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Downturn in prices and visitors a blow for New Zealand property investors

The Reserve Bank is predicting a 12% slump in house prices over the next year and a half. It warns that the housing market is slowing much faster than expected and that prices would now drop 12 per cent from their November 2007 peaks over the ensuing 18 months.

But those seeking bargains might just benefit. The New Zealand construction sector is offering discount packages that cut the cost of building a new home by as much as 45%. All residential building companies have cancelled work and are laying off staff.

But once you have invested you may suffer from a downturn in rental yields, particularly in tourist areas. Tourism chiefs are warning that the Lord of the Rings effect is well and truly over and that the credit crunch is having a severe effect on the number of international visitors.

For the last decade New Zealand tourism has enjoyed a boom especially from international visitors attracted by the country's clean, green image. But the strength of the dollar has made it more expensive for foreign travellers.

It is the first time New Zealand's $18 billion has suffered an economic downturn since 2000. Numbers are down among foreign visitors and internal holidaymakers with growth expected to be just 1% this year compared with a year on year average of 5%.

Deutsche Bank chief economist Darren Gibbs says tourism is a vital part of the economy and any downturn would clearly be bad news. 'The rising costs of travel in light of the rising costs of fuel will probably see numbers of international visitors drop. Clearly it's negative for the economy,' he commented.

Visitors from Japan have dropped off significantly and last month saw the first signs that long-haul visitors from Britain are faltering.

Trevor Hall, chief executive of New Zealand's largest listed tourism company, Tourism Holdings, said; 'My view is that as a destination we are definitely in for challenging times. I personally see New Zealand as a brand continuing to be strong and so will be softened from global downturn, but fuel is a concern.'

New Zealand's Budget announcements included no increases in tourism funding and Tourism New Zealand, the body in charge of promoting New Zealand, has decided to aim its marketing at Australia and China.

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