A land tax could be slapped on foreign buyers, including Kiwis overseas, if new data shows overseas speculators are fuelling the residential property boom, Prime Minister John Key has hinted.

Key said the Government was yet to make a call on a land tax but it was an option if foreign property speculation became "a runaway train".

It would be applied to all non-resident buyers, and wouldn't target just one nationality, Key said.

The Prime Minister said any land tax could also apply to Kiwis abroad with property in New Zealand after an exemption period of perhaps three years away.

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​A spokeswoman for the Prime Minister later confirmed he was referring to a land tax on non resident investors only.

Key also clarified the situation in relation to the Trans Pacific Partnership Agreement.

"Under TPP, we have retained the ability to impose a discriminatory stamp duty on property sales to people from other TPP countries.

However, a discriminatory stamp duty like this would be inconsistent with the Korea FTA and our Double Tax Agreements with Australia, Japan and Mexico," Key said through the spokeswoman.

"Land taxes are considered direct taxes and non-discrimination obligations in FTAs are not applicable to these type of taxes. Also a tax on "non-residents" would capture some New Zealand citizens as well

as foreigners as it would be applied on the basis of residency not nationality. In that case it would not necessarily constitute discrimination for the purposes of our double tax agreements."

A resurgent property market and spiralling prices in Auckland have sparked concern that foreign investors, particularly from China, are stoking the boom.

Key, who is just returned form China, did not believe foreign based buyers were a big percentage of the market though the Government has been collecting data for several months now to provide a more accurate picture.

"So I don't have any early indications on the numbers. I could be proven to be wrong but my gut instinct tells me that the buying that's happening in Auckland and potentially around New Zealand, but let's just take the Auckland market, in so much that it's, say, Chinese buyers or buyers of other ethnicities, I think they're New Zealand based. So I think they've got residency. They may or may not have citizenship. So the number of buyers I think that wake up on a particular morning, live in Shanghai, and say ' look I'm going to go and buy a house in new Zealand for a million bucks or less" and have no real connection to New Zealand I think is quite low."

The number could grow over time but 'my gut instincts are that people actually live in New Zealand", Key told TVNZ's Q+A programme.

Other options, like stamp duty, were not possible under deals like New Zealand's free trade agreement with China, Key confirmed.

But New Zealand retained the right to impose some taxes and a land tax was "the most obvious" one of those.

"At the moment we're not trying to stop the investment coming in. Obviously we are recording the numbers. We'll have much better data on whether there is actually a problem of Chinese-based investment, or investment from other countries, because we want to be specific per country."

If that data showed a problem the Government would act.

"We've always said 'look if the thing became a runaway train on us and we were really concerned about it, that's always an option available". And to be blunt, actually, land taxes are far more likely to deter people than a stamp duty."

That was because stamp duty only had to be paid once while a land tax had to be paid annually.

"Lots of countries have land taxes."

LABOUR WOULD RESTRICT FOREIGN BUYERS

Labour leader Andrew Little said it sounded like a poll tax and he was unclear how the Government could levy it on foreign speculators only when it had ruled out other options proposed by Labour as a breach of our trade agreements.

"Labour's position is we should just regulate and restrict sales to non resident foreign buyers of residential property and we were told because of the Trans Pacific Partnership Agreement we would be prevented from legislating to do that."

Little did not see a land tax being particularly effective. It would not only be difficult to administer, it had already been shown overseas that taxes like a capital gains tax did not deter buyers.

Under Labour policy, foreign buyers would only be allowed to purchase newly built houses, not existing stock.

TOO LITTLE TOO LATE?

NZ First Leader Winston Peters said the Prime Minister was too late to act.

He said Kiwis were tenants in their own country as Key denied an "explosion" offshore purchases.

"The latest is a land tax, coming just a few days after he told the media in China he would speed up Overseas Investment Office processes," Peters said.

"Mr Key refused to set up a register of foreign property purchases, as the Australians did, and introduced IRD and bank account requirements that you could drive a bus through."

The Government's 2010 tax working group proposed a 1 per cent tax on the value of land, estimating it would raise hundreds of millions of dollars a year in revenue and cut land prices by 17 percent. However, that proposal was for land taxes across the board, rather than one targeting non-resident buyers only.

A land tax could either be collected by Inland Revenue, or through local councils.

A land tax was reportedly estimated as costing around $6500 a year in Auckland's more expensive suburbs at the time the working group issued its report, though land values have risen significantly since that time. That was based on a 0.5 per cent levy on the unimproved value of a property.