PROPERTY prices in Hong Kong have reached levels where they are beyond the means of most first-time home buyers, according to a report by the Hang Seng Bank. The average 400-square-foot urban flat is now worth $1.7 million - equivalent to 15 years' salary of a university graduate. ''University graduates, who form the core of potential buyers, would have to save a great chunk of their income and for a disturbingly long period before they are financially capable of buying their own homes,'' according to the bank's monthly economic report. ''At current levels of $3,400 per sq ft, the value of a 400-sq ft urban flat is now equivalent to 15 years the annual salary of a fresh university graduate. ''This ratio is not only higher than the six years recorded in 1984 when property prices began to chart their current upward course, but also above the 13 years registered at the peak of Hong Kong's property boom in 1981.'' The bank warned that the rising cost of residential property in Hong Kong could undermine the territory's attractiveness to foreign investors as they have to spend more on providing accommodation for their staff. ''At the same time local companies may also have to set aside more resources to help solve their staff's housing problem. Both would mean higher operation costs for business,'' the report said. Rising costs has forced a number of blue chip companies such as the Hongkong Bank, Hongkong Telecom and Cathay Pacific to relocate much of its labour intensive back-room operations outside the territory. Between 20 and 30 per cent of most salary and perks packages paid to expatriates is taken up by housing. The bank says the high level of property prices for first-home buyers could raise some serious socio-economic problems for Hong Kong in the future. ''To begin with, extensive home-ownership, which would give rise to a more stable society, would be that much harder to achieve,'' the report says. ''While renting a flat is considered an alternative to those who are unable to buy, it will never be a satisfactory solution to solving the housing problem. ''This is because tenants in private flats are exposed to threats of substantial rental adjustments and eviction from their homes. ''Renting a flat does not give security which home-ownership provides.'' Owning a flat has been, for Hong Kong people, their only asset and one which offers them an effective hedge against inflation. Only 43 per cent of households in the territory are individually owned with 44 per cent public housing and 13 per cent renting from private landlords. The bank says soaring prices only means ''widening the wealth disparity between those who do not have a flat and those who do''. ''As a growing number of households find property prices too high to be affordable, there will also be greater pressure on the Government to provide more housing assistance to the public,'' the report says. ''The recent introduction of the Sandwich Class Housing Scheme is a result of this pressure.'' The report says that by diverting more resources to assist first-time buyers, the Government may be forced to spend less on other public services. ''Residential property prices depend mainly on such fundamental factors as household income, mortgage interest rates and bank's lending policy,'' the report concludes. It is no secret that banks have found themselves becoming increasingly exposed to property and have become more cautious in their mortgage business. The recent announcement by some banks to lower the mortgage ceiling for luxury units to 60 per cent and that for civil servants from 90 per cent to 70 per cent are indicative of the banking sector's concern.