ALTHOUGH Sun Hung Kai Properties attracted many more potential buyers than it needed for 40 flats at its new Villa Athena development this week, the response was seen as ''a big tragedy'' by estate agents in Ma On Shan. Having seen Sun Hung Kai modestly cut its prices to an average $5,277 per square foot, they had been expecting the sale to be five to seven times subscribed, providing a welcome and timely boost for Hong Kong's depressed residential sales market. After three days of registration, Sun Hung Kai confirmed yesterday that it had received 82 applications for the 40 available flats at Block 10. ''Today, we have a big tragedy,'' said Peter Wong, sales supervisor at Centaline Property Agency's Ma On Shan office, on hearing the news. ''This is far worse than we thought,'' said Mr Wong. ''We had been forecasting over 200 applicants,'' he said. Mr Wong thought the modest, though positive, response meant many people in the market thought Sun Hung Kai's asking price was still too high. Samuel Cheng, assistant manager of Ricacorp Properties' Ma On Shan branch, described the registration figure as bad and totally unexpected. This will come as disappointing news for stock market investors who have been watching closely the progress of both Sun Hung Kai and Henderson Land's sales this week for any signs of improved sales market sentiment after last week's successful Government land auction. Analysts have been divided on the direction of house prices. Morgan Grenfell Asia Securities research director Andrew Hall said investors were not convinced that real estate prices would stabilise at this point. Morgan Stanley Asia managing director Peter Churchouse said prices would not fall much further. Estate agents report activity in the second-hand market has picked up 35 per cent in recent days, though sales activity is still thin. But the lacklustre response to the Villa Athena sale this week shows sentiment in the primary market is still not strong. The market rumour is that registration for the 68 units on offer at Henderson Land's neighbouring Sunshine City development this week in Ma On Shan also has not been too good. The final result will not be known until after registration closes today. Henderson is only asking an average $4,763 per sq ft for its smaller units in Block L.