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.