The recent slide in Hong Kong's residential property prices may soon be ending.
Just four months after the city topped Swiss Bank UBS' chart of the world's most overvalued housing prices, analysts are calling a bottom after a short correction.
Property is a key driver of the economy in land-scarce Hong Kong, where some 7.4 million people are packed onto small islands and a jagged, mountainous peninsula that borders mainland China.
Analysts last year predicted residential property prices in the city would decline between 15 percent and 20 percent, pressured by declines in the Hong Kong and mainland stock markets, a weakening Chinese yuan and rising local borrowing costs.
Prices have already come down 10 percent since their peak in August last year, CLSA property analyst Nicole Wong wrote in a report last Wednesday
But now, she said, property could gain from a stabilization for Hong Kong's stock market and the Chinese yuan. On top of that, Wong added, the U.S. Federal Reserve's "tame rate guidance" may push investors in Hong Kong to seek returns in higher yielding investments such as property.
Hong Kong's currency is linked to moves in the U.S. dollar and rising U.S. interest rates mean that Hong Kong rates will follow suit — the city's monetary authorities move in lock step with their counterparts at the Fed.
But sharp declines in stateside stock markets in the fourth quarter of last year and worries about the outlook for U.S. and global economic growth have resulted in expectations for a slowdown in the American central bank's pace of rate increases.
"Market dynamics have shifted," Wong wrote, predicting that prices will bottom out over the next couple of months before rising by as much as 15 percent.