We welcomed Ahmet Sener, Managing Partner of Smart Citizenship, an innovative RCBI firm that is disrupting the industry, on our podcast, The Golden Quarter Show.
Key takeaways from our conversation include:
- Why Smart Citizenship is exactly that – smart – and how they are disrupting the industry with innovation drawn in from the US Securities Exchange
- What to expect as the Portugal Golden Visa rules are about to change in 2022 and what lies beyond.
- Which new markets demand for Portuguese real estate and funds is coming from (hint: it isn’t China)
- The key criteria and risk consideration for investors when choosing a fund (and its management team)
Smart Citizenship a new player on the RCBI landscape
Lorena Jimenez: Welcome to “The Golden Quarter Show”. It’s a pleasure having you on.
Ahmet Sener: Thanks for having me on “The Golden Quarter Show”. It really is a privilege.
Lorena Jimenez: So let’s dive straight into a couple of questions with regards to the Portugal Golden Visa which is what we’re going to be exploring.
But before we go into that, you’ve launched Smart Citizenship so I think it would be interesting for the listeners to find out a bit more about what motivated you and your partners to start this venture and what they should expect from it?
What makes Smart Citizenship stand out?
Ahmet Sener: Smart Citizenship – it’s all I talk about these days. So I really cherish the opportunity to do that.
In a nutshell, we set out to bring structure to the way decisions are made in the residency and citizenship by investment industry.
This applies to both businesses who are looking to diversify their offers of citizenship or residency programs and the end users (investors).
We’ve been in this business for over four years and we saw that even quite big companies who are placing huge amounts in international investments from their home markets are operating on second-hand data, and sometimes only speculation in terms of their investments.
People are following suit with what’s popular. The situation with the end users, the majority that we saw, is they were flying blind, they were being told what to do and were just doing it with their eyes closed.
So, to change all that we’re shaking things up from the foundation.
We want to start something that will be industry defining. It’s what we call the Smart Choice algorithm.
Portuguese Golden Visa – the Smart Citizenship way
Ahmet Sener: The algorithm feeds on multiple data sources. Smart Citizenship go out, we interview investments and we tap into big data providers.
We have memberships in Portugal and we’re looking into collecting some data in terms of investments in Greece too.
The algorithm feeds on these data sources as well as other sources we have, even industry gossip and it provides you with what we call the Smart Choice score.
And it happens under eight different headings that include:
- Pricing
- Rental Return
- Dividends
- Valuation
- Documentation
- Financing
These categories are based on 60 different data sets and we’re trying to add new data every day.
So in a nutshell, as I said, we’re trying to bring structure and decision support systems to the industry.
Lorena Jimenez: That does sound very innovative in terms of your approach to your new business. Was that something that you were looking at – is this something that you had seen before that you wanted to do, to apply algorithms to be able to better inform your end investors? What led to that?
Ahmet Sener: I mean actually, the inception of the idea for Smart Citizenship came from how funds are evaluated in the United States.
So there are these gigantic companies who are very heavy handed in evaluating and scoring funds and of course, as you know, S&P and Moody’s, they score countries.
We thought, why don’t we bring that sort of firepower and thought into the residency and citizenship by investment industry, mainly because cross border investments are really confusing, and you need decision support mechanisms. So, the idea came from the US financial securities industry, actually.
Lorena Jimenez Well it’s a very innovative concept and way of going about things to support your end investor. So I’m sure it will be a definite success!
Ahmet Sener: Well, thank you. I hope so.
Portugal’s Golden Visa is changing in 2022
Lorena Jimenez: And then focusing on the Portuguese Golden Visa, we all know that the rules are going to be changing very soon in 2022.
So how are you anticipating that this change is going to impact demand from global investors?
Ahmet Sener: No matter what the changes, this kind of price hikes, price increases and changes in regulation, once it’s set in stone, that’s a good thing.
The changes in Portugal were in a state of flux (earlier this year).
Everybody was saying something, there weren’t any concrete results but once we knew, first of January 2022 the changes will be in place, we could brace for the highest grossing year for the Golden Visa.
I mean the EB-5 program, when they did something similar, they had a hugely successful year in terms of fundraising, the UK program, same thing.
So, this last exit before the bridge creates a good (sense of) urgency.
And by good, I mean, it letting people decide and start with their Plan B investments.
It’s good news for the city center developers who will be sidelined. I mean, Lisbon and Porto, the big city centers, will be out of the picture so this influx that will happen (throughout 2021) will give them some breathing space.
In terms of the demand (in 2021), it’s huge, everyone’s been ready for it. Everyone added new personnel to their sales, everyone ramped up their marketing budgets and it’s going to be a great year.
Post 2022 I expect demand will shift and I think that the workhorse of the industry will be serviced apartments.
Service departments are dodging the changes because they are residential units, but they’re also commercial.
So, after 2022, they will be exceptionally positioned to take advantage let’s hope of the post COVID rebound, and those taking advantage of this niche investments will be in a great position. The golden visa changes will result in higher demand for this (specific) kind of real estate.
