Mr Brooke said the stock market fluctuation and currency crisis would not have a long-term effect.

But the crisis would make potential buyers cautious about the market's performance in the coming weeks, he said.

He believed the residential market would see a consolidation but did not expect any drastic fall in home prices.

'The residential market is okay as it has an underlying demand,' he said.

If difficult conditions persisted, the market might consolidate by 5-10 per cent by the middle of next year, he said.

SBC Warburg Dillon Read's head of regional research Franklin Lam was much more bearish, saying home prices would drop by 20-30 per cent over the next few months.

He said interest rates would stabilise. 'However, I don't see any signs of recovery over the next one to two years.' Estate agents said the mass residential market had been hit badly by falling prices and tightened bank credit caused by rising rates.

Agents are reporting some defaults from purchasers unable to secure mortgages.

'Some banks have either fulfilled their mortgage lending quotas for the year or they are more cautious and valuing properties below present market values,' said Gary Lee Man-chun, Midland Realty's Taikoo Shing branch manager.

Mr Lee said there had been seven or eight transactions at Taikoo Shing in the past week, although in each case the owner ended up giving a discount - in the 6 to 10 per cent range - from the originally agreed price.

'Owners are willing to discount to sell their flats, especially if they see that the banks' valuations were genuinely lower than their asking prices,' he said.

Edmond Lau Ming-sun, Ricacorp Properties' Kingswood Villas branch manager in Yuen Long, said five transactions were in danger of going into default because the transaction price was higher than the amount the banks were willing to lend.

Potential home buyers will find it more difficult to get financing since surveyors and banks have taken a cautious approach to property valuations.

A conservative valuation policy means applicants may be able to borrow less even though the 70 per cent mortgage ceiling remains unchanged.

Ambrose Liu Yuk-lun, assistant director of AG Wilkinson & Associates, which assesses property values for banks, said the spread of asking and transacted home prices had widened by up to 10 per cent.

'We will use transaction prices in July and August as the barometer for our valuation,' he said.

Knight Frank valuation director Lau Chun-kuen said the rate rise had put pressure on property prices which, in turn, had affected the company's valuation policy.

'We will take a cautious view when assessing the value of luxury homes,' he said.

Wing Hang Bank director Raymond Lee said banks would be especially careful in assessing values during a volatile market.

Wing Lung Bank executive director and general manager Chung Chi-sum said it would closely monitor transaction prices as a reference to its lending policy.

'There is no change in our valuation policy as we are used to being conservative,' Mr Chung said.

He said there had been a substantial drop in mortgage applications since last week's 0.75 percentage point rise in the prime lending rate and the stock market crash.

'A cool-down in property prices is healthy to our economy as home prices are really too high,' he said.

In the commercial property market, Mr Brooke expected to see a 25-30 per cent fall in rents and prices over the next few years due to oversupply. The recent turmoil had not further damaged the office sector.