"A deepening global economic crisis, rising unemployment and the possibility of rising mortgage rates will continue to slow down demand for residential properties," said Joseph Tsang Hon-ping of property consultant Jones Lang LaSalle. "The tightening credit market is also expected to extend into 2009, further dampening investment and end-user demand."

As Jones Lang LaSalle sees it, the overall property market will not start to rebound until the latter half of 2010, despite Hong Kong's strong fundamentals and Beijing's efforts to maintain economic growth.

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Market sentiment in the local property sector dampened in the second half of this year as the global financial situation worsened after the collapse of Lehman Brothers in September.

Overall residential prices dropped 23.3 percent to an average HK$3,260 per square foot compared with a peak of HK$4,251psf earlier in the year, according to Midland Realty corporate development director Gordon Tse Tsz-man.

In October, prices plunged 10 percent - the largest fall in a single month this year. The luxury residential market was hit particularly hard, with prices cut by 35 percent since September, returning to the levels of the second quarter of 2007, said CB Richard Ellis.

"As purchasing sentiment will remain slack for the time being, with potential buyers staying cautious in light of the weakening economy, luxury residential prices may continue to trek south by not less than 20 percent over the next 12 months," it forecast.

On transactions, Centaline Property expects the total number of deals this year to be 114,000 with a value of HK$413 billion, showing declines of 22 percent and 21 percent, respectively, on 2007. Centaline also estimates deals will decrease 12 percent next year to 100,000 from this year and their value will drop 15 percent to HK$350 billion.

Still, Midland said buying flats is attractive because of the price plunge and low interest rates.

"We predict these factors will shore up buyers' confidence and drive up transactions in the first half of next year," chief analyst Buggle Lau Ka-fai said.

About 27,000 new flats will be available next year.