Kiwi prices plummet

House prices in New Zealand are falling, which makes it an ideal time for investors to snap up bargain properties...

According to Quotable Value New Zealand Ltd, house prices in the country fell 8.3 percent in January from a year earlier - the biggest since the series began in 2005.

Falling property prices add to signs the economy's slump will be prolonged as stricter lending conditions and rising unemployment erode household confidence.

Lenders must play ball

Central bank Governor Alan Bollard, who has cut the benchmark interest rate by 4.75 percentage points since July to kick-start demand, urged lenders last month to pass on lower borrowing costs to consumers.

"Declining interest rates would normally stimulate buyer activity, but concerns over job security and a more cautious approach to lending by financial institutions seems to be preventing this," said Blue Hancock, a spokesman for Quotable Value.

New Zealand's economy slumped into a recession in the first quarter last year and may not start growing until the second half of 2009, Bollard said last month.

The nation's jobless rate rose to a five-year high of 4.6 percent in the fourth quarter, according to a government report last week. Prime Minister John Key said last week he had encouraged bank chief executives to "act honourably" and pass on lower costs to their customers.

Investors Returning

Banks have reduced interest rates but have also become more stringent on their lending policies, with most requiring first- time buyers have a deposit of at least 20 percent of the purchase price for a property.

Still, home affordability has improved as house prices and borrowing costs fall, Hancock said. Investors are also returning to the market, seeing better returns from property than from stocks and managed funds, he said.

Home prices in Auckland fell 9 percent and in Wellington by 8.5 percent. Prices across the nation's 17 main urban centres dropped an average 8.9 percent.