The Government might ease a key part of its anti-foreign house-buyer ban, allowing overseas people who develop and build new properties in New Zealand to keep them rather than being forced to sell within a year.

At the Auckland Housing Collective Action Forum last week, housing minister Phil Twyford indicated to attendees at Warren and Mahoney's Auckland headquarters that one aspect of the proposed law change could be somewhat softened.

The forum, organised by Leonie Freeman, is seeking to make headway in Auckland's housing crisis.

Ted Manson, of commercial developers and investors Mansons TCLM, asked Twyford at Thursday's meeting about a clause in the Overseas Investment Amendment Bill, which had its first reading in the House before Christmas, is with the Finance and Expenditure Select Committee and for which submissions close in three days.

Manson wanted to know about a clause stating foreign buyers must sell properties they develop within 12 months. Would foreign buyers be able to develop and hold properties, he wanted to know.

"We're considering that very point right now," Twyford answered.

"We've had a lot of submission on it. My view is the first version of the bill didn't get it right and we are now considering submissions and fine-tuning it.

"We want to protect the domestic housing market from uncontrolled offshore speculation but we want to encourage offshore investors and development."

The clause would force non-residents and non-citizens to sell residential and lifestyle properties they build within 12 months. That is much harsher than in Australia where foreigners are allowed to buy residential properties as long as they develop new residences, adding to the overall national housing stock.

A spokeswoman for Twyford this week referred questions to the office of associate finance minister David Parker, "as they are leading the legislation and will know about any fine tuning". Parker's spokesman said he was not at the meeting so did not know the context in which Twyford's remarks were made.

The Property Council and Auckland District Law Society have made strong submissions calling for aspects of the proposed law change to be altered.

Banning foreign investors from buying New Zealand residential property will back-fire on the Government, and, instead of increasing new residential supply by stopping speculators, it will create a shortage of new homes, lawyers and realtors say.

The submissions said the new law would deter much-needed residential developers who are critical to creating new housing stock, particularly apartments.

"Overseas developers choosing to invest in New Zealand properties often develop residential properties," the lawyers said. "The proposed bill will have a detrimental effect on both New Zealand and overseas developers. The number of new properties being offered in New Zealand is going to be vastly reduced."

REINZ, representing more than 14,000 agents, said the change in its current form could severely reduce property development.

"This, in turn, may negatively impact housing supply at a time of housing shortage, leading to an increase in property prices and rents," said the submission from REINZ, whose chief executive is Bindi Norwell.

"The proposals in the bill may have the unintended consequences of hindering property development, reducing housing supply and adding pressure to New Zealand's housing and rental property markets," the REINZ submission said.

Matt Paterson, Property Council advocy head, today welcomed any changes to the new law.

"Lack of local capital is one of the constraints on our ability to build more houses. As drafted, the bill risks making it harder to develop the housing we need at both scale and pace. This would interfere with the Government's overall housing objectives.

"The Government's housing goals are ambitious and it will need the help of the private sector to build the houses. This partnership will only work if the minister listens to private sector views on how to enable and facilitate housing. Acting on our concerns about the overseas investment bill is a good first step," Paterson said.