Hong Kong home prices will fall by as much as a quarter as a result of the government's stepped-up measures to cool the housing market and rises in bank mortgage rates, equity research firm Sanford C. Bernstein Hong Kong forecast. But other institutions are less pessimistic and expect prices to drop 20 per cent at most in the coming two years or stay flat this year. Holding the most bearish view so far, Bernstein analysts, led by Kenneth Tsang, wrote in a report yesterday that the number of new flat sales would "remain largely subdued", with developers shifting their focus to cheaper and smaller units to boost sales. Cheung Kong, which last month lowered prices by almost 10 per cent at its One West Kowloon project in Lai Chi Kok in response to the government curbs, could introduce more price cuts to boost sales, the analysts said. However, UBS Investment Research forecast that overall home prices might drop by only 5 to 10 per cent from now until the end of this year even with the official measures driving away investors and overseas buyers. The bank said that because prices increased about 5 per cent in the first quarter, home prices this year would remain flat or decline 5 per cent or less year on year. We don't think home prices will drop as much as others have predicted because the supply problem is not yet solved UBS head of Hong Kong and China property research Eva Lee "We don't think home prices will drop as much as others have predicted because the supply problem is not yet solved," UBS head of Hong Kong and China property research Eva Lee said. Lee said that all the sites sold in the past year could together yield only about 16,000 flats, fewer than the government's annual target of 20,000 units. The undersupply is expected to continue until the 2016-17 fiscal year. Undersupply would not be the only factor supporting home prices, she added. It was unlikely that mortgage rates would rise again this year because banks' cost of lending was still low. The buyer's stamp duty, the special stamp duty and the double stamp duty have cooled the high end of the market and UBS said luxury home prices could drop 5 to 10 per cent this year. Lee said growth in rents was expected to slow to 5 to 10 per cent this year, down from about 20 per cent last year. An index tracking home prices had its biggest drop in almost three years in the week to April 14 after the government introduced its toughest measures yet to cool prices on February 22. Prices could fall as much as 20 per cent over the next two years, Deutsche Bank said last month. Macquarie expects home prices to fall 10 per cent this year. Centaline Property Agency founder Shih Wing-ching has said that prices of new homes could drop by between 5 and 20 per cent.