This may be what foreign investors have been waiting for as President Barrack Obama eases real estate taxes for foreign investors.
Financial Review reports that the President has signed into a law to ease a 35-year-old tax on foreign investment in US real estate. This could potentially open the door for more real estate purchases a wide margin by overseas investors.
Part of the provision is that foreign pension funds be treated the same as their US counterparts for real estate investments. It means that such investors under the 1980 Foreign Investment in Real Property Tax Act, known as FIRPTA, will have their payable waived.
James Corl, a managing director at private equity firm Siguler Guff & Co., says. "FIRPTA has historically made direct investment in US property a non-starter for trillions of dollars worth of foreign pensions. This tax-law modification is a game changer."
The flock of foreign investors began during the global economic meltdown, the report continues. These investors have been eyeing office towers and shopping centers to apartments and warehouses. The increase in demand also set the prices to record high and foreign investors laid out their investment in such a way that they'd remain part of minority investors to be able to bypass FIRPTA.
The report further adds that, "The new law also allows foreign pensions to buy as much as 10 percent of a US publicly traded real estate investment trust without triggering FIRPTA liability, up from 5 percent previously.
Cross-border investment in US real estate has totalled about $78.4 billion this year, or 16 percent of the total $483 billion investment in US property, according to Real Capital Analytics Inc."
Foreign investors had to shell out 10 percent of the gross proceeds from the sale of US real estate plus federal, state and local levies that could hike the tax payment up to 60 percent, according to National Association of Real Estate Investment Trusts.
Jim Fetgatter, chief executive of the Association of Foreign Investors in Real Estate, told Bloomberg that the change "is a huge deal and that there's no question it will increase the amount of foreign investment in U.S. property."
