Foreign Investment Curbed by Proposed Housing Rule, But It Comes With Potential Consequences for American Investors

In a move designed to make it more difficult for Chinese companies to build factories in the U.S., the Treasury Department has proposed a new rule that would make it harder for foreign citizens to buy land near military bases. The government plans to add more than 50 military installations across 30 states to a list of locations deemed sensitive to national security. The new rule would enhance a 2018 law that allowed the Committee on Foreign Investment in the United States (CFIUS) to block foreign land purchases if they are within a certain proximity of a base.

All Foreign Real Estate Transactions in Sensitive Areas Could Be Under Scrutiny

While residential investors and commercial companies occupy different real estate sectors, the proposed rule doesn’t differentiate between the two when examining real estate transactions by foreign investors near sites it deems sensitive.

Chinese citizens represent by far the largest segment of non-North American buyers of U.S. real estate (13% of all U.S. real estate sold to non-U.S. citizens in 2023 was to Chinese citizens), amounting to $13.6 billion in value.

Democrats and Republicans in Congress are united in their concerns over Chinese investments in the U.S., viewing them as a threat to national security. Trump made headlines during his administration’s tariffs on Chinese imports. The Biden administration has likewise imposed tariffs on Chinese electric vehicles and solar panels.

“CFIUS plays an integral role in U.S. national security by thoroughly reviewing real estate transactions near sensitive military installations, and this proposed rule will significantly expand its jurisdiction and ability to accomplish this vital mission,” Treasury Secretary Janet L. Yellen said in a statement.

Part of a Widening Move Against Chinese Corporate Real Estate Investment in The U.S.

The rule could further complicate real estate investment in the U.S. by the Chinese, which has been steadily growing since the pandemic amid the problems currently facing the domestic Chinese real estate market. Although the Biden administration is quick to point out that the proposed new rule applies to all foreign countries, there’s no doubt that Chinese companies have been placed in the spotlight by the U.S. government, with President Biden recently issuing an order forcing a Chinese-backed cryptocurrency firm to pull out of a property it owned near a Wyoming nuclear missile base. A $2.4 billion manufacturing facility that Gotion, a Chinese electric vehicle battery producer, is building in Green Charter Township, Michigan, is also thought to be under scrutiny.

States Took Matters Into Their Own Hands Before the Proposal

The newly proposed rule comes on the back of individual states passing their own laws concerning foreign real estate investing, with Florida prohibiting most Chinese individuals without a green card from purchasing residential property. Many states expanded local bills and laws aimed to block Chinese individuals and companies from acquiring and setting up factories and businesses, warding them away from the U.S. economy and buying homes.

Montana Gov. Greg Gianforte signed a bill in 2023 prohibiting the sale or lease of agricultural land, critical infrastructure, and homes near military assets in the state to entities from six countries that the U.S. designates as foreign adversaries, including China. Texas, Alabama, and Louisiana have attempted similar proposals with less success.

Under the new proposal, the Biden administration would be able to review all real estate transactions within 100 miles of Joint Base Cape Cod, located in Sandwich, Massachusetts, meaning deals near Boston and Providence, Rhode Island, could also be scrutinized.

Similarly, real estate transactions within 100 miles of Wright-Patterson Air Force Base in Dayton, Ohio, would cover the burgeoning Columbus industrial and residential real estate market.

“There is a real responsibility on behalf of governors and state legislatures to look out for the safety and protection of our citizens,” Virginia Gov. Glenn Youngkin, who blocked Ford Motor Company from setting up a battery venture in his state with China-based Contemporary Amperex Technology (CATL), said in the Wall Street Journal. 

Youngkin also signed bills to curb Chinese land purchases and use of TikTok on state devices. “China has a very clearly stated objective: and that is to dominate the world and do that at the U.S.’s expense,” Youngkin said.

Foreign Buyers Are Paying More for U.S. Real Estate

According to recent NAR data, U.S. real estate is a coveted commodity for foreign investors and buyers, who generally pay 20% more than they did the previous year. Foreign buyers’ median purchase price is $475,000, whereas the U.S. median is $442,525.

The Fallout

Not surprisingly, Chinese communities in the U.S. are incensed at what they deem to be discriminatory action and contravene the Fair Housing Act. Chinese citizens in Florida sued the state in May 2023, arguing that the new property law that Gov. Ron DeSantis (R) signed that’s taking effect on July 1 is discriminatory. 

“The Florida law is already having a ‘chilling effect,’” Jason Pugh, a managing attorney at Pugh Law Office in Orlando, told the American news website Axios. “We need such nationwide efforts [referring to a bill proposed by two Democrats] to combat the growing tide of anti-Asian legislation. I think other red states like to follow the lead of Florida and Texas in trying to do things that are ‘innovative,’ so I suspect we will see more of this going forward.”

Final Thoughts

Anytime a nation is singled out as an “adversary” to the U.S. government, there is inevitable blowback on law-abiding U.S. citizens whose families originate from that country. The U.S., after all, is a country of immigrants. Amid heightened geopolitical tension, the U.S. government must protect its interests while protecting the rights of individuals who want to invest in its real estate legitimately. 

There might be a tendency to think that denying non-American citizens the opportunity to buy real estate in some way limits the purchasing power of American citizens of the same ethnic background, and thus, it becomes a contentious issue for some. However, all U.S. citizens can buy real estate in the U.S. Scrutinizing overseas companies that have, in the past, been deemed to be adversarial to a nation’s interests or preferring real estate to be owned by nationals is nothing new and happens in many countries around the world.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.