Texas Law Restricting Foreign Buyers Chills Chinese Investment

Tonya Li works as a real estate agent in Austin. A Sotheby’s agent, Li has represented Chinese clients for the better part of a decade.

Li reports losing 50% of her work after Texas enacted a new state law, banning certain foreigners from buying real estate. Texas Senate Bill 17 came into effect in September. It bars people and companies from countries designated as national security threats to the United States from buying real estate in Texas.

The Chilling Effect on Many Potential Buyers

This broad-brush legislation names all parties from China, North Korea, Russia, and Iran as threats. But Li’s clients have no relationship to national security. Much of Li’s business has come from parents of young people enrolled at the University of Texas, where the largest group of international students is from China. Parents who do not hold U.S. citizenship or green cards might decide to buy real estate as future assets for their U.S. student children.

As for the lawful permanent residents and citizens of Chinese descent, they’re shocked, and some are selling, says Li. To many, “it is a sign that tells them that the Texas government does not like foreign investors.”

They’re not directly impacted by the law, yet they’re backing away from the market, according to Li, feeling the chilling effect of the law. The list of presumed security threats could grow. The state governor of Texas has the prerogative to add more countries.  

Wind Farm Developer Sells Texas Real Estate Holdings   

Bills to stop Texas deeds from going to parties related to China have been gaining steam over the past five years. One catalyst, reportedly, is real estate lawyer Dallas Barrington. The lawyer set out to stop Sun Guangxin, owner of 140,000 acres, from starting up a wind farm. The wind farm would have spanned 15,000 acres.

Sun Guangxin, like Tonya Li, has worked for high-profile real estate companies in Austin.

Barrington organized other deed holders to sue the Texas energy agency, in an effort to derail Guangxin’s project. Texas lawmakers got behind Barrington’s cause. They passed S.B. 17, the Lone Star Infrastructure Protection Act. The result? A ban on parties associated with China, Iran, Russia, or North Korea from engaging with “critical infrastructure” such as the state’s energy sources. That could make much of the state off-limits, given that infrastructure is developed as time goes on.

The law declares that banned deed holders would be forced to sell. The state will then seize the costs of enforcement out of the sale proceeds. After the state takes its cut, the targeted seller will get the leftover funds.

But that’s not all. Those who are charged with offending the Lone Star Infrastructure Protection Act could be charged with a felony and jailed.

Guangxin’s energy firm, GH America, has filed suit in federal court to have the new state law deemed unconstitutional. But Guangxin has also sold his Texas real estate holdings.

Red Flags: Limits on Owners’ Rights to Transfer Deeds

A deed isn’t a nationality document. A mortgage agreement doesn’t discuss the ancestry of the borrower. LLCs can receive deeds, and the owners of these companies need not live locally or even within the national borders. No county deed recorder asks what nationality a person recording a deed happens to be.

How, then, will the Texas Attorney General even formulate new investigations under Senate Bill 17? Is Texas likely to rely on nervous people who report on their neighbors to determine the targets of prosecution? Will suspicious Texans attempt to guess buyers’ nationality and permanent resident status by looks, or by names? The prospects are troubling.

A law like this one, from the simple perspective of property rights, represents the act of a state to impose new deed transfer limits on land owners. At the same time, research projects and companies that depend on international experts will miss out on economic opportunities, amenities, and infrastructure.

Other States Limiting Deed Transfers by Nationality

At least twelve states have enacted bills like this so far.

With their House Bill 1 and Senate Bill 88, lawmakers in Ohio have also come up with a list of countries as they consider keeping non-citizens from purchasing land in many areas of Ohio. The Ohio Property Protection Act restricts farm land, and land around transit hubs and certain infrastructure.

Ohio might have patterned its bill after Florida’s, but Florida’s example is already being challenged in court on Constitutional grounds.

Nowhere in the United States is property more popular with international buyers than it is in Florida. But international buyers are now steering clear of the real estate market in places like Miami and Palm Beach.

Then there is North Carolina. Its Senate has advanced a sort of giant deed restriction to keep certain groups from holding farm land. North Carolina’s Senate Bill 394, an Act to Prohibit Foreign Ownership of NC Land, characterizes China, Iran, North Korea, and Russia as adversaries. Nationals of these countries will no longer be able to acquire a deed to:

• Farm land.

• Land inside a 25-mile radius of a military site.

• Land beneath “special use” airspace. This is generally made up of areas where military training goes on, or national security is considered at issue.  

The North Carolina House of Representatives introduced its own House Bill 133, titled the NC Farmland and Military Protection Act.

The use of a broad brush to limit deed transfers in the name of national security creates its own set of practical problems, as these states narrow the categories of people allowed to contribute to their economies.

Our Deeds, Our Decisions

Now, the federal government is embracing the trend. The National Farm Security Action Plan is barring certain groups from “adversarial” deed acquisitions. And Brooke Rollins, the U.S. agricultural secretary, has publicly stated that the “president’s vision” includes “making sure foreign countries aren’t buying up America’s farmland.”

Broad-brush limits on selling property undermine rights. So does stripping away deed transfer choices from innocent people. As for hopeful sellers, will they know their land is in a suddenly restricted location? They could wind up facing punishments even if they’re unaware that these laws are now setting limits on who they may transfer their deeds to.

To top things off, governments weaken the Fair Housing Act by enacting broad-brush laws allowing legal discrimination. The real estate industry must resist generic calls for “national security” that set out to normalize legislative overreach.