Yesterday Hong Kong's Land Registry revealed that just 4,643 apartments changed hands in October. That's fewer than half the number bought and sold in the same month last year. Whether you think this is good news or bad depends on whether you already own a flat in the city, or whether you would like to. Either way, the plunge in transaction volumes in Hong Kong's property market is remarkable. As recently as March activity was frantic, with more than 10,000 apartments a month changing hands. Since then, however, sentiment has taken a nosedive. As the developed world's economic recovery has run into sand, mainland China has tightened its monetary policy, and interest rates for new Hong Kong mortgages have edged higher, buyers have started to hang back from the market. So far, prices have held up. The market's measure of choice - the City-Centa leading index - has eased by a modest 2.6 per cent from its June high, but prices are still some 15 per cent higher than they were 12 months ago. A glance at the chart above suggests this resilience is unlikely to last. Every time in Hong Kong's recent history that property transaction volumes have turned negative in year-on-year terms, the fall has been followed several months later by a year-on-year decline in prices. If the same pattern is repeated now, home prices could fall by between 10 and 20 per cent from current levels over the next few months. You might think that sounds a bit on the steep side. After all, Hong Kong mortgage rates are tied to US interest rates, and the Federal Reserve has promised to keep those at 'exceptionally low levels' at least until the middle of 2013. Meanwhile, enthusiastic buying by mainland investors continues to support the prices of new apartments at the more expensive end of Hong Kong's market. Even so a drop of 10 to 20 per cent looks modest compared to the falls being forecast by some analysts. Among the most bearish are Andrew Lawrence and Vivien Chan at Barclays Capital. Assuming a soft landing for Hong Kong's economy, they are expecting property prices to fall by between 25 and 30 per cent over the next two years. And if there is a hard landing, they warn that prices could slump by as much 45 per cent from current levels. That's a sobering thought for property owners. A fall of such magnitude would wipe out all the gains made since the depths of the financial crisis in late 2008. Lawrence and Chan make a strong argument in support of their case. They point out that as commercial demand for loans has risen, Hong Kong's banks have been able to raise the interest rates they charge on new mortgages, even without an increase in underlying United States interest rates. As a result, mortgage rates have climbed to an average 2.75 per cent from less than 1 per cent at the beginning of this year. The Barclays pair argue this trend will continue, with mortgage rates hitting 4.5 per cent by the end of 2012. Such a big increase, they warn, will push monthly interest costs above 50 per cent of household income for the average buyer. Beyond that level banks become wary of lending, and homebuyers are no longer eligible for mortgage insurance from the Hong Kong government. As a result many prospective buyers will be shut out of the market. That will mean prices shall have to fall significantly if sellers are to stand any chance of finding purchasers. The trouble is that once prices begin to slide, property owners who have been sitting on empty flats as an investment may decide to cash out of the market. The impact could be huge. According to the government's own figures, there may be up to 228,000 vacant apartments in Hong Kong. If owners put only a small proportion of those on the market, they could trigger a major slide in prices. That will be good news for anyone who wants to buy but finds current prices too steep. But it's not such a cheerful prospect for those 4,643 people who bought flats in October.