The effects of proposed restrictions on foreign buyers purchasing residential homes has thrown up plenty of uncertainties for economists, no less so for booming Queenstown and Dunedin, which of late has enjoyed a surge in house prices and values.
While Queenstown Lakes district values had recently stalled, they were still over the $1 million mark and the most unaffordable in the country, while Dunedin had booked a more than 12% year-on-year gain, Quotable Value data revealed this week.
Infometrics economist Hilary Parker said while Australians were exempt from the foreigner restrictions, the purchasing of property by other nationalities had already slowed down.
"This was due to the retail banks refusal to approve mortgage lending based on overseas incomes," she said.
Ms Parker said while the adjustments to the foreign buyer rules under the new Labour Government would "cement the housing markets downturn", it would not lead to significant, additional, house-price falls.
The number of house sales plunged 26% to 5428 in September, the lowest level for that month in six years, while the national median price rose by just 1.2%.
Ms Parker said the persistent slowing in price growth was also causing foreign buyers to lower their expectations of future capital gains, which was discouraging investment.
"We recently revised down our forecasts of house-price inflation and now expect prices to fall over the next three years as the market undergoes a correction," Ms Parker said.
Infometrics was predicting an up to 13% price decline, albeit spread over the next three years.
ASB economist Kim Mundy said suggestions this week that about 3% of house purchases were to foreigners were an unreliable estimate, given there was only limited data on non-residential market activity.
"While banning non-residents and non-citizens is likely to weigh on demand at the margin, its very difficult to tell what the overall impact of the policy will be on the housing market," Ms Mundy said.
Infometrics chief forecaster Gareth Kiernan said the current strength of the Queenstown market appeared to be largely justified, given its very strong population growth and booming tourism industry.
However, Queenstown was also a relatively small market, so ran the risk of easily becoming oversupplied if economic conditions or population growth turned suddenly.
"At this stage the boom in Queenstown looks to have more substance than the boom last decade, but I wouldn't rule out the risks of price falls larger than the nationwide average if things turn sour," Mr Kiernan said.
Given the significant presence of foreign buyers in Queenstown, the market might quickly lose momentum as the new government restrictions were enacted, he said.
Dunedin was more problematic than Queenstown because the economic fundamentals were less favourable in justifying the substantial lift in prices during the past two to three years.
"I would see bigger down side [negative] risks around the Dunedin market as the nationwide market slows."
Mr Kiernan said price falls in Auckland might actually be smaller than the 10%-13% national average because of undersupply, which implied that other regions, such as Queenstown or Dunedin, could see price falls of more than that average, counterbalancing the smaller Auckland falls.
Mr Kiernan was now picking a "gradual decline" in house prices of 10%-13% during the next three years, noting that after the global financial crisis of 2007-08, house prices had plunged 10% in one year.
"This will be a more gradual decline. There won't be the mortgagee sales there were then," he said.