A developer lobby group says it is confused about some of the Federal Government's changes to the rules on foreign investment in real estate.

The Government today announced it would reverse many of the contentious rules it brought in last April because of concerns they were impacting on housing affordability.

But Urban Taskforce Australia says it is concerned about the Government's suggestion it will impose penalties on people selling homes when the buyer has breached foreign ownership rules.

Taskforce head Aaron Gadiel says that implies that vendors could be made responsible for checking the immigration status of home purchasers.

"If there is an obligation every time a home is exchanged for a purchaser to have to prove that they're an Australian citizen or an Australian resident, that would be a cumbersome bit of red tape to have to deal with, with an issue that only affects a tiny minority of purchasers," he said.

Prime Minister Kevin Rudd says the new rules for foreigners wanting to buy Austalian houses are aimed at easing sharp rises in the property market, but the Assistant Treasurer does not believe that overseas investors are the main reason prices are increasing.

Temporary visa holders, including students, will have to obtain the approval from the Foreign Investment Review Board before buying a home in Australia under the changes.

They will then have to sell it on departure from Australia.

In late 2008, foreign ownership rules were relaxed, and many believe that fueled a jump in prices, but Assistant Treasurer Nick Sherry says that is not why the Government is acting.

"I don't accept that the factor of overseas purchase has been a major factor," he said.

But the Prime Minister has contradicted him.

"We want to make sure that foreign speculators aren't going to force up prices for Australians seeking to buy their own home," he said.

The new rules come into effect immediately.

Another blunder

Earlier, the Federal Opposition said the Government has been exposed for another policy blunder.

Shadow treasurer Joe Hockey says the Government's original loosening of the rules had the effect of pushing up prices and putting pressure on the market.

"Kevin Rudd promised the Australian people he would make it easier to buy houses, not harder," he said.

"When he changed the foreign investment rules he made it harder for Australians and now we've seen yet another Rudd Government backflip.

"It is certainly the case that they do not focus on outcomes when they develop a policy ... they focus on politics.

"And this is another example of the Prime Minister lacking the courage to go out and announce that he got it wrong on a policy."

Mr Hockey says the changes are a return to Howard Government policy and a significant policy failure.