Sentiment in Hong Kong’s residential property market remains sluggish following a series of real estate tightening measures imposed by the government, according to the latest monthly report from Knight Frank.

Data from the land registry in Hong Kong shows that the volume of residential transactions slumped by 28% in March compared to February, with only 4,534 sales recorded.

The report says that investors and non-local buyers, mostly from mainland China, have been virtually screened out from the residential market due to heavier taxation and higher investment costs.

Knight Frank report: ‘The market is now dominated by end-users. Amid uncertainty in the property market, some home owners, especially those in the mass market, started to soften and became more flexible during price negotiations.’

The report also points out that following the Hong Kong Monetary Authority’s tightening of the risk weighted assets requirement of newly offered mortgages, several leading banks raised home loan rates and lowered the valuation of residential units, on the back of gloomy market sentiment.

The firm concluded: ‘We believe that if Hong Kong’s current inflationary environment with low interest rates is sustained, luxury residential prices will remain stable and fall no more than 5% in 2013, while mass residential prices will drop no more than 10%.’