The government of Grenada has introduced new regulations to ensure developers commit equity to projects in the country and experts say the move is positive for the industry and will ensure completion of projects.
According to an amendment to the Grenada Citizenship by Investment (CBI) regulations, signed by Prime Minister Dr Keith Mitchell: “For the purposes of approval of a project under section 11 (1) of the Act, a minimum equity of 20 percent of the total cost of construction as proposed shall be invested into the project prior to approval.”
This has been greeted with widespread approval by many in the industry, especially in the Caribbean, which has suffered in the past from promoters promising to build a myriad of luxury hotels and projects that never materialise. White elephants litter the beaches of the region, some half built and others never to be completed. This new legislation will provide much required protection to potential citizenship by investment applicants.
“Grenada is back to basic business 101, where a CBI real estate developer must put real money down,” said Sam Bayat, managing director and senior lawyer at Bayat Legal Services. “How can an applicant believe in a project where the promoter is not investing his own savings? This measure will reinforce the program’s integrity, and in both the short-and long-terms, weed out bad actors.”
This view was echoed elsewhere in the financial services industry.
“The new 20 percent rule, combined with the escrow account monitoring, is great news and in line with international standards,” said Jean-Francois Harvey, worldwide managing partner of Harvey Law Group. “You will find the same key variables in programs like EB-5, for example. This also meets our own standards for due diligence when it comes for us to select a project for our clients. As we often say, if the promoter or developer does not have its ‘own blood’ invested in the project, we usually walk away from it. And the 20 percent threshold is definitely one that shows the seriousness and viability of the venture.”
Even Grenada has historically suffered its share of disappointing projects, with the government announcing in March that it was investigating a CBI company that had been expected to construct and establish a shrimp farm in St Mark. In February 2017, a CBI registered company called Grenada Sustainable Aquaculture (GSA) launched the Zero-Water Exchange Sustainable Organic Shrimp Farm. The company allegedly took funds for investment but failed to construct the facility.
“We have been disappointed in this one,” Mitchell told reporters.
“They have not done the investment and because of that we have made some changes to the conditions of people receiving money from the CBI programme. We are making sure it goes into escrow accounts and they have to account for it on a regular basis with the government having oversight. Some of them don’t like it, but we have to protect the name of the country,” he said.
Observers say that, while disappointing for the people of St Mark and the investors, the fact that the government of Grenada is acting against non-performing developers is a positive sign.
In the same amendment to the Act, the government has also agreed that the minimum investment in a share of a new project should be US$220,000. This puts Grenada more in line with its regional neighbours, and in the view of many experts, superior to new developments in Moldova and Montenegro.
According to a source on the island, the two new regulations are linked. Developers who meet the 20 percent equity threshold are entitled to sell investment shares at US$220,000. For developers who are unable to provide such a level of initial investment, they will be required to sell at US$350,000.
Recently, Range Developments, developer of luxury hotel projects in the Caribbean, including the Park Hyatt St Kitts and the soon to be opened Cabrits Resort, Kempinski in Dominica, announced the launch of the Six Senses, La Sagesse in Grenada, which is due to open in 2022.
According to the developer, La Sagesse will be an incomparable luxury-lifestyle community on one of the best locations in the Caribbean, just 30 minutes’ drive from Grenada’s airport. It will feature two luxury 5-star hotels, oceanfront villas, spas, retail and water-sports’ facilities.
Grenada, with these new scrutiny regulations, visa free travel to Russia, China and Brazil, the availability of a United States E2 visa, and the new CBI investment threshold of US$220,000, probably pulls into the lead now as the best of the Caribbean CBI offerings.