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Good Policy or Discrimination? The Debate Over Foreign Investment in U.S. Real Estate Heats Up

Author: Bruce Feffer|February 27, 2023

The debate over whether foreign investment in United States real estate is good for the country or not has been simmering for decades…

Good Policy or Discrimination? The Debate Over Foreign Investment in U.S. Real Estate Heats Up

The debate over whether foreign investment in United States real estate is good for the country or not has been simmering for decades…

Good Policy or Discrimination? The Debate Over Foreign Investment in U.S. Real Estate Heats Up

The debate over whether foreign investment in United States real estate is good for the country or not has been simmering for decades. There are arguments that can be made in good faith on both sides. Lately, however, government officials and others are sounding alarms that the debate is no longer being waged solely on the merits.

According to a recent New York Times article (How U.S.-China Tensions Could Affect Who Buys the House Next Door, February 7, 2023) the Texas legislature is considering a proposal to prohibit all citizens and companies from China from buying real estate (commercial or residential) in the state. Governor Gregg Abbott has already indicated his support for the ban. The article cited other Governors, such as Ron DeSantis of Florida and Glenn Youngkin of Virginia, who have also expressed opposition to investment in U.S. real estate from China. In California, a bill to set limits on foreign ownership of farmland passed both houses of the legislature last year. The bill was vetoed by Governor Gavin Newsom.

Over the years, the pros and cons of foreign investment in U.S. real estate have centered more or less around familiar themes.

The Arguments for More Restriction On Foreign Investment

Those who favor a more restrictive approach argue that such limits are necessary to a) protect domestic buyers from being priced out of the market as increased competition drives up prices, b) protect American national security interests as foreign investments may be used either for intelligence surveillance or to influence U.S. politics and law, or c) to steer foreign investment into other sectors, such as manufacturing, infrastructure or technology, to help promote job creation throughout the economy beyond real estate.

The Arguments for Less Restriction On Foreign Investment

Advocates of a more open policy on foreign investment argue that excessive restrictions will a) hurt the economy by decreasing investment, thereby causing a reduction in property values, fewer construction projects, and less capital that could be used for economic development, b) reduce the tax revenue generated when foreign investors buy real estate, which could then lead to cuts in local services or the need for tax increases to pay for those services, and c) result in retaliation from those countries who are subject to the U.S. restrictions, leading to fewer overseas investment opportunities for Americans and an overall decline in global economic activity and trade relations.

Existing Restrictions

There are already a number of laws and policies in the U.S. that restrict foreign investment in real estate. The Committee on Foreign Investment in the United States (CFIUS), for example, is a collection of federal agencies designed to review foreign investments in the U.S. and block such investments that are deemed to present a national security risk. The Committee has been actively operating since 1975 and its scope of authority has been expanded multiple times since, most recently by an Executive Order of President Biden in September 2022.

Civil Liberties Concerns

Lately however, opponents of a more restrictive approach, particularly like the one proposed in Texas, are expressing concerns that the latest proposals and policies are no longer based on the traditional arguments but on more sinister motivations. In Texas, for example, opponents of the bill currently under consideration, including the Mayor of Houston, Sylvestor Turner, say that it is motivated more by anti-Chinese sentiment than any concern over national security. They cite the provisions of the bill that would prohibit investments (including buying a home) by Chinese immigrants already living in the state. Lawyers with the American Civil Liberties Union of Texas have already said such a law would be unconstitutional, as it would discriminate against Chinese people holding dual citizenships or legal permanent residency (such as green card holders). While the legislator who authored the Texas bill recently stated she would amend it so it would not apply to permanent residents, the prohibition on buying property would still include recent immigrants and those on temporary work visas.

In a climate of increasing violence against Asian Americans, and heated political rhetoric aimed at China, it will be up to responsible lawmakers and the American public to make sure laws and policies are founded upon legitimate policy objectives and not an agenda that targets any particular group of people for discrimination.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Bruce Feffer, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.

Good Policy or Discrimination? The Debate Over Foreign Investment in U.S. Real Estate Heats Up

Author: Bruce Feffer
Good Policy or Discrimination? The Debate Over Foreign Investment in U.S. Real Estate Heats Up

The debate over whether foreign investment in United States real estate is good for the country or not has been simmering for decades. There are arguments that can be made in good faith on both sides. Lately, however, government officials and others are sounding alarms that the debate is no longer being waged solely on the merits.

According to a recent New York Times article (How U.S.-China Tensions Could Affect Who Buys the House Next Door, February 7, 2023) the Texas legislature is considering a proposal to prohibit all citizens and companies from China from buying real estate (commercial or residential) in the state. Governor Gregg Abbott has already indicated his support for the ban. The article cited other Governors, such as Ron DeSantis of Florida and Glenn Youngkin of Virginia, who have also expressed opposition to investment in U.S. real estate from China. In California, a bill to set limits on foreign ownership of farmland passed both houses of the legislature last year. The bill was vetoed by Governor Gavin Newsom.

Over the years, the pros and cons of foreign investment in U.S. real estate have centered more or less around familiar themes.

The Arguments for More Restriction On Foreign Investment

Those who favor a more restrictive approach argue that such limits are necessary to a) protect domestic buyers from being priced out of the market as increased competition drives up prices, b) protect American national security interests as foreign investments may be used either for intelligence surveillance or to influence U.S. politics and law, or c) to steer foreign investment into other sectors, such as manufacturing, infrastructure or technology, to help promote job creation throughout the economy beyond real estate.

The Arguments for Less Restriction On Foreign Investment

Advocates of a more open policy on foreign investment argue that excessive restrictions will a) hurt the economy by decreasing investment, thereby causing a reduction in property values, fewer construction projects, and less capital that could be used for economic development, b) reduce the tax revenue generated when foreign investors buy real estate, which could then lead to cuts in local services or the need for tax increases to pay for those services, and c) result in retaliation from those countries who are subject to the U.S. restrictions, leading to fewer overseas investment opportunities for Americans and an overall decline in global economic activity and trade relations.

Existing Restrictions

There are already a number of laws and policies in the U.S. that restrict foreign investment in real estate. The Committee on Foreign Investment in the United States (CFIUS), for example, is a collection of federal agencies designed to review foreign investments in the U.S. and block such investments that are deemed to present a national security risk. The Committee has been actively operating since 1975 and its scope of authority has been expanded multiple times since, most recently by an Executive Order of President Biden in September 2022.

Civil Liberties Concerns

Lately however, opponents of a more restrictive approach, particularly like the one proposed in Texas, are expressing concerns that the latest proposals and policies are no longer based on the traditional arguments but on more sinister motivations. In Texas, for example, opponents of the bill currently under consideration, including the Mayor of Houston, Sylvestor Turner, say that it is motivated more by anti-Chinese sentiment than any concern over national security. They cite the provisions of the bill that would prohibit investments (including buying a home) by Chinese immigrants already living in the state. Lawyers with the American Civil Liberties Union of Texas have already said such a law would be unconstitutional, as it would discriminate against Chinese people holding dual citizenships or legal permanent residency (such as green card holders). While the legislator who authored the Texas bill recently stated she would amend it so it would not apply to permanent residents, the prohibition on buying property would still include recent immigrants and those on temporary work visas.

In a climate of increasing violence against Asian Americans, and heated political rhetoric aimed at China, it will be up to responsible lawmakers and the American public to make sure laws and policies are founded upon legitimate policy objectives and not an agenda that targets any particular group of people for discrimination.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Bruce Feffer, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.

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