Hong Kong property prices will have to drop 22 per cent in the next three years in order to return to "normal" affordability levels for ordinary buyers, Bank of East Asia said in a research report issued yesterday. "To bring the price-income ratio to eight times - the upper limit of the long-run affordability range - by 2016, either wage growth has to speed up or prices will have to fall," BEA said in the latest issue of its Economic Analysis, which focused on developments in the property market. The price-income ratio is the price of a home relative to median annual incomes. Property prices have outpaced income growth by a significant margin since 2004, reducing affordability, the report said. It said the price-income ratio averaged 9.3 from 2008 to last year, and reached a peak of 11.8 by the end of last year due to a number of factors including a historically low mortgage rate, low housing supply and a boom in mainland buying interest. "Nevertheless, corrections are under way," it said. During the first seven months of this year, transaction volume plunged 32.4 per cent year on year to 31,700. Most buyers are holding back following the government's tightening measures, which began in 2009. The 15 per cent buyer's stamp duty applied to non-Hong Kong permanent residents has cooled mainland buyers' interest. Meanwhile, United States interest rates are expected to rise and housing supply in Hong Kong is forecast to rebound. The BEA report said Hongkongers should keep a close watch on the potential impact of the expected rise in interest rates and housing price corrections on their finances in the next few years. The government expects the supply of new flats will total 70,000 units in the coming three to four years, compared with an average of 9,787 units a year between 2008 and last year. A lawyer living in Sheung Wan said he could have sold his 600 square foot flat for HK$8 million at the start of this year, but now could expect it to fetch only HK$7.25 million.