After years of breakneck advances, Hong Kong's property prices may be headed for a correction of as much as 30 percent, analysts said.
"The Hong Kong property market is about to enter its first real downturn since 1998," Paul Louie and Zita Qin, analysts at Barclays, said in a note.
While the market consensus is expecting a property price correction of around 15 percent, triggered by higher interest rates, Barclays' analysts point to other catalysts, including household income growth stalling, rents hitting the income ceiling, supply exceeding demand and developers speeding up presales.
"With home prices up 111 percent since end-2008, we believe there is significant scope for owners to take profit on their property holdings," they said, initiating the Hong Kong property sector with a "negative" view and downgrading its Asia ex-Japan real estate industry view to "negative" from "neutral."
They expect home prices to drop by at least 30 percent by the end of 2015, with knock-on effects on commercial property sending office prices down 20 percent and retail properties with zero growth.
"Past cycles have shown that the housing, retail and office markets are highly correlated. As home prices decline, we expect retail property to be affected by the potential negative wealth effect on local consumption, with a secondary knock-on effect affecting office rental demand," the report said.
Barclays tips Cheung Kong and Hang Lung Properties as its top picks, offering maximum defensiveness given healthy balance sheets and strong overseas exposure.
(Read more: Hong Kong Sees No Shelter From Housing Storm)
Deutsche Bank also expects Hong Kong's property prices to drop, forecasting a 15-20 percent residential price decline over the next 12 months. It noted Sun Hung Kai Properties kickstarted price cuts in the primary market when it offered the remaining units of its The Cullinan on Kowloon Station development at 14 percent below market.
"We see the recent high profile price cuts in the primary market as a clear sign of a change in pricing direction. We expect to see a more meaningful decline in secondary prices in the coming months on the flow-on effects," it said.
"Developers are in a better position as they can provide incentives, rebates and second mortgages, whereas secondary owners can only compete by way of direct price cuts. Following the high profile price cuts in the primary market, numerous secondary transactions were registered after owners cut prices more aggressively, by up to 13 percent," Deutsche Bank said.
"Prices could see a more material decline of up to 50 percent from peak to trough in the cycle," it said.
Deutsche Bank noted Shanghai's recent creation of a Free Trade Zone and Shenzhen's move to promote financial services in Qianhai could have a longer-run impact on property prices.
(Read more: Where's the next property bubble building?)
"While these new ventures might provide new opportunities for Hong Kong, they also represent a threat to Hong Kong via potential crowding-out/relocation in the financial services sector, which is currently a key economic pillar in Hong Kong," it said.
"If Hong Kong continues to lose its competitiveness, we doubt the sustainability of current residential prices over the longer term."
It likes stocks with exposure to China, tipping its top picks as Sun Hung Kai Properties, Wharf and Hang Lung.
To be sure, the property market may still appear healthy. BNP Paribas noted primary market sales over the weekend were at 207 units, well above the average of around 80 for the year-to-date, with average selling prices for some units rising from previously released tranches.
— By CNBC's Leslie Shaffer. Follow her on Twitter: @LeslieShaffer1