Chinese investors buying US property face heightened scrutiny amid rising US-China tensions, new US$300,000 fee
- Combination of expansion of CFIUS’s scope to cover non-controlling stakes and rising tensions between US and China will lead to closer reviews
- CFIUS’s new US$300,000 fee for foreign investors to also act as deterrent
Chinese investors buying real estate in the United States can expect heightened scrutiny amid an escalation of US-China tensions, analysts said. They might also contend with a new filing fee of up to US$300,000 imposed by the federal reviewing body.
The coming into effect of a new regulation that extends the Committee on Foreign Investment in the United States’ (CFIUS) scope to the review of even non-controlling stakes in US real estate could lead to a negative impact on Chinese and Asian investors.
“CFIUS now has jurisdiction over greenfield investments in real estate located near specific air or maritime ports, as well as sensitive government and military installations or military training and testing centres,” said Mark Uhrynuk, partner at law firm Mayer Brown’s corporate and securities practice in Hong Kong. “In light of increasing tensions with China, Asian and Chinese investors can expect heightened scrutiny of many investments into the US for the foreseeable future,” he said.
CFIUS, an inter-agency federal body, reviewed most foreign deals for national security implications. Its jurisdiction was, however, expanded to cover virtually all foreign direct investment into the US, including real-estate transactions by foreign persons that lead to non-controlling investments, with the passage of the Foreign Investment Risk Review Modernization Act (FIRRMA) in 2018. The new regulation came into effect on February 13 this year.
“We are not talking about outright acquisitions only here, we are talking investments below 10 per cent. This will spell disaster for those already in the [US] market, with capital deployed and waiting on more to come from abroad,” said Rick Mirza, the chief executive of Daulat, a US-based private-equity firm that manages real-estate holdings.
Starting in May, the committee has also started imposing a new filing fee for foreign investments, including those in real estate, which could pose a new hurdle for overseas investors. Under a new rule released by the US Treasury Department, which came into effect on May 1, a fee of up to US$300,000 will be required from parties filing a written notice of a transaction to be reviewed by CFIUS.