Congress amended the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) in the Omnibus bill that was passed last week. This opens the door to greater purchases by overseas investors.
The changes allow for foreign pension and retirement funds to sell property and invest in U.S. real estate without any additional taxation under FIRPTA. The funds will now be taxed equivalent to U.S. pension funds. The other major change to the act is to allow foreign investors to own up to 10% of a publically traded real estate company before triggering additional FIRPTA tax, up from the previous 5% allowed under the law before.
These changes are expected increase foreign investment by $20-30 billion a year. Commercial property prices are already at record highs around major U.S. cities partly due to the growing number of foreign investors. The changes to FIRPTA could signal an even greater rise in commercial property prices than the rise we’ve seen over the last few years.