The spectre of rising interest rates has dampened buyers' interest in Hong Kong property and led to a pessimistic outlook. Property analysts expect prices to drop by 5 per cent to 15 per cent by the middle of next year, before the US Federal Reserve raises interest rates in the second half of 2015. Price movements after that would depend on the pace at which interest rates were raised, they said. "Recently, we have revised our forecast of property prices from the previous up or down 5 per cent to a drop of 5 per cent to 10 per cent this year," said Patrick Chow Moon-kit, head of research at Ricacorp Properties. He said many homebuyers had postponed their buying plans. "More vendors are willing to cut their asking prices after the US Federal Reserve revealed its plan to raise interest rates," he said. "But this failed to attract buyers, as homebuyers are also worried about the market outlook and want a further cut." That is bad news for the property market. Second-hand home transactions rebounded early this month. "Nine flats in our district changed hands last weekend," said Paul Wong, a branch manager at Centaline Property Agency in Tseung Kwan O. "Sales remain active but are not strong as before. On March 15 and 16, there were 12 transactions." Wong said the number of flat viewings fell 20 per cent last weekend. He said many home seekers were now asking for a 10 per cent cut in prices, compared with 5 per cent to 7 per cent before. Wong Kam-hon, chief senior sales manager at Midland Realty in Sha Tin, said sales at City One Shatin fell from seven on March 15 and 16 to four last weekend. Analysts said the pace of the rise in interest rates would be a major concern for buyers. Chow said prices would drop sharply, as had happened before, if interest rates rose quickly or significantly. "Currently, developers are still reluctant to cut the prices of new projects significantly," he said. "Prices of new homes are still higher than those of second-hand flats. "But that will result in a vicious circle of falling prices if developers have a price war and their asking prices are lower than those of second-hand flats." The last increase in interest rates was in 2005 to 2006, when the mortgage rate rose 3.1 percentage points in 13 months. "But property prices dropped only 6 per cent during the period," said Joyce Kwock of Credit Suisse. "The current situation is similar. We don't have serious economic problems. There was plenty of new housing supply in 2005 and 2006, which forced developers such as Sun Hung Kai Properties to cut the asking prices of some of its new projects." Kwock maintained her forecast of a 10 per cent decline in property prices this year. "Property is losing its attraction as a good investment tool," she said. "But I don't think the rise in mortgage rates will lead to panic sales. "Although the new housing supply will increase significantly in 2016, the impact may be offset by the government relaxing its cooling measures." Eric Yuen Chi-fung, head of research at brokerage GuocoCapital, expects home prices to drop 10 per cent to 15 per cent by the middle of next year. "Besides rising interest rates, land and housing supply are increasing," Yuen said. "Home prices peaked last year, and the consolidation in prices will last for 12 to 24 months. Price movements after that will depend on factors such as interest rate movements."