The Law and Its Far Reaching Effect
The recently enacted Florida law restricting foreign real estate investments, particularly focusing on seven considered "countries of concern" is undoubtedly a hot topic in the Sunshine State's commercial real estate industry. According to this news piece, the law, SB 264, which was passed in May of this year, lists six countries— North Korea, Iran, Syria, Venezuela, Russia and Cuba— from which entities and individuals are forbidden from acquiring agricultural land or property within 10 miles of any critical infrastructure or military installation. More restrictively, entities and individuals from China have zero purchasing power in terms of any property within the state.
National Security or Discrimination?
The motives for this, as stated by Governor Ron DeSantis, lie in national security concerns and a strategy to counteract the influence of the Chinese Communist Party. However, the constrictions of this law extend to both entities and individuals in the affected countries, including visa holders dwelling within the U.S. These entities and individuals are now required to register any properties they owned prior to the introduction of the law, by December 31.
This legislation is currently facing legal challenges from the American Civil Liberties Union (ACLU) on behalf of several affected Chinese individuals. The argument in Shen v. Simpson presents that this act is unconstitutional and discriminatory. Analyses and reactions from Florida's real estate industry draw parallels to the Alien Land Laws, hinting at a potential chilling effect on investments.
My Reflections on the Ban of Chinese Real Estate Investment in Florida
A Cooling Effect on the Real Estate Market?
This is certainly a fascinating development that could have tangible and serious consequences for real estate investors. Chinese corporations face an outright ban, and coupled with the partial blockage of various other nations, this implies that a significant pool of capital, once funneled into the Florida real estate investing ecosystem, will now be diverted elsewhere. At the risk of sounding misaligned, I believe it is crucial to mention that I am not particularly a fan of anything that might have a dampening effect on the real estate market here in Florida. Yet, I do appreciate the sentiment and attempt to increase national security.
The Problem with Enforcement
From my analysis, Chinese agents and others from those countries who are truly here for nefarious purposes could still rather easily purchase property. Provided they are somewhat creative in their approach. Since the regulation appears to be only as strong as an affidavit that the purchaser is required to sign.
I have personal doubts that this will be anything more than a speed bump to the actual level of bad actors that this law is suppose to help prevent.
Area's Of Actual Impact
Looking at a map provided by Attorney Clay Zhu, during this webinar in which they talk about the law, it's evident that several prime investment zones remain accessible to entities from the first six countries, with the Chinese being the sole entities completely banned from acquisitions.
I should note that I did not watch the entirety of the webinar, I just watched the part in which they discussed the map. Attorney Zhu's opinion seemed to be that basically all of Florida is now un-investable for the effected people. And while yes much of it is, I do see many of the of most prime investing zones still available to the people and entities of the first six countries. I wanted to make sure I highlighted that point.
The Potential for Discrimination
Switching focus to the impending legal test of the regulation, I am leaning towards the view that this law might be treading along the lines of wrongful discrimination. The law's true implications will undoubtedly become evident once it is ruled as either constitutional or not by the Supreme Court (assuming it makes it to that level).
In my opinion, I highly doubt the occurrence of a massive sell-off by foreign entities because they are legally permitted to continue holding their existing properties; the law specifically only prohibits them from acquiring new properties.
Impact on the Local Economy
However, it's essential to consider that this could result in a dwindling demand. Data from a document titled “Foreign Direct Investment In Florida” (source of the image below) reveals that only about 1.6% of the Foreign Direct Investment into Florida trickles in from Asian and Pacific Countries. This equated to $7 Billion out of a total of $420 Billion in 2015. Consequently, I do not anticipate any dramatic changes to the real estate investing ecosystem in Florida.
This was the latest numbers I could find for Foreign Direct Investment into Florida at the time of publishing this.
Reflecting on the Bigger Picture
As the implications of this new legislation unfold, it illustrates the broader conversation around discrimination and the extent to which we should go when it comes to safeguarding national security. This is indeed a critical dialogue to engage in for anyone interested in not just the real estate industry, but also larger societal impacts.
Original News Article Source: https://commercialobserver.com/2023/09/florida-chinese-real-estate-investment-ban/