Hong Kong home prices are likely to fall by another 10 percent by the end of next year as high interest rates continue to weigh on the market, according to UBS.

The bank on Thursday forecast that the US will reduce its rates by 0.25 percent in March, before expanding the reductions to 0.5 percent in the second and third quarters and settling at 2.75 percent by the end of next year, which will be about half the current level.

The high rates, it said, will continue to put pressure on Hong Kong's property market, which will experience “bitterness before sweetness”, according to John Lam, head of China and Hong Kong Property Research at UBS.

“For the first half of 2024, it will still be pretty tough because of the high interest rate environment. For the second half, if the US interest rate is going to come down, then probably the demand will come back,” said Lam.

He estimated that first-hand and presale supplies in the city could take up to four years to be used up amid the high interest rate environment, and highly leveraged developers may cut prices to raise sales and liquidity.

However, he said he believes there are no systemic risks in the market with rental demand remaining strong, and that negative equity concerns remain low due to stable employment conditions. He added that the government may remain conservative regarding further removing the so-called “spicy measures”.

The bank forecast the city’s economy to grow 3.6 percent this year, before decelerating to 2.5 percent growth next year, on US recession concerns and China’s slow recovery.

Angus Chan, analyst at UBS, also noted that the city could see another US$13 billion fund net outflow this year having recorded about US$20 billion of such outflow last year as investors favoured US dollars due to the high interest rates.

But he said local stock markets could pick up next year with the Hang Seng Index reaching 20,600 points, and that sentiments will improve if Sino-US relations stabilise following this week's meeting between the Chinese and US presidents.

Infrastructure, travel, as well as gambling-related shares could continue outperforming momentum, Chan said.