Overview
On September 1, 2025, Texas implemented new restrictions on real estate ownership by certain foreign individuals and entities through Senate Bill (SB) 17, codified as Texas Property Code Subchapter H (Sections 5.251–5.259). The law prohibits certain individuals and entities connected to “designated countries” from purchasing or acquiring interests in any real property in Texas. Designated countries include China, Russia, Iran, and North Korea, countries designated by the Texas governor, and countries identified by the US director of national intelligence as posing a risk to the national security of the United States. The Texas law may affect not only traditional real property owners and investors but also investors and potential acquirers of any business with operations in the state of Texas.
The law defines “real property” broadly and generally prohibits the following from purchasing or acquiring interests in real property in Texas:
- Governmental entities of designated countries
- Companies headquartered in or controlled by designated countries
- Companies that are owned by or have the majority of their ownership held by prohibited individuals or entities
- Individuals domiciled in designated countries (with limited exceptions)
- Citizens of designated countries who are unlawfully present in the United States
- Members of ruling political parties in designated countries
Limited Exemptions
There are limited exemptions from the restriction on real estate ownership in Texas, including:
- US citizens and lawful permanent residents
- Companies owned by or under control of US citizens or lawful permanent residents
- Leasehold interests for terms of less than one year
- Residential homestead purchases by individuals lawfully present and residing in the United States
The exemptions do not explicitly cover the purchase of interests in publicly or privately held companies by prohibited parties or by private investment funds with such parties as limited partners.
Penalties
Violation of SB 17 may result in (1) civil penalties of $250,000 or 50% of the property’s market value, whichever is greater, and/or (2) criminal penalties constituting a state jail felony for intentional or knowing violations. Courts may also order divestiture of property acquired in violation of the law.
Potential Impacts
People and Funds Affected
Foreign principals of Iran and North Korea are already barred from engaging in Texas real estate transactions by existing federal economic sanctions administered by the US Department of the Treasury’s Office of Foreign Assets Control. As a result, the law is most likely to affect direct and indirect ownership and investment by individuals and entities connected to China and Russia.
Real Estate Direct and Indirect Investment
The law will clearly affect direct purchases of real property in Texas by prohibited parties. The greater impact, however, may be on indirect investment through joint ventures, private investment funds, and similar vehicles. The law implicitly indicates that certain categories of indirect ownership by prohibited individuals or entities may be permitted, such as the ownership of less than 51% or holding of noncontrolling interests. However, this indirect ownership gray area will remain unclear and carry some risk of reliance until additional rules and guidance are provided by the state of Texas.
M&A Transactions
The law may have significant implications for M&A transactions, such as an acquisition of a business that owns or leases property in Texas. Private equity buyers with investors from or affiliated with any designated country should reach out to competent counsel to analyze the facts and circumstances of their investments in advance.
Note that the true scope and impact of the Texas law may not be clear for some time. There are significant gray areas in the plain language of the statute for indirect ownership by prohibited parties, and Texas has not issued any implementing rules, regulations, or other guidance regarding the law.
[View source.]
