Property magnate Lee Shau-kee has sounded a note of caution to the overheated property market, saying home prices will drop up to 10 per cent following the recent interest rate increase. Mr Lee, chairman of Henderson Land Development Co, is the first influential developer openly to say the market is heading for a correction. He said yesterday the pricing of projects to be launched by his company in the future would be fixed in accordance with the market at the time. Secondary property transactions have dropped two-thirds from the peak levels seen earlier this year, Mr Lee said. The speculative sentiment was caused by the Government's inaccurate estimate of the territory's need for new flats, resulting in insufficient land being available for residential developments, he said. Property prices would stabilise once the Government released more land for residential purposes. Mr Lee's comments came in the wake of the Government imposing at the end of last month new pre-sale restrictions controlling developers' marketing tactics for unfinished residential projects. Estate agents and analysts agreed that the market was heading for a mild correction and that developers might need to offer projects at competitive prices to attract buyers. The correction of property prices would have little impact on earnings of leading developers this year, because most profits had been secured by previous sales, they said. The market's correction would be relatively slight, and might last only six months, some said. Yamaichi Securities analyst Philip Chan Sung-yan said prices had soared 20 per cent in the first quarter and a correction of 5 per cent to 10 per cent would be healthy for the market. In 1994, the Government imposed anti-speculation measures restricting the pre-sale period to nine months ahead of project completion, delaying developers' cash returns from their developments. The latest measures relax the pre-sale period to 15 months, although there are two restrictive conditions on marketing tactics. Mr Chan said the extension would allow developers to secure sales revenue earlier. One analyst said property prices would drop 10 per cent if interest rates were raised 0.5 of a percentage point, or 15 per cent on a rise of 0.75 of a percentage point. Analysts maintained their full-year profit forecasts for leading developers, despite the expected price correction. They said earnings at Sun Hung Kai Properties were estimated to grow 28 per cent to 45 per cent, to between $14.1 billion and $16 billion, for the year to June. Henderson's profit increase was expected at 17 per cent to 34 per cent, between $9.8 billion and $11.2 billion, while New World Development Co's profit was projected to jump 48 per cent to $6.1 billion. Today sees the sale of Sun Hung Kai Properties' East Point City in Tseung Kwan O. Tomorrow, Sino Land Co will announce details of the sale of its Waterside project in Ma On Shan, while the Hong Kong Housing Society will launch its Jubilant Place project in To Kwa Wan.