program is flexibly conducted so that each region has its own investment amount standards, investment zones are flexible to change under the circumstances. In particular, Jeju province, which first introduced this system, has come up with outstanding results.
However, there are voices of concern that the Chinese will practically occupy Jeju province. With regard to the overheated Chinese investment, Jeju Special Self-Governing Province attempts to implement a quota on the number of permanent residency granted to immigrant investors in real property. In order to restrict an excessive boom of immigrant investors in the real property program, the administration of Jeju province suggests a reinforced plan. The subcommittee of Free International City explains that Jeju province needs to limit the number of permanent residency to approximately 1% of its total population to prevent unsustainable development. Moreover, the standard of minimum investment will be raised from 500,000,000KRW to 1,000,000,000KRW and only one person per estate will be granted permanent residency. It is conceivable that many investors are drawn to Korea as mitigation actions are enforced. A permanent residency quota for immigrant investors in real estate is one of the efficacious means to hold back the side effects of this program, and prevent overheated investment.
There are mainly two reasons why a regulation on the total number of permanent residency for investors in real property should be imposed: to adjust imbalance of investment and to protect regional sovereignty. Permanent residency for investment in real estate is mainly converged on Jeju province and investment in other areas is substantially small. In order to solve the problem of impartiality among regions, the government needs to conduct both regulation on the total number of permanent residency and alleviating measures. In addition, the total number of permanent residency should be regulated to protect regional sovereignty. Korean local governments do not have sufficient plans to control the sudden increase of foreigners yet; thus this can be an efficient way to regulate the number of foreigners. Permanent residency for investors in real property has only been implemented 4 years ago and now stands at a turning point. To successfully establish the immigrant investor program, proper control and regulation of the program must be made. A regulation on the total number of permanent residency is one of them. Overheating of immigrant investors in Jeju province is a sign of the necessity of regulation on permanent residency for investors in real property, and should be implemented as soon as possible to prevent greater havoc. This article presupposes that the immigrant investor program in real estate will be maintained and does not deal with the effects of the program itself.
Ⅱ. The Current Situation of Immigrant Investor Program in Real Property
1. The Current System of Permanent Residency for Investors
The current visa system issues four types of visas, C-3, F-1, F-2, and F-5 visas, for foreign real estate investors and their accompanying family members. A C-3 visa is a common visa for investors who purchase resort units with 500,000,000KRW and their accompanying family members. An F-1 visa is a residential visa for investors who paid and maintained a down payment with 100,000,000KRW. An F-2 visa is a residential visa for investors who purchase resort units with 500,000,000KRW, and their spouses and minor children can be issued an F-1 visa. An F-5 visa is permanent residency that investors who maintain F-2 visa status for more than 5 years without reasons for disqualification. After investors obtain permanent residency, accompanying family members can apply for an F-5 visa. After obtaining permanent residency, investors can trade real estate and change residential addresses.
The Immigrant Investor Program is a system that gives the right of permanent residency to alien investors who invest a certain minimum amount in certain objects during a certain period of time. Enforcement Decree of the Immigration Control Act Article 12 shows foreigners’ status of sojourn under Article 10.1 of the Act in the attached Table 1. In Table 1, foreign investors can be issued an F-2 visa. There are three types of investors who can be issued an F-2 visa on the basis of Foreign Investment Promotion Act: foreign investors who invest more than 500,000USD (500,000,000KRW) and stay in Korea for more than 3 years with a D-8 visa, foreign employees whose foreign corporation invests more than 500,000USD (500,000,000KRW) and are dispatched in Korea by the corporation for more than 3 years in accordance with Foreign Investment Promotion Act, and foreign investors who invest more than 300,000USD (300,000,000KRW) and employ more than 2 Koreans. A foreign investor who has an F-2 visa has a chance to attain an F-5 visa, which is permanent residence. A foreigner who is an adult by Korean Civil Act, has the ability to maintain a livelihood, meets the qualifications legislated by the Minister of Justice, has an F-2 visa, and can be issued an F-5 visa if he stays in Korea for more than 5 years.
Korea restricts investment areas and objects, which are notified by an official announcement of the Minister of Justice. Jeju province, Pyeongchang Alpensia area, Yeosu Gyeongdo, Incheon Yeongjongdo, Choengra, Songdo, Busan Haeundae, and East Busan Tourism Complex are currently designated investment areas by the minister of Justice. Possible investment objects are limited to recreational facilities such as resorts or pensions. In 2014, the government expanded the scope of investment objects to include villas in Cheongra and Songdo in order to invigorate investment. The amount of investment required to attain permanent residency is also different among regions. For example, Jeju province and Pyeongchang demand investments of more than 500,000,000KRW, while Incheon areas and Haeundae require investments over 700,000,000KRW. As of March 2014, 250,000,000,000KRW has been invested into Korea. Restrictions are placed on the immigrant investor program in terms of its operation.
