Nan Fung Development has become the second Hong Kong developer to sell new homes below market price as the property market in the world’s least affordable city starts to feel the effects of rising interest rates, cooling measures and a slowing Chinese economy. Housing policies announced by the city’s Chief Executive Carrie Lam Cheng Yuet-ngor in late June, including a tax on new flats that remain vacant, had played a part in weakening developers’ aggression when pricing homes, according to analysts. Nan Fung is offering the first batch of 487 flats at its LP6 project in Tseung Kwan O next month at HK$15,304 per square foot, 3 per cent lower than the average price at the nearby 1,600-unit Malibu project that started selling in March. It is as much as 30 per cent below the price of some units at Malibu sold this month, according to Dataelement, which monitors sales of new flats in Hong Kong. The warning bell signalling a possible end of Hong Kong’s 15-year home-price rally has begun to ring louder, with many experts predicting a drop in home prices and developers starting to cut their prices. Last week, Sun Hung Kai Properties, Hong Kong’s biggest developer, said it had cut the prices of homes at its Cullinan West II development atop Nam Cheong MTR station in Kowloon by as much as 10 per cent, the second time in less than a month it has taken such action. In a report issued on Monday, investment bank CLSA predicted Hong Kong home prices will drop 15 per cent over the next 12 months, joining other international financial institutions – namely Citibank and UBS – in forecasting a sharp downturn in home values. “We considered the [policies] when pricing [the flats]. There are a lot of flats at the development so [we] wanted to set prices that are not aggressive. We hope to clear stock next month soon [after launching],” said Victor Mak, director and general manager of property at Nan Fung Development. Mak was referring to a policy that requires the builders of unfinished developments with pre-sale consents approved after June 29 to sell at least 20 per cent of the flats at every launch. Nan Fung’s 2,392-unit LP6 project, phase six of the Lohas Park community, is the largest development to go on sale this year and the first to be hit by the policy, which means the developer has to sell at least 479 flats each time. That and other fresh measures including a levy on new units that remain unsold after a year are aimed at easing Hong Kong’s housing crisis by penalising flat-hoarding developers. “Developers [in general] have become cautious in setting prices [after the policies were revealed],” said Alfred Lau, a property analyst at Bocom International. Lau said prices for the next batch of units on higher floors would be offered at similar prices per square foot. Market observers said the policy that requires developers to sell at least 20 per cent of a project will have a greater impact on mass residential developments than luxury projects. “The speed in selling is more important than profit margin to the developer. With such a low land price, the developer can definitely secure a profit,” said Vincent Cheung, deputy managing director for Asia valuation and advisory services at Colliers International.