So, after the changes (come into effect), let’s dig into it a little.
After the next few months (of 2021), which is this year, once the urgency fades away in quarter 1 2022, I think it will be the slowest quarter ever.
However, the Portuguese Golden Visa is going to bounce back because of its strong fundamentals, changes, price increases on the fund route, excluding the city centers.
So, whilst this sound huge to people in the industry, the next guy, or the next family who is looking for the golden visa will be unfazed because the investments let’s face it, are the cherry on top of the cake and the Golden Visa is why people invest in Portugal.
Let’s go over the issues that make Portugal’s Golden Visa competitive again.
- No geopolitical risk
- A promising economy
- A path to citizenship
The ability to liquidate after you get your citizenship
These are intact, these are here to stay.
I think the program will bounce back. I know the path I’m plotting sounds much like a roller coaster, because it will go up and then go down and it will go up and it will stabilize once the dust settles.
Also imagine this, investors from the developing world feel boxed in because they can hardly get a Schengen visa these days and the Portugal Golden Visa – it’s one way to solve it.
Lorena Jimenez: Especially during COVID-19. I think everybody’s getting cabin fever. We’re all desperate to be back on a plane and traveling, doing business. That’s a very valid point.
Read more: The Best Real Estate Investment locations in Portugal and Golden Visa Developments
The Alternative Investment Route – Portuguese Funds
Lorena Jimenez: So, we touched upon, obviously, the real estate changes that are going to be happening, but the funds route has been picking up quite a lot. What would be your advice in terms of suggestions to investors or the advisors of investors that are looking at the Portuguese golden visa and trying to assess what funds they should actually be selecting – What would be the key risks or considerations that they should assess?
Ahmet Sener: The funds route, of course, it’s the shiny rising star of the Portuguese program. It is very sophisticated – it caters to a sophisticated kind of client base.
But before we dive into my two cents in how I would pick my fund investments, I mean, back in 2018, when the funds ticket dropped, I started talking to prospective investors about the fund rules.
People said, “You’re crazy. Nobody would invest in this” because people always assume the Golden Visa or Second Citizenship investors are obsessed with real estate investments. And we found out that it couldn’t be further from the truth. The industry is showing this. There are more than 20 players who are in a bid to win over the Golden Visa investors. I think this sentiment will be here to stay.
Let’s go back to your question.
So how I would handle this is – I would avoid “one size fits all” advice.
I mean, some people are saying – “Stay clear from startup investments. They’re too risky.”
Some people are saying “Real estate is the way to go” but in my opinion, the way to go, if there is such a thing in the funds industry is to invest in something you understand.
I agree residential, prime residential, prime retail, it’s something easily understandable for example. So if we go from that perspective, I would agree, investing in real estate focused funds could be of interest. It’s easy to understand because prime location is prime everywhere, cities of Lisbon’s size, Porto’s size – the prime locations, you would be able to tell it and the high streets, retail locations, just through Google Maps, you would be able to tell.
However, think about this, if you understand private equity, or if you understand technology, or innovative investments – there are very solid options out there.
I hate that sometimes inexperienced advisors, point fingers at growth and tech funds, and they call them in quotation marks, “highly volatile investments”. This couldn’t be farther from the truth because in Portugal’s situation, there are some very solid financial support systems coming from the EU for tech companies, for high growth companies coming from the local governments.
If you have a solid team, which has solid track records, the fail rate is quite low. Actually, you’ll be surprised about the success rate of VC backed Portuguese companies, post revenue companies or startups.
So again, ignore the one size fits all.
For example, if you’re a doctor from the US, there are two solid players who are doing private equity in the health sector. So you should keep an open eye for options. Which brings me to the second thing, and I think I’m saying it second, but I think it’s the most important.
You’re investing in the team behind the fund.
The assets, the companies, they’re fine but at the end of the day, you need a team. You need to be able to find a team who can sail the ship safely in the post COVID world and it’s no small task.
Track record is important.
The size of the team is important, how this team is making their money is important.
Once you combine all of this, if you pick the right team, regardless of the industry they are playing on, they will more than likely carry you to success. The final thing, please don’t forget, this is one of the most important aspects, the capability and foreseeability of fundraising is extremely important in the funds business.
If the fund is not able to find new investors, they won’t be able to differentiate, they won’t be able to be opportunistic, with new investments.
And of course, the fees of managing the fund, they usually skyrocket if you if you get stuck below a certain point.
So, I mean, picking funds, you can write a book on this. But these three figures, I think they’re a good way to start. Let’s call them springboards for a deep dive.
Lorena Jimenez: That’s a lot of nuggets of insight and wisdom there Ahmet that I think will be very, very valuable to advisors that are looking into this and investors.
Investors in Portugal from the USA and UK
Lorena Jimenez: Looking at demand and where the flow of funds is coming in from – recently, the top investors and that’s been quite commonplace for the Portuguese Golden Visa, have continued to be the Asians and by quite a considerable amount in comparison to other nationalities.