The Immigrant Investor Program is conducted as sunset implementation, which means that it will be retained for a certain period. The Ministry of Justice will carry out this program for 5 years, and reassess the results of this program in 2018. Whether this program shall be maintained or not will be decided at this time. Due to sunset implementation, the Ministry of Justice does not amend the major system. Sisa Jeju quoted a Ministry of Justice personnel, saying there is no practicality in imposing additional regulations because the program will be totally re-discussed in 2018.
2. Problems of the Current Program
As the Immigrant Investor Program in real estate has been launched recently, there are several problems in the current program. The most significant problem is the disproportionate effect of the program. For example, there are two kinds of imbalance of investment: regional imbalance and national imbalance. In particular, regional imbalance shows a serious impartiality between popular regions and unpopular regions. Jeju is the most popular investment area, while other regions have not drawn much investment. Almost all investments occur in Jeju. According to research by the Korea Housing Institute, there is no investment performance in other regions and only Jeju drew 250,000,000,000KRW in 383 cases in 2013. In the case of Jeju, 329 resorts were sold in 2012 and 106 resorts in 2013. If all the resorts are registered, local taxes such as acquisition tax would amount to more than 10,000,000,000KRW. By investments, 15 aliens attained F-1 visas and 145 were issued F-2 visas.
According to news reports in 2014, 827 investments drew 536,000,000,000KRW in Jeju, and 437 Chinese nationals were granted visas from purchasing resorts in Jeju province. However, there are few cases of investment on real property in other regions; thus the government expanded the investment zones and lowered the minimum investment amount to attract foreign investors. In this year, Yeongjongdo Island, East Busan Tourism Complex, and Haeundae LCT Towers were newly included into the investment zones. It demonstrates that regional imbalance will continue to be a problem.
Ⅲ. The Need of Regulation on the Total Number of Permanent Residency
1. The Concept of Regulation on the Total Number of Permanent Residency
There are several ways to regulate the total number of permanent residency of investors in real property. One method is to fix an aggregate amount of permanent residency; for example, 30 thousand people per year. Another method is to fix the proportion of permanent residency; for example, 1% of the local population. The third method is to use both an absolute amount and a proportionate amount or to modify the regulation criteria. Any kind of regulation on the total number can be conducted in accordance with the situation at hand.
A legal basis of such regulation is the Constitution. According to the Constitution of the Republic of Korea, Article 6, the status of aliens shall be guaranteed as prescribed by international law and treaties and the right of aliens may be restricted. Therefore, an emigration policy which deals with the status of foreigners should follow international law and treaties. However, it allows the government to restrict foreigners’ right by lawful methods such as law, and conduct self-imposed policy changes that do not violate international law and treaties. Regulation on the total number of permanent residency for investors in real property does not go against international law and treaties; hence it is constitutional.
2. The Necessity of Improvement of the Current System
(1) Prevention of Investment Imbalance
A quota system can be an effective method to solve the problem of regional investment imbalance overheated investment in limited areas. In order to diffuse the investment, both regulation on overheated areas and deregulation on inactive areas are needed. It is not effective to use only deregulation on stagnated regions; however the government only carries out an alleviating measure to attract the investors. Although the government is unfavorable to regulation, preventive regulation is needed and effective. A Chinese investor stated in an interview that his company may invest in Incheon Yeongjongdo if Jeju does not welcome Chinese investment. This demonstrates two things: evenly leveling out investment is feasible and ex-post regulations give a negative impression to investors.
If a quota is implemented, investors would find other places in which to invest. In this situation, other areas which have alleviated standards for investors can invite foreign capital. Additionally, it can prevent harmful effects of overheated investment in advance. Contrary to other alternatives, it does not raise the entry barrier on investment. Also, it effectively controls any excessive boom by automatically halting the issuance of permanent residency. Furthermore, overheated investment should be averted beforehand since it would be difficult to do so in the future. Since Jeju is already experiencing overinvestment, the possibility of overinvestment in other regions must be considered too. If this is successfully dealt with, continuous government expansion of the Immigrant Investor Program is perfectly possible.
(2) Protection of Regional Sovereignty
Regulation of permanent residency of investors in real estate is needed because local government and residents should have regional sovereignty. There are two reasons to protect regional sovereignty: one is to protect the local economy and its residents and the other is to maintain the regional and national governance structure. The primary goal of the immigrant investor in real property program is to boost the local economy; thus certain regulations can be enforced to achieve this goal. In other words, if the program harms the local economy, it does not fulfill the original aim of the program. For example, if there is an excessive boom on real estate in a certain region, the local economy and its residents would suffer from the housing market bubble and speculation. Environmentally unsustainable development may also occur. It goes against the primary purpose of the program; thus it is reasonable to regulate the program in order to truly achieve its goal.
