THE Hongkong stock exchange All Ordinaries property sub-index has reacted unfavourably to China's tough new austerity programme, slipping 227 points to 3,276 yesterday since Beijing ordered a halt to property speculation by mainland corporations on July 3. The question now being asked is have investors read the situation wrong? Some analysts seem to think so. They have argued that Beijing's attempts to halt property speculation will be good, not bad, for Hongkong's big China-play property developers. ''Most of these companies were not planning to see any contributions from their China ventures until late 1995 or 1996 anyway,'' said property analyst Michael Green, director of S.G. Warburg (Securities). ''By that time the market will have sorted itself out. The current economic cycle is likely to be over, there will be more regulation, and the market as a whole will be a far stronger place.'' Most of Hongkong's big-time developers have to date done little more than accumulate sizeable land banks in China, waiting for the mainland property market to become more mature and stable before putting them to use. Having not yet entered the sales market, they should be largely unaffected by the correction in mainland residential property prices expected to hit many parts of southern China this year. While the likes of Paliburg, New World, Sino Land, Henderson and World International have accumulated large mainland land banks, Hutchison and China Overseas are among the very few big players that have got as far as retailing units and even then their exposure has been negligible compared with their overall balance sheets. ''These companies all invested in China knowing well in advance what is now happening would occur,'' said Mr Green. ''They have gone for sound locations and know they have the holding power.'' Many smaller and less worldly-wise Hongkong developers, however, are vulnerable. They have rushed into the mainland property market over the past two years, lured by the prospects of making a fast buck, and in some cases now find themselves badly over-exposed. Hongkong's blue-chip developers, on the other hand, have been far more cautious, unwilling to expose their shareholders to the many risks that come with playing the China property game. Analysts are now waiting to see whether Beijing's new austerity programme will be read by property speculators as a signal to dump the sector. The market fundamentals seem all wrong for short-term players, although long-term prospects still appear quite sound for investors willing to sit it out and wait for China to come to terms with its many problems. New supply has been rampant, perhaps even out of control, while demand from genuine end-users and tenants has been almost negligible outside the big cities. In the first five months of this year, property investment in China jumped 115 per cent. Last year, more than 240,000 hectares of land was set aside for development, grossly exceeding the Government's target of 100,000 hectares. No secondary market exists, its regulatory framework is flimsy and corruption is widespread. These factors combine to make China real estate highly vulnerable to sizeable price fluctuations. Analysts are now debating when rather than if the bubble will burst in southern China. Well-located property developments in China's core cities, however, should escape the worst of the blow. In a bid to come to terms with the problems, Beijing has set up a new working group, headed by Minister of Construction Hou Jie to oversee the implementation of the Government's new policies to control the national property market. The People's Bank of China has put a squeeze on property development lending, calling in loans taken out on speculative schemes and local governments have been told to repossess land leased without the required licences. These factors should help positively address China's serious over-supply problem. While admittedly there is likely to now be fewer mainland joint-venture development partners around, Hongkong developer sentiment towards the mainland property market is not expected to cool. Mr Green said: ''They will carry on steaming ahead, perhaps taking a lower profile. ''If mainland developers are taken out of the game then there will be even greater opportunities for investors from outside China.'' Herbert Chung, associate director of Wardley James Capel (Far East) was among the property analysts arguing that China's austerity programme spelt good news for the long-term prospects of Hongkong's larger developers operating in China. Mr Chung expected the need for external funding for mainland property developments from outside China to become even more important. ''In the past, mainland developers have held on to the best development sites for themselves,'' he said. ''Now the need the foreign capital is more important, so Hongkong developers should have the pick of the best sites.'' While mainland banks have been told to stop lending for speculative property projects in China, Hongkong banks are unlikely to follow suit. Paul Selway-Swift, Hongkong Bank executive director for Hongkong and China, said: ''There has not been any significant change in policy. We are being a little bit more cautious, but we were pretty cautious already''.