The Real Deal New York

Obama signs law easing taxes on foreign real estate buyers

Measure treats foreign pension funds the same as U.S. counterparts

December 22, 2015 02:40PM

Pension Funds Real Estate

From left: Øystein Olsen and Daniel Fournier

Foreign real estate investment in the U.S. just became a lot easier after President Barack Obama signed into law a measure that eases a 35-year-old tax on foreign investors.

The provision, contained in the $1.1 trillion spending measure that Congress passed to avoid a government shutdown, treats foreign pension funds the same as their U.S. counterparts as far as real estate investments are concerned.

It waives the tax imposed on such investors under the 1980 Foreign Investment in Real Property Tax Act, or FIRPTA, according to Bloomberg. Until now, many foreign buyers structured purchases to make themselves minority investors and bypass the tax.

The new legislation will also enable foreign pensions to buy as much as 10 percent of a public U.S. REIT without triggering liability under FIRPTA; foreign pensions were previously capped at 5 percent.

Foreign investors have increasingly driven U.S. real estate since the global financial crisis at the end of the last decade, thanks in no small part to the perceived safety of assets like office towers and residential apartments. That, in turn, has helped drive commercial real estate prices to record highs. Some of the biggest players in New York real estate are foreign pension fund managers, like Norwegian sovereign wealth fund Norges and Canadian pension manager Ivanhoe Cambridge.

Investment in U.S. real estate from abroad has totaled around $78.4 billion this year – 16 percent of the total $483 billon invested around the country, according to Real Capital Analytics. That figure surged from just $4.7 billion in foreign investment in 2009.

Pension funds represented about $7.5 billion, or almost 10 percent of the foreign total this year – though that number is expected to increase thanks to the new measure. [Bloomberg]Rey Mashayekhi