(Bloomberg) -- New Zealand’s ban on foreign buyers is damping house prices in Queenstown, a stunning winter playground for the rich that has been a magnet for wealthy overseas investors.

Nestled on the shores of a pristine lake on New Zealand’s South Island, and ringed by majestic mountains, Queenstown’s popularity with buyers from Australia, Asia and the U.S. had seen values double in little more than three years. The boom has been brought to an end by a nationwide ban on foreign property buyers the government introduced in October in a bid to make housing more affordable for its own citizens.

“It’s very, very clear the foreign buyer ban has impacted the Queenstown market,” said Nick Goodall, Wellington-based head of research at Corelogic New Zealand. “It’s a massive chunk of demand taken out.”

Prices in the Queenstown region fell 0.1% in June from a year earlier -- the first annual decline since July 2011 -- and dropped 2.2% the past three months, according to Corelogic data. At its peak in 2017, Queenstown’s annual house-price inflation hit 32%. Government figures show the number of property transfers involving a foreign buyer fell to 2.7% in the first quarter from 9.7% a year earlier.

The median price was still NZ$1.17 million ($790,000) in June, maintaining Queenstown’s reign as the most expensive real estate market in the country.

Skiers Paradise

The town’s allure isn’t hard to fathom. With two ski fields on its doorstep, and another two just up the road in fellow resort town Wanaka, it has become a winter playground for those who can afford it. Bungee jumping, thrilling high-speed jet-boat rides and mountain biking trails continue to attract tourists year-round, while a picturesque landscape dotted with vineyards completes the package.

New Zealand’s remoteness is also seen as a boon by some rich-listers, such as billionaire Peter Thiel, who have chosen Queenstown as a bolthole away from global turmoil.

The curb on foreign buyers comes at a time of increased supply. Queenstown is the busiest region for home construction, with new building consents about 8% of existing housing stock, according to Corelogic.

The ban on foreign speculators has also impacted on Auckland, the nation’s most populous city, where prices have dropped 2.7% over the past year. But it isn’t likely to suppress house prices at a national level amid a shortage of new building, continued immigration and record-low interest rates.

Kiwibank estimates New Zealand has a shortage of 130,000 houses, which may rise to 150,000 next year. The country of almost 5 million people is adding 50,000 new immigrants a year.

“With housing in such short supply, material house-price falls are unlikely from here,” said Kiwibank chief economist Jarrod Kerr. He expects national house-price inflation to accelerate from 2% in June to 3% this year and about 5% in 2020.

Still, the market remains mixed, with potentially further declines in Auckland and Queenstown but gains possible in provincial cities where homes are more affordable, he said.

“Queenstown and Auckland are international markets, in particular Queenstown,” Kerr said. “A lot of buying was pulled forward leading into the ban. Prices in Queenstown are now falling and it looks like that will get worse.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editors responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net, Peter Vercoe

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