Many developers are still opposed to a ban on the sale of existing homes to foreigners despite a slackening of the proposed new rules.
The government has agreed to loosen its ban, after heeding warnings that apartment blocks wouldn't be built without foreign buy-in.
Only a fraction of New Zealand's housing stock is foreign-owned and there are developers who think banning or restricting that investment discriminates.
In the first draft of the Overseas Investment Amendment bill, overseas buyers could buy apartments off the plans, but would have to sell them once the building was completed.
The new draft has softened that, now allowing developers to sell up to 60 percent of their apartments off-plan, without the requirement for buyers to sell within a year.
Property Institute chief executive Ashley Church said loosening the legislation, currently being considered by MPs as it winds its way through Parliament, would make room for housing supply.
Mr Church said that investors who would have been put off buying into larger apartment developments, which had restricted them to only owning the property for a year, may now be encouraged back into the market.
"In that respect it's a good thing," he said.
Official figures show nationally 3 percent of people who bought residential property in the last quarter didn't hold New Zealand citizenship or resident visas.
However, that figure was higher in Auckland and Queenstown.
Mr Church and other developers believe these figures prove the whole law should be scrapped.
"The more telling figure is that 3 percent figure - that's pretty consistent with where the numbers were back in November last year," he said.
"It indicates that the hyperbole around this issue being a much larger problem is just that, it was never real."
Property development company Porter Group, based in Queenstown, has built large scale apartments and properties in Auckland and Queenstown.
Chairman Alastair Porter said the law was well-intentioned but missed the point.
"It's a misunderstanding that foreign buyers are decreasing supply of affordable housing in New Zealand," he said.
There is no evidence now that there is any great impact on the market by housing speculators, he said.
Mr Porter said the law could jeopardise future investment in New Zealand.
"The Prime Minister has done a great job of representing New Zealand overseas and in international forums, but here we are now discriminating against people who've bought houses in New Zealand with good intentions and also we are not allowing them to buy."
"It will not be looked on favourably by the international markets," he said.
Taxing foreign buyers could be an alternative to a ban, Mr Porter said.
Chief executive of the Real Estate Institute Bindi Norwell also supports scrapping the bill in its entirety.
But, she said, opening part of the market back up is a good step.
She and many others were worried about the possibility of impeding new builds, she said.
"We're delighted with the changes that will not stop new builds from happening."
Ms Norwell is pleased the government has listened to the industry's concerns.
"It's a really good example of the government listening to the views, getting consultation and making sure we have the right thing for New Zealand."
The country's largest property developer Conrad Properties supports banning foreign buyers from existing housing stock.
The company wasn't available for further comment, but in its submission to the select committee it said apartments made a considerable contribution to housing stock and without foreign buy-in they would not be built.
The bill will now head to its second reading at Parliament.
Govt conceding on foreign buyers - Judith Collins
National Party housing spokesperson Judith Collins told Morning Report the government's policy was a "total con".
Ms Collins said it was an election promise stemming from Labour's "Chinese-sounding names campaign".
There would probably be further backdowns from the government because its steps to supposedly help the housing market "stopped supply in a major area which is apartment buildings", she said.
Govt denies it's gone soft on foreign buyer policy
Economic Development and Trade Minister David Parker told Morning Report that even with the relaxing of the rules, they were still more strict than the policy the Labour Party campaigned.
"We've gone through with our absolute ban on foreigners buying any existing home in the land," Mr Parker said.
He said some large Auckland developers of apartments had expressed concern to the government that they relied on some foreign investment.
"So we listened to that and we thought 'we can't be reckless here, we've got to increase supply at the same time' because we've got such a homelessness problem.
"We decided that if people were going to invest in multi-storey apartments for on-lease of on-sale they could do so."