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But just how great an impact the ban will have when it comes into effect in the next few weeks was hard to tell, bank chief economist Dominick Stephens said.
He said some comparison could be made with Toronto in Canada where authorities imposed a stamp duty on foreign buyers that was so high it effectively worked like a ban.
"Toronto house prices fell around 5 per cent soon afterward," he said.
Yet, he also said Queenstown and Auckland prices were unlikely to be hit as hard because New Zealand's foreign buyer ban had "been watered down" and was "probably weaker than Toronto's stamp duty".
This was because New Zealand's ban included allowances for Australians and Singaporeans to still buy local homes and for foreigners to buy 60 per cent of the units on offer in major apartment complexes of 20 units or more.
Stephens said this could lead some foreign buyers - now blocked out of the housing market - to instead turn to purchasing new apartments.
The knock-on effect could then be to squeeze some locals out of the market for new apartments.
These impacts would be felt the most in the North Shore, Central City, Howick and Henderson-Massey districts in Auckland and the Queenstown Lakes District, Stephens said.
"These are the places in which foreign buyers account for more than 5 per cent of sales at present."
Overall, Westpac expects New Zealand house prices will fall modestly over the coming years, despite a brief "bump" in values around the start of the new year.
"This is because the New Zealand housing market faces a menagerie of negative forces, including tax changes, slowing population growth and the foreign buyer ban," Stephens said.
It comes as Trade Me today reported the average asking price of Kiwi homes fell for the third consecutive month in August as it hit $630,600, down 0.3 per cent compared to July.
In Auckland, the average asking price in August also fell 0.1 per cent compared to a month earlier to hit $895,050 - the lowest price since September 2017.
Wellington prices dipped 0.3 per cent from July to August to reach $579,750.
However, compared to a year ago, average asking prices across the country jumped 2.8 per cent, with growth in every district apart from the Bay of Plenty, where prices fell 0.3 per cent.
Taranaki made the biggest gains with a 13.9 per cent rise in prices over the 12 months from August 2017, while Hawke's Bay and Wellington were the next highest gainers with rises of 12.5 per cent and 11.5 per cent, respectively.
Auckland prices rose 0.3 per cent, year-on-year.
Despite prices growing in almost every region over the past year, head of Trade Me property Nigel Jeffries said there were signs that "the brakes are being applied across the country".
"There are a number of factors contributing to this, including affordability constraints, rising rental prices making it harder for first home buyers to get a deposit together, and a range of Government initiatives targeting the property market."