Chinese investors buying U.S. real estate facing heightened scrutiny
May 26, 2020 Category China News Round-up, Weekly
Chinese investors buying real estate in the United States can expect heightened scrutiny amid an escalation of U.S.-China tensions, analysts said. They might also have to contend with a new filing fee. 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 U.S. 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 centers,” 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 in the U.S. for the foreseeable future,” he said. CFIUS reviews most foreign deals for national security implications. Its jurisdiction was, however, expanded to cover virtually all foreign direct investment into the U.S. 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 only talking about outright acquisitions, but about investments below 10%. This will spell disaster for those already in the U.S. market, with capital deployed and waiting for more to come from abroad,” said Rick Mirza, Chief Executive of Daulat, a U.S.-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 U.S. Treasury Department, which came into effect on May 1, a fee of up to USD300,000 will be required from parties filing a written notice of a transaction to be reviewed by CFIUS. While the fee could be avoided by submitting a five-page declaration form instead, transactions by Asian and Chinese investors that were “sufficiently sensitive” were advised to opt for the longer notice and pay the new fee, said Mayer Brown’s Uhrynuk. The overall trend of CFIUS enforcement suggests a negative impact on Chinese and Asian investors in the U.S. real-estate market, the South China Morning Post reports.
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