Should We Stop Selling Real Estate to Foreigners? C. B. Crocker

320 Should We Stop Selling Real Estate to Foreigners? by C. Brandon Crocker A merican real estate is being bought by foreigners, and this worries a lot of people. Michael Dukakis made a campaign issue out of the large commercial real estate holdings of the Japanese in Los An geles and other major V.S. cities. The fears generated by this foreign buying appear to be twofold: first is the concern that our national security and sovereignty are somehow compro mised when foreigners own our real estate; second is the belief that foreign ownership of V.S. real estate is harmful to our economy. These qualms, however, are based on miscon ceptions of what is happening in the real estate market. The concern over national security and sovereignty is understandable given the nature of real estate. When foreigners own land, peo ple naturally fear that they might gain danger ous control over the production and distribu tion of resources such as grain, oil, and industrial metals. The cost of amassing enough land to have even a small impact on the supply of such resources, however, is too prohibitive to be practicable for any individual or group acting as an agent of a hostile foreign power.

And such ownership wouldn't have an impact on supplies coming in from international mar kets. Furthermore, all V.S. territory, regardless Mr. Crocker is assistant vice-president for a real estate development and management corporation in San Diego. of the owner's nationality, comes under the full jurisdiction of V.S. law. If foreign real estate investment isn't com promising our national security,is it hurting us economically? The market for real estate in the Vnited States is relatively free. Therefore, as is true of all free markets, no one is forced to sell something to another party. Transac tions are consummated only when all parties feel that it is in their best interest to do so. This means that when a foreigner buys American commercial real estate, he does so because he believes that the risk-adjusted re turn (and perhaps some prestige value) is worth the investment. At the same time, the American seller believes that the transaction will make him better off. If, as is usually the case, the seller is an ongoing business, this means that the owner believes he can get a better return by putting the sale proceeds into another investment than he can get by holding the particular piece of real estate.

The proceeds from real estate sales do not disappear in some mysterious way. The foreign buyer gains a tangible asset, but the compensa tion received by the seller goes into creating other assets which the seller believes will have a higher risk-adjusted rate of return. Manufac turing corporations selling off real estate can put the proceeds into research and develop ment or new machinery. Real estate develop ment companies can put the money into new projects. Forbidding such transactions on the grounds that the buyer is foreign, therefore, would not merely just keep existing real estate in American hands, but would also preventthe creationof other assets in this country. When foreigners buy American properties, Americans are fully compensated. In fact, con trary to the belief that foreigners are "buying America on the cheap," the prices paid by for eigners (especially the Japanese) for American real estate over the past few years in many cas es have been well above the traditional market values, as foreigners have been willing to ac cept a lower return on their investments than 321 have many Americans.