US bans on Chinese property investment unlikely to withstand legal challenges, law expert says

Even if they survive protests, bans proposed in states including Texas and Florida are likely to be ruled unconstitutional, international law expert says
In the last 10 years, Chinese investors have bought US$188.6 billion worth of property in the US – more than a fifth of total foreign investment

International Property

Cheryl Arcibal

Published: 10:00am, 19 Mar 2023

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Proposals to ban Chinese investment in US real estate are not likely to survive legal challenges because they aim at a specific nationality instead of a blanket ban on foreign investment, which is the norm in many countries, according to an international law professor.

Such bans have been proposed in several states in the US, including Texas, Florida and Arkansas.

For example, a bill filed in Texas sought to ban citizens from China, as well as Iran, Russia and North Korea, from acquiring properties there. The legislator who introduced the bill later backtracked after protests, saying she would revise the bill so it would only prevent investment by foreign governments.

Laws like these are nothing new, analysts said. A handful of governments have initiated measures that directly or indirectly bar foreigners from purchasing homes or real estate, typically as a way to curb soaring home prices. Canada, Switzerland, Denmark, Singapore, Cambodia and many others have initiated outright bans or some form of restriction on home buying by foreigners.

But these laws apply to all non-domiciled persons, not select groups.

“What is unusual about the Texas, Florida and Arkansas proposals is that they target the citizens of a particular country, namely China,” said Michael Byers, professor of international law at the University of British Columbia. “If adopted into law, these proposals will eventually be overturned as discriminatory under US constitutional law. They would also almost certainly be illegal under World Trade Organization agreement, and could be challenged by China there.”

For the last 10 years, Chinese investors have topped the list of overseas buyers in the US, according to the US National Association of Realtors (NAR). Buyers from mainland China, Hong Kong and Taiwan have together bought US$188.6 billion worth of property in that period, accounting for more than a fifth of US$906.2 billion in total foreign investment.

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Tensions have been ratcheting up between Washington and Beijing especially after US authorities confirmed that a Chinese spy balloon floated across the US last month, leading to the cancellation of US Secretary of State Antony Blinken’s visit to China.

Any attempt to restrict investment is likely to impact Chinese investors’ sentiment and appetite for US-based assets.

A number of Chinese and Hong Kong property firms and companies have substantial investments in the US, according to information by data provider Dealogic.

A “for sale” sign outside of a home in Atlanta, Georgia in the US, on February 17, 2023. Photo: Bloomberg

Many of these investments are located in major business centres such as New York, California and Illinois, although there are portfolios that span across the US, including the states where legislators seek to ban Chinese purchases.

Among these are China-based Legend Holdings and Hony Capital Management, which are among the investors in shared office space provider WeWork Companies, whose locations include Fort Worth and Houston in Texas and Miami, Florida, according to information on its website.

From Hong Kong, Landsea Group acquired Florida-based Mercedes Premier Home, which builds homes in Florida, for US$58 million in April 2021.

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Even if they are enacted, the state-level laws in the US could merely shift investment to states that are deemed friendlier to foreign investors, said Maggie Hu, assistant professor of real estate and finance at the Chinese University of Hong Kong.

“It is possible that the unmet real estate investment demand of foreigners in those restricted states may spill over to other unrestricted states either nearby or those offering similar investment opportunities,” said Hu.

In the short-term, any ban “may not be good” for the US economy as it is likely to disrupt bilateral trade between the world’s two largest economies.

An aerial view of the Florida city of Miami. Florida has been the top destination for foreign real-estate investment for 14 years. Photo: Shutterstock

Any ban on investment, especially one that is politically motivated, is unlikely to be beneficial to either country but also to global trade, said Sing Tien Foo, professor at the department of real estate at National University of Singapore.

“Foreign investment money is quite liquid and mobile, and the rule may drive the investment to neighbouring states and outside the country,” said Sing. “If the move is politically motivated, it may attract tit-for-tat responses, which may not benefit the global economy and trade.”

Property purchases by Chinese buyers increased 27 per cent year on year to US$6.1 billion in the 12 months that ended in March 2022, the NAR reported in July.

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Chinese buyers’ average purchase price of just over US$1 million was the highest among foreign buyers, with nearly a third purchasing property in California.

For the 14th straight year, Florida was the top destination for foreign buyers, accounting for about a quarter of all overseas purchases.

California came second, netting 11 per cent of all investment, followed by Texas, Arizona, New York and North Carolina. California and New York were the preferred destinations for two out of every five Chinese buyers.