U.S.-China policy is dually restricted, and it’s even more difficult for Chinese to “speculate real estate” in the U.S

A property in Arlington, outside of Washington, the capital of the United States, is for sale. (Profile photo, November 19, 2020)

WASHINGTON— 

Compared with a few years ago, it is becoming more and more difficult for Chinese people to invest in American real estate. Following the Biden administration’s announcement in early December that it would crack down on the use of cash to buy houses, especially the all-cash transactions of commercial and residential real estate, the Wall Street Journal recently disclosed that President Biden’s efforts to promote the “Build Back Better Future” (Build Back Better) ) There is a clause in the bill that will impose a 30% tax on the profits made by investors in certain countries from U.S. commercial real estate. At the same time, the measures taken by the Chinese government to prevent the new crown epidemic and the strict control of foreign exchange outflows have also inhibited Chinese citizens' willingness to invest in U.S. real estate.

The Wall Street Journal reported on December 21 that the U.S. government usually imposes up to 30% of taxes on the profits made by investors in certain countries from U.S. commercial real estate. According to a 1980 law in the United States, funds and wealthy individuals in dozens of countries must pay up to 30% of taxes on the commercial profits of their American real estate holdings in addition to income taxes and domestic taxes in the United States.

According to reports, in the past, many overseas buyers have been able to circumvent the payment of this tax that is not directed at US companies through complex methods involving overseas entity loans.

Currently, a clause in the "Rebuild a Better Future" bill may change this tax avoidance. The bill was passed in the U.S. House of Representatives in November, but there is still great uncertainty in the Senate. If the bill is finally passed and the clause is retained, this will increase the United States billions of dollars in taxes; but the owners worry that this may also lead to a reduction in foreign investment in US commercial real estate. According to statistics, foreign entities have bought US$2.26 trillion worth of US commercial real estate in the past ten years, accounting for approximately 14% of total sales in the same period.

U.S. President Biden spoke at the White House on the passage of the bipartisan infrastructure agreement and the rules allowing the passage of the "Rebuild Better Act." (November 6, 2021)

U.S. President Biden spoke at the White House on the passage of the bipartisan infrastructure agreement and the rules allowing the passage of the "Rebuild Better Act." (November 6, 2021)

The tax impact may affect the prices of office buildings, hotels and shopping centers. Most of these investment projects are located in major American cities. In recent years, especially after the 2008 global financial crisis, investors from Europe, Asia and the Middle East have flocked to the US real estate market. What attracts them is the relatively high yield, stable U.S. dollar and reputation of the real estate industry for stable returns.

It is not clear how the proposed legal changes will affect Chinese investors’ investment in US commercial real estate. The Wall Street Journal reported that the new law will mainly affect investors in countries that have no tax treaties with the United States. The United States and China signed an agreement on avoiding double taxation of income tax and preventing tax evasion in 1984. Article 7 of the agreement defines income from real estate.

Guo Yafu, head of Tianjiao Asset Management Company in New York, believes that the regulation may have little impact on Chinese investors, because what is about to come "has already come."

He said: "(China) those who are really rich in China, such as the executives of listed companies, I guess those people may have come long ago."

Guo Yafu told VOA that even if there were no such regulations, the Chinese people's enthusiasm for real estate investment in the United States has long been weaker than before, mainly because the Chinese government has strictly controlled foreign exchange outflows in recent years.

He said: "China's current foreign exchange control is much higher in terms of strength and management level than before, which means that the probability of funds being able to invest in real estate overseas is constantly shrinking."

On the other hand, the Biden administration has stated that it wants to crack down on “criminals, corrupt criminals, and others” who use cash to buy houses and money laundering—this is part of a broader global anti-corruption campaign related to the previous Global Democracy Summit hosted by the United States. .

U.S. Deputy Treasury Secretary Adeyemo recently promised in a speech at the Brookings Institution, a think tank in Washington, that he will "actively" promote the crackdown on suspicious all-cash housing transactions, take action to strengthen law enforcement, and strengthen cooperation with allies. He said: “Our real estate market may become a safe haven for criminals, corrupt criminals and others seeking to deposit corrupt income.” He also pointed out that the current law allows people to form companies anonymously and conduct all-cash real estate transactions with hidden sources of funds. .

According to the National Association of Realtors, all-cash real estate transactions currently account for about one-third of all home sales in the United States. According to estimates by the non-profit organization Global Financial Integrity Organization, in the past five years, the amount of money laundering through the US real estate market reached 2.3 billion US dollars.

Guo Yafu, head of Tianjiao Asset Management Company in New York, said that the new policies and regulations will actually have limited impact on Chinese buyers. This is mainly because the United States has increasingly higher thresholds for Chinese immigrant applicants. Relations continue to tighten, and China's wealthy people are increasingly choosing countries such as the United Kingdom and Canada as their immigration destinations.

He said: “The time it takes for people from mainland China to apply for a green card, investment immigration, and waiting time in the United States is much longer than that of citizens of other countries. The attractiveness of US investment immigration to them has also dropped a lot.”

According to Statista, a business statistics agency, the number of Chinese purchases of residential real estate in the United States reached the highest of 40,600 transactions in 2017, and dropped to 19,900 in 2019. residential properties purchased by Chinese buyers was only 6,300.

The international travel ban caused by the new crown epidemic has also become a major factor restricting Chinese purchases of American real estate. "How to buy a house now even if you don't even come to travel," Guo Yafu said: "You have to come and see when you buy a house."