Rising interest rates will continue to cast a shadow over home sales in the third quarter, although a fresh supply of new projects may provide some stimulus to the flagging market, property consultants say. Sales of medium-priced properties, between $2 million and $5 million, are expected to remain slow. 'The fact that US interest rates show no clear sign of peaking in the near term will continue to weigh on the market, dampening both end-user and investor demand,' said Alva To Yu-hung, DTZ Debenham Tie Leung's director of consulting and research. 'We believe that residential market performance for the rest of the year will remain in a stage of consolidation with a moderate level of activity, unless the outlook on rates becomes clear.' Mr To also said rising rates were contributing to a temporary increase in supply as speculators who had bought flats in the pre-sale market during the boom of the past two years unloaded some of their properties. The prolonged rate-rise cycle has taken a toll on Hong Kong's home sales market. The sale of new and used flats will fall 42 per cent year on year to 26,287 in the second quarter, according to DTZ's estimate. For the first half, it expects 48,000 transactions, down 36 per cent from the first six months of last year. The US Federal Reserve has lifted rates 16 consecutive times by 25 basis-point increments since June 2004, and Hong Kong lenders have followed many of those increases. Investors are anticipating another 25 basis-point rise at the Fed meeting on June 29. Bankers say that if this happens, Hong Kong is likely to follow suit. 'Undoubtedly, market consolidation will come to an end once there is a clear picture of the rate movement,' said Hong Kong Property Services (Agency) executive director Richard Lee Chi-shing. 'While homebuyers have been cautious so far this year, we expect a growing number of new projects will help release pent-up demand to fuel the market in the second half.' Projects almost at the launch stage include Hunghom Peninsula, a joint venture between Sun Hung Kai Properties and New World Development in Hunghom; the fifth phase of SHKP's Park Island on Ma Wan; and Le Point, which is being developed by Cheung Kong (Holdings) in Tseung Kwan O. Mr Lee said luxury and low-price homes would be relatively less sensitive to continued rate rises than medium-priced developments. In the secondary market, properties priced below $2 million have been the best sellers in the first half. They accounted for about 21,250 transactions up to June 15, or 64.4 per cent of the total, an increase of 3.2 per cent over a year earlier, according to Hong Kong Property's research. Sales of mid-priced properties, between $2 million and $5 million, were weak, dropping 3.3 per cent to about 8,700 transactions to June 15. They accounted for 26.5 per cent of the total.