Lawmakers in Austin have reshaped Texas real estate investment for the foreseeable future. The 89th Texas Legislative Session brought the passage of SB 17, which restricts the sale of real property to individuals and entities from certain countries. Currently, the list of countries includes China, Iran, North Korea and Russia. However, the Governor can expand the list of countries at any time. What does this mean for investors long-term and ultimately, who is affected?
Who Does SB 17 Affect?
SB 17 impacts individual citizens of the above designated countries who do not have permanent residency in the United States. This includes those who maintain permanent residency overseas, are in the United States unlawfully, or are agents of the government or ruling parties.
SB 17 also impacts entities that are headquartered in or controlled by the government of the above listed countries, majority-owned by the individuals listed above, or designated by the governor as a threat to national security.
What Does SB 17 Define as Real Property?
Real property is broken down in SB 17 to include agricultural land; an improvement located on agricultural land; commercial property; industrial property; groundwater; residential property; a mine or quarry; a mineral in place; standing timber; or water rights.
Are There Exemptions to SB 17?
Yes, SB 17 contains several exemptions for the purchase of real property. The list of exemptions includes:
- S. citizens and lawful permanent residents
- Including permanent residents from the countries that are listed in SB 17 and any added to the list by the Governor
- Entities owned and controlled by U.S. citizens or lawful permanent residents
SB 17 does allow individuals who would be banned from owning real property to enter into a residential lease agreement of 12 months or less. SB 17 also allows citizens of the designated countries who are lawfully in the United States to purchase a residential homestead for the intent of using the home as their resident homestead.
When Does SB 17 Go into Effect?
SB 17 goes into effect on September 1, 2025. Real property and real property interests purchased or acquired before the effective date are exempt from the enforcement and divestiture procedures outlined by SB 17.
What Does This Mean for Future Foreign Investments in Real Property?
It remains to be seen how SB 17 will be enforced. SB 17 gives the Attorney General the authority to develop the procedures for investigating the purchase or acquisition of interest in real property and ultimately take the case to a district court, which could order the divesture of the property or interest in the property. Violations could also result in criminal and civil penalties.
Individuals and U.S. based entities and entities based in countries not on the SB 17 designated list will need to be cautious about who they bring on as investors moving forward. While there is no onus on seller or lessor to verify compliance with the law, if the Attorney General initiates an investigation, the transaction or project could be held up for an extended period of time. It also remains to be seen whether intentional violations of this act by entities otherwise exempt will result in civil penalties to the entity.
Texas remains central to foreign investors. Texas ranks third in residential and second in commercial real estate investment by foreign investors. Going forward, individuals and entities looking to foreign investment in real property, in Texas, will need to work closely with their legal counsel to ensure their investment is protected from potential delays or divesture. This may include adding indemnification clauses to any investment agreement for any foreign investor because it is likely the list of designated countries will expand in the years ahead.
The long-term impacts of SB 17 on foreign investment will not be known for some time, but SB 17 adds further challenges to an already challenging real estate market.
