Property stocks were hammered yesterday on concerns the government's fresh curbs would drag down home prices.
Some analysts expect transactions to fall although the city's property prices may not decline too much because of strong demand.
"We do not expect residential prices to drop - demand is coming from locals and there are very few panic sellers," Morgan Stanley analysts said.
CLSA analyst Nicole Wong said residential prices could not rise more than 3 per cent in any three months without triggering more tightening.
"Property agents such as Midland will be affected badly and investors should stay away. We prefer Hong Kong landlords, in particular Hongkong Land," Wong said.
Among stocks, Swire Properties fell 1.05 per cent to close at HK$28.20, while Sun Hung Kai Properties dropped 1.34 per cent to HK$117.70.
The Hang Seng properties sub-index, which tracks nine major developers, lost 0.32 per cent while the benchmark Hang Seng Index gained 0.17 per cent.
Nomura analyst Paul Louie said both landlords and developers should see discount to net asset value (NAV) widen.
Hong Kong developers are trading on average at about 30 per cent discount to NAV, close to the long-term average. Among them, Henderson Land Development and Kerry Properties are at the steepest discounts, of about 40 per cent.
The government last Friday announced another round of policy measures after housing transaction volume and prices rose last month.
The measures included doubling the maximum stamp duty on home buyers to 8.5 per cent from 4.25 per cent and expanding it to all property types. In addition, the Hong Kong Monetary Authority increased the risk weighting for new mortgages, to 15 per cent from 7 per cent.
Mainland property developers also weakened yesterday on tighter policy worries, after the China Securities Journal said Beijing was likely to unveil details of another round of property controls before key political meetings in Beijing kicked off next month.
Meanwhile, sentiment was hurt by news Chongqing has increased the threshold of the property tax levied on home buyers.
China Resources Land fell 1.35 per cent HK$21.85, while Evergrande Real Estate dropped 1.84 per cent to HK$3.74.