Federal court hears case on Texas property law and Chinese buyers

The 5th U.S. Circuit Court of Appeals heard arguments on Monday regarding the legal standing of two foreign residents who wish to purchase additional real estate in Texas. The central question before the judges is whether citizens of China living outside the United States can challenge a state law that limits property acquisitions by individuals connected to specific nations. No immediate ruling was issued.

The plaintiffs, Min Huang and Qiong Dai, reside in Shanghai and New Zealand, respectively. Both currently own rental properties in the Houston area. They claim that Senate Bill 17 prevents them from completing new purchases. The law took effect on Sept. 1, 2025, and restricts certain individuals and entities linked to China, Russia, Iran, and North Korea from acquiring interests in Texas real property.

SB 17 defines a person as "domiciled" in a country if that place is their true, fixed, and permanent home and principal residence to which they intend to return. The statute exempts U.S. citizens and lawful permanent residents from these restrictions. It grants the Texas Attorney General the authority to investigate potential violations. If a violation is found, the state can bring an action involving the property, seek divestment, and pursue criminal prosecution.

Attorney Justin Sadowsky represented the two investors in court. He argued that his clients possess constitutional protections because the transactions involve property located in Texas and could be enforced in Texas courts. Sadowsky told the panel that there are three grounds for such rights: actions taking place in the U.S., property held within the U.S., and decisions made by U.S. courts against third parties.

The state of Texas, represented by Assistant Solicitor General Benjamin Mendelson, contested the plaintiffs' standing. Mendelson argued that the proposed purchases were too speculative to meet the legal standard. He stated that the standard is not a reasonable probability that an event will happen, but rather that the event is certainly impending.

Mendelson noted that no one has been arrested or prosecuted under SB 17. He also pointed out that the plaintiffs have not identified specific purchases they are prepared to make. He dismissed proposed regulations from the Attorney General's office as insufficient evidence of intent to enforce the law.

In contrast, Sadowsky argued that the plaintiffs' interest is real because they already hold Texas property. He cited proposed regulations from the office of Attorney General Ken Paxton as evidence that the state intends to enforce the law. The three-judge panel took the case under submission on Monday without indicating when a decision would be rendered.

This case follows a separate challenge brought last year by Peng Wang, a Chinese citizen who lived in Texas for 16 years while attending school in Fort Worth. The Fifth Circuit ruled in December that Wang lacked standing because he was not domiciled in China and had not shown a substantial threat of enforcement. The court noted that Wang intended to remain in Texas after graduation and had no real plans to return to China.

International buyers purchased about 7,780 homes in Texas over the previous year. A recent study indicates that Chinese buyers accounted for 9 percent of those purchases. Approximately 62 percent of international buyers were already living in the U.S. on visas or were recent immigrants.