The US is losing the “global competition” to attract foreign investment in its real estate markets with its failure to reform a three decades-old law. Speaking at the annual Association of Foreign Investors in Real Estate (AFIRE), Jeffrey DeBoer, chief executive officer of The Real Estate Roundtable, said the law – the Foreign Investment in Real Property Tax Act (FIRPTA) – was seeing the US lose ground globally.
“We are losing the global competition for foreign investment dollars in the US. If you look around the world, we used to be the place where everyone wanted to put their money and where everyone did put their money,” said DeBoer. “Now we have a situation where everyone wants to put their money here, but it's not exactly what they do. Part of the reason is because of FIRPTA.”
DeBoer conceded that winning repeal of the entire act was slim given the current political environment in the US. However, politicians in the US House of Representatives and the Senate are expected this week to introduce new bills that would attempt to “mitigate” some of the impact of FIRPTA by reversing a recent IRS ruling, which deemed liquidating distributions of private REITs as taxable under FIRPTA.
DeBoer argued that the reforms are not just about attracting foreign investment into the US' core markets, rather they also are about the remainder of the US. Calling FIRPTA a “misguided policy,” he added: “The rest of the country needs investment, and foreign capital would be very helpful.”
Originally intended as a tax to prevent farmland in America's heartland from being consumed wholesale by overseas investors, FIRPTA requires buyers of real assets in the US to withhold a portion of the sellers' gains for taxable purposes if the sellers are non-resident aliens or are not US citizens. The tax is usually 10 percent of the sales price, but it can be up to 35 percent.