In addition, the governance structure of the region is closely connected between the local government and the region and between the central government and the region. If the number of immigrant investors exceeds that of original residents, the local government would lose the power to control the region. It is because investors are interested in making a profit by investing in real estate; however the pursuit of the local government is more than that and sometimes it has to stabilize the price of real estate. Facing this conflict of interest, the local government cannot control the price of real property. This is merely one example, and there would be more clashes between foreign investors and local governments. A local government’s control over a region is important because it is directly related to the interest of local residents. In addition, even though alien investors attain permanent residency, it is hard to control their actions such as excessive development. Moreover, the central government will also have difficulties in controlling that region because that region may have a different interest. For both local and central governments, it is better for the former to have control over its own region.
3. Foreign Cases
According to the article of DeRosa, Canada has three classified types of immigrants in the Business Immigration Program: entrepreneurs, the self-employed, and investors. If foreign investors make profits of over 500,000USD (500,000,000KRW) and pass several tests conducted by the Canadian government, they can gain permanent residency. Moreover, foreigners are required assent to transfer more than 250,000USD (250,000,000KRW) to “a government-accepted business investment fund or syndicate fund” and invest in “two or more businesses that are of substantial economic benefit to Canada.” The purpose of conducting the program is to activate regional economy through foreign investment. After the economic recession in the 1980’s, Canada introduced the Business Immigration Program in 1986 to revive a stagnant economy. In the Business Immigration Program, Canada requires prospective immigrant investors to meet qualifications divided into several stages, which contains not only the objects of investment but also medical and security tests.
Canada obtained desired results: fund assets increased, domestic businesses obtained low-cost capital, there was price appreciation of companies and real properties, and regional jobs were created. DeRosa evaluates the outcome of the program by saying “[i]ncoming immigrant investors are presenting Canada with a fantastic chance to bolster national economy and spur immense regional growth.” It shows that the Immigrant Investor Program stimulates the economy and increases foreign capital inflow. However, it is unclear whether it really contributes to long-term job creation or regional development. DeRosa suggests some studies conducted over such investments were “of questionable value” because they concentrated only on real estate. In consideration of this study, there are some questions on the effect of the program though it has attracted foreign capital.
However, in 2014, Canada scrapped the Immigration Investor Program, which had been especially popular with the rich in China. According to the Wall Street Journal, it is presumed that Canada cancelled this program because of Chinese investors. The abolished program granted permanent residency to aliens, even offering an 800,000USD (800,000,000KRW) interest-free loan. Canada is well-known for being generous to immigrants, especially Chinese immigrant investors. According to research, Canada has the largest new immigrants per head among G7 countries. Therefore, Canada’s change of the immigration investor program demonstrates that there have been some changes in the attitude towards immigrants. In addition, it shows the need for a provision to govern rapidly increasing Chinese investors.
(2) Hong Kong
Hong Kong implemented its Immigrant Investor Program in 2003. The purpose of the program was to activate economy and to increase the economically active population. The Hong Kong government gave permanent residency to investors of all businesses in Hong Kong who made an investment of 6,500,000HKD (860,000,000KRW). 15,500 people issued permanent residency of Hong Kong and it attracted 74,268,666,766HKD (9,926,749,999,943KRW). Additionally, the objects of investment were restricted to real estate and specific financial assets. Hong Kong became the second-highest ranked city in the world in 2007 in terms of immigrant investment activities. However, there was a property boom in Hong Kong after enforcing the program, and the government raised the minimum investment amount to 10,000,000HKD (1,336,600,000KRW) in 2010. The Immigrant Investor Program in Hong Kong is divided into “Approval-in-Principal” and “Form Approval.” Both require immigrant investors to be over 18 years old and make an investment of at least 10,000,000HKD (1,336,600,000KRW) in real estate or financial business.
The immigrant investor in real property program is tentatively suspended in the status quo because of a rapid rise in real estate prices. In order to limit investment cases and immigrant investors, the Hong Kong government only accepted real property investment without granting permanent residency. According to research, Hong Kong earned 2,849,500,009,000HKD (3,808,641,712,000KRW) by investment in real estate immigrant scheme. The number of immigrant investors rose by 18,302 from 2003 to 2011. 82.36% of the immigrant investors were Chinese and the government accepted 66% of applicants. It is quite similar to Korea that the Chinese take up the majority of immigrant investors and the price of real estate is rising due to the Immigrant Investor Program. The suspension of immigrant investor in real estate program in Hong Kong can be a good lesson to the Korean government.
Although immigrant investor in real property program is a sunset implementation, it is necessary to contemplate how to improve it in preparation for a possible extension or renewal. Local governments need various ways to attract not only domestic capital but also foreign capital. This program will effectively boost the local economy if it is used properly. The current immigrant investor in real estate program has some problems. In particular, regional imbalance is quite serious and it distorts the original intention of the program. Regulation on the total number of permanent residency for immigrant investors in real estate is an efficacious way to forfend it. Additionally, it can help protect regional sovereignty by controlling the number of immigrant investors in a certain region. In the light of the cases of Canada and Hong Kong, controlling the number of immigrants is the key to the operation of the program. In order to usefully conduct the program, regulation is necessary to a certain extent. A regulation on the total number of permanent residency for immigrant investors in real estate is an appropriate plan.