So now that we are going through COVID-19 and there’s been a lot of changes in the world and fluctuations – are you noticing a strong demand for the Portuguese Golden Visa from from other jurisdictions?
Ahmet Sener: Well … talking about changes, whoever you ask, who is an expert on the Portuguese Golden Visa program, they’re going to give you two addresses (markets) that they were surprised about. It’s the USA and the UK.
So mainly, we know the major inbound investors for the Portuguese Golden Visa, it’s developing countries or countries with high perceived risk by their population.
So, while China is not a developing economy at all, their perception of risk was making them invest in these kinds of vehicles and in RCBI (Residency and Citizenship by Investment).
But the USA and UK, nobody saw that coming, the uncertainty that was going on in the USA, Brexit and the historical ties between Portugal and the UK, in terms of investments and real estate have made the increasing power of USA and the UK a reality.
This is a different flavor.
Investors from the USA and UK have huge purchasing power, they’re able to leverage their high incomes, they’re able to leverage in the UKs case, their strong currency. Imagine Brazilians, Turks, such as myself, South Africans, they were fighting a losing battle in terms of their currency’s power when investing for the Golden Visa. But that’s not the case for the UK investors.
So, it’s certainly a different flavor and because of this, they’re quite fast in terms of investing. The decision times of the UK and USA investors are almost half as long as those of investors from South Africa, Brazil and Turkey, your usual suspects.
Investors from the Near East
Ahmet Sener: What Smart Citizenship is expecting in terms of demand in the near future is a considerable increase from the Near East, especially Pakistan, India, and Bangladesh, since their visa issue for them, have become unbearable.
Even countries that are, historically easy to get tourist visas from, have started denying these countries. Getting a tourist visa for Turkey usually took a day, but right now, Pakistan, India, Bangladesh, they need to jump through hoops, and there is no guaranteed results. So these Near Eastern countries and Asian countries, will be a huge driver to the Golden Visa Program in Portugal.
The pandemic situation shifted the habits of these people. So we talked about the countries, but let’s talk about the habits as well, because it’s certainly in a state of flux as well.
People are okay with doing cross border investments remotely now.
This would be something we would see as the exception but right now it has become the norm. I think it will be here to stay even after the pandemic becomes more manageable, or let’s hope it gets out of our lives entirely.
Why is a Plan B Imperative?
Lorena Jimenez: So regardless of the fact that COVID-19 has changed sources of where demand is coming in from, has it changed the motivations of these investors? Or the reason that they’re actually looking at obtaining a Golden Visa?
Ahmet Sener: I think definitely, yes.
I mean, the old motivations are still there, which I mentioned in response to the previous question, but let’s go over them again because I think it’s worth it to remember what the industry is about and remember, what people are looking for when they’re investing in the Golden Visa or any other Citizenship by Investment or Residency program as well.
So, the geopolitical risks, they’re still there. And if anything, they have become stronger, and the need for mobility – that motivation is there, of course, but it became instrumental because of the feeling, as I mentioned, of being boxed in in their country.
Having a Plan B to set up shop in a safe and peaceful country, where hopefully it’s less populated, mainly because people are becoming very unsure of their urban future in heavily populated cities.
These motivations are there, and they have become strong.
On top of that, there’s a huge driver, especially for US investors though this applies to the rest of the world as well, because we’re seeing more and more high net worth individuals becoming worried about their future.
The financial support given for COVID-19 – somebody is going to pay for it sooner or later. And unfortunately, my money is on “tax the rich” schemes.
In the USA, Smart Citizenship is seeing the pressure mount more and more substantially. And their taxation status quo has become a huge point of worry for them.
With the Non-Habitual Tax regime of Portugal, which is broadly speaking a tax holiday by the way, US citizens have started looking into this route very seriously. I think it will be one of the major drivers for the Portuguese program.
I think this will make the Portuguese program more than a Plan B but a Plan A for tax conscious people.
Lorena Jimenez: Fantastic. Well, thank you so much for going through all of those different areas of the Golden Visa and also giving us some more insight on Smart Citizenship. From our end it has been a pleasure having you on. Before we wrap up if you could let the listeners know where they could reach out.
Ahmet Sener: Sure. I mean, smartcitizenship.com is our website and if you want to mail me it’s invest as in investing www.smartcitizenship.com (invest@smartcitizenship.com). That’s the easiest way to reach me anytime of today.
Lorena Jimenez: Well, thank you so much for joining in on the conversation today.
Ahmet Sener: You’re welcome, Lorena. This has been a pleasure as well for me. Thank you so much, and I’m looking forward to the next time we talk.
Editorial Note: This transcript is adapted from our podcast recorded earlier in Q2 2021 with Mr. Sener of Smart Citizenship.
Read more about Smart Citizenship on their website. Our conversation was initially recorded in January’ 21.
