The new provision would not breach the Free Trade Agreement with Korea or China, or impact the proposed Trans-Pacific Partnership.
Ardern said there would be an issue with the Singapore Closer Economic Partnership.
"The options with Singapore will be worked through.
"The proposed change means we can move our focus away from land issues at the negotiating table at APEC when negotiations on the TPP reach their final stages, and focus on Investor State Dispute Settlement clauses."
She did not want to elaborate on the Government's negotiating position relating to ISDS, but added that many TPP countries had expressed similar concerns.
"We remain determined to do our utmost to amend the ISDS provisions of TPP. In addition, Cabinet has today instructed trade negotiation officials to oppose ISDS in any future free trade agreements.
Ardern said foreigners buying homes off the plan was an issue that still had to be resolved.
"That's a detail that we're working through ... particularly when it comes to apartment dwellings, this is potentially an issue."
She did not know how many homes the change might affect, saying there has never been reliable data on the issue.
The announcement is the first major change that Cabinet has confirmed.
"This Government places a high priority on home ownership and housing affordability. We stand strongly in favour of the view that housing is a right," Ardern said.
Minister for Trade and Export Growth David Parker did not think there would now be a rush from foreigners to buy New Zealand homes.
But the Government would proceed quickly. There would be no impact on TPP - should New Zealand sign on - if the new change was passed before TPP came into effect.
Ardern declined to say whether New Zealand would refuse to join the TPP if the ISDS issues were not resolved.
"I'm not going to undermine our negotiating position. We are going in with the explicit intent to try and remove New Zealand from these clauses.
"We will do all we can at this late stage to negotiate in the best interests of New Zealand and New Zealanders when it comes to the use of ISDS clauses."
She said it will be "very difficult" to achieve at this late stage, but "that is not going to stop us from trying".
Ardern said banning foreign buyers with a stamp duty would have breached the Korea FTA, in contrast to statements by the previous National-led Government.
"The past Government was essentially wrong."
National's finance spokesman Steven Joyce said the policy was a political move rather than an economic one, adding that a similar rule in Australia had done little to take any heat out of the housing market.
The policy lacked detail and would add a layer of compliance that would push up housing prices, he said.
"Imagine if you have a foreign-sounding name and you wanna buy a house. You would effectively have to go to to real estate agent and prove your citizenship ... Or do they have to put applications in for clearance?
"Is an apartment on the fifth floor of an apartment sensitive land? If somebody owns two hectares of land with two houses on it ... does that then become sensitive land and therefore unable to be sold to an incoming [international] developer?"
He said it was wrong to call it a ban.
"It's reclassifying a type of land into a different category under the Overseas Investment Act ... The minister would have to sit there with their rubber stamp and decide 1500 sales a quarter ... under the sensitive land test."
Joyce disagreed with Ardern's claim that the National-led Government was wrong about whether a ban on foreign buyers would breach the Korea FTA, in particular the provision to give investors from both countries the same benefits as domestic investors.
"All the advice we had was that would be difficult."
