An amendment has been removed from the Overseas Investment Amendment Bill that would have made a controversial 106-house luxury development in Northland more attractive to wealthy overseas buyers.

The amendment that exempted Te Arai property development near Mangawhai from the consent provisions of the bill was inserted by the office of Associate Finance Minister David Parker, the minister in charge of the bill.

It was included in recommendations on the bill from the Labour-chaired Finance and Expenditure Committee.

That was despite concerns from National members of the committee that the inclusion of a private exemption for Te Arai development through an amendment to a public bill was inappropriate.

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The Office of the Clerk had also advised the committee that the amendment as it stood was in breach of a Speaker's ruling.

Speaker Trevor Mallard agreed, and ruled this week that the amendment be struck out of the bill for procedural reasons.

But he said the committee had been "motivated by a desire to assist and be fair to the landowner".

Te Arai North Precinct and Te Arai South Precinct in the two Mangawhai forests are joint ventures between Te Uri o Hau hapu and Ngati Manuhiri iwi, together with high profile developer John Darby of Darby Partners.

In their submission to the select committee, the trio proposed a development of 46 housing sites in the 616ha North Forest and 60 in the 754ha South Forest. They also proposed a new golf course similar to Tara Iti, the internationally renowned course in the North Forest established by US billionaire Ric Kayne.

The two forests were bought as commercial assets for development in the respective treaty settlements of Te Uri o Hau and Ngati Manuhiri.

"The financial performance of these two commercial assets is crucial to the future economic wellbeing of Te Uri o Hau and Ngati Manuhiri," the submission said.

"There is a limited New Zealand market for the type of property associated with our two developments. Offshore markets have made up around half the sales of the house sites (to date in the North Forest) and these markets will be severely hampered by the current version of the bill," they said.

"In our view, this bill will reduce what are genuine benefits because it acts as a disincentive to potential overseas purchasers who will be put off by the new requirements."

They called for a range of exemptions and exclusions that would allow the development to go ahead and would extend to on-sales for 15 years.

Treasury advice provided on the Speaker's ruling said: "Those sites could be traded multiple times during the proposed 15-year transitional exemption. The proposed exemption could therefore potentially be used by a class of overseas persons in the hundreds."

The Government this week announced a softer approach to the foreign buyer ban in the Overseas Investment Act Amendment Bill but still maintained New Zealanders came first in the housing sector.

Parker said that even in its changed format "the law will ensure that the market for our homes is a New Zealand market and not an international one".

He told interest.co.nz earlier this month: "We want the prices of New Zealand homes, whether it be a lakeside station, the best houses in the Bay of Islands or the modest homes in our towns and cities, to be set by local buyers, not on the international market.

"It's also a matter of values. We believe New Zealand homes should not be traded on an international market and New Zealanders should not be outbid by wealthier foreign buyers."

In Parliament today Parker was asked about his relationship with Darby, and with Darby's PR firm, run by former Labour staffers Gordon Jon Thompson and David Lewis.

Parker said he could not remember when he had last seen Darby.

Outside the House he told reporters: "The suggestion has been made that this was a special favour to someone I knew, they mentioned a Mr Darby. I know thousands of people. I do know Mr Darby, I haven't spoken to him about this. The last time I met him was when I bumped into him at an airport or somewhere, it was so long ago I can't even remember."

Parker said the Government wouldn't try to put the exemption back into the bill via another route, but he confirmed it was his own office that put the exemption in.

"That was my office's decision.

"We saw this and it was described in the papers as an iwi development. I've never met them, there was some sympathy for the position, within Government, that they were in so we proposed that exemption that's been ruled out of order so we're not pursuing it."