The organisation was the only one expressing an interest in Invercargill's 348 state houses, Housing New Zealand Minister Bill English announced yesterday.
Now, Pact needs to submit a fully costed bid by the end of May.
Labour housing spokesman Phil Twyford said community housing groups were at risk of being a "convenient front'' for offshore investors.
Pact chief executive Louise Carr said, "at this point'', Pact was likely to seek finance through a retail bank in New Zealand.
She rejected a suggestion the sell-off was risking a fragmentation of the country's state housing stock.
"I've got full faith in the ability of non-government organisations to manage them really well.
"We've been managing Pact's assets for over 130 years.
"I'm quite confident that we can do it,'' Ms Carr said.
"We're doing it because we see it as an extension of what we already do, which is supporting people.''
The process was still at an early stage, and the next step was working through financing options.
She declined to disclose Pact's bid.
The organisation already provides some social housing, and its property manager previously worked for Housing New Zealand.
Board chairman Bill Dunbar, of Cromwell, said the charity's board was "unanimous'' in its support for acquiring the houses.
He did not see it as a big stretch for the organisation.
"We're looking after about 1600 people with mental health needs or disabilities at the moment.''
Dunedin public health physician, Dr Liz Craig, a member of Invercargill State Housing Action, said while Pact would provide good support for tenants, the houses should not be sold.
"My concern is about the bigger picture, and the risk that New Zealand's social housing will become fragmented across a range of small providers, each doing their own thing, and none with pockets deep enough to maintain the housing stock over time.''
It was unclear what would happen if providers exited the market, Dr Craig said.
"Who will the houses be sold on to, and is there any guarantee that Invercargill will have enough social housing to meet the community's needs?''
Mr Twyford said the community groups were well intentioned, but did not have strong enough balance sheets to acquire the houses.
"It is a thinly disguised wholesale sell-off of an incredibly valuable publicly-owned asset that is there to put a decent roof over the head of vulnerable Kiwis.
"National has tried up to dress up this sell-off as being about boosting the work of community organisations.
"To keep alive its deeply unpopular sale of publicly-owned land and housing, the Government is now forcing these groups into multimillion-dollar deals with financiers.''
Overseas investors were involved with two of three respondents named yesterday for 1124 state houses in Tauranga, Mr Twyford said.
Tauranga and Invercargill are the first two cities whose state houses are being sold.
In a joint statement with Mr English, Social Housing Minister Paula Bennett said the Government wanted state housing to be "aspirational instead of generational''.
"We expect the community housing sector should work with financiers and asset managers to share expertise and figure out innovative new ways of providing housing for our most vulnerable.
"Those on the shortlist have been thinking creatively and seriously about how to do this,'' Ms Bennett said.
The next step is a request for proposal, closing on May 30 for the Invercargill houses.
The Government expects to name a preferred bidder in the third quarter of the year.
What is Pact Group?
• Registered charity.
• Employs more than 460 people.
• Provides support services for mental health and intellectual disability.
• Provides social housing on a small scale.
• Owns assets worth more than $20m.
• Delivers health and disability contracts worth more than $30m.
• Provides services in Otago, Southland, West Coast, Wellington.
• Corporate headquarters in Dunedin.
