The Government's plan to sell state houses to private providers has hit a hurdle after a major buyer pulled out of the process.

Ministers confirmed today that the PACT group had withdrawn from the process to buy and manage 348 state houses in Invercargill.

Finance Minister Bill English said the organisation had "decided the transaction wasn't the best opportunity for them to achieve their aspiration of providing services to the community".

PACT was the only party invited to submit a proposal to buy to Invercargill properties.


As a result, the Government was now putting the procurement process on hold, Mr English said.

In major reforms of the social housing sector, the National-led Government is transferring thousands of state houses to NGOs, iwi, and charities.

The first tranche of sales are taking place in Invercargill and Tauranga, where up to 2000 properties will be sold.

Mr English and Social Housing Minister Paula Bennett said the Government remained committed to selling between 1000 to 2000 houses this year.

"While I am disappointed that PACT is no longer participating in the Invercargill transaction, their decision should reassure social housing tenants that the process is robust and that interested parties have enough information to make the best decision for themselves and the tenants," Ms Bennett said.

The procurement process for the sale of 1134 properties in Tauranga was "progressing well", she said.