Last week, the index dropped to a 36-month low of 96.81.
Not long after prices reached their 2011 plateau, developers started launching sales at new projects.
According to Hong Kong Property, 14 new projects were introduced in the fourth quarter, with 2,770 new flats available so far - up 37 percent from 2,020 new units in the third quarter. These 14 projects could provide as many as 5,432 flats.
Projects in the New Territories represent about 70 percent of new inventory, or 1,914 homes. Hong Kong Island accounts for 20 percent, or 541 flats, and Kowloon 11 percent, or 315 flats.
However, the more flats developers threw on stream, the lower the prices became.
For example, at Festival City 3 in Tai Wai, Cheung Kong (Holdings) (0001) originally indicated it would price the new flats with reference to neighboring flats in the secondary market, or at least HK$9,000 per square foot. Instead, the first 240 flats were launched at an average of HK$8,113 psf - nearly 11 percent lower.
Phase three prices were also lower than those at Festival City 2, which fetched HK$8,300 to HK$8,500 psf when flats there hit the market in November last year.
ngs, developed by Sun Hung Kai Properties (0016). The first batch of 50 flats atop Tseung Kwan O MTR station sold in October at an average HK$12,698 psf. Two weeks later, SHKP introduced new batches averaging HK$8,118 psf - 36 percent cheaper.
Centaline Property co-founder Danny Wong Man-yin said this trend may signify that developers feel pessimistic over the market outlook.
"As developers are generally viewed as the smart money in the industry, their moves to cut prices may adversely impact the market confidence of secondary owners and buyers, as their action implies the outlook is negative," he said.
During good times, Wong noted, new apartments generally command prices about 30 percent higher than secondary homes in the same area. But now, the premium is only around 10 percent.
"If the developers felt optimistic about the market, why price the flats so low?" Wong said.
Woes in the primary market have a huge impact on secondary units.
"Buyers' attention has drifted to the primary market, as some new projects are priced close to the neighboring secondary flats," said Midland Realty vice chairman Albert Wong Kam-hong.
During the past four-day Christmas break, only 16 transactions were recorded among the city's 10 benchmark residential projects, compared with 67 deals last year, and 80 in 2009. Transactions on the previous weekend were even lower - at eight.
Danny Wong partly blames property price drops on the mainland's slumping export volume.
"Mainland exports are slowing down, and buying interest from the mainlanders has slowed dramatically due to the deteriorating economic outlook," he said. "It wouldn't be surprising to see some of them selling their properties in Hong Kong to cash out."
Mainland buyers have become a major force in the local housing market, accounting for about 30 percent of sales at some primary residential projects - up from only 2 percent in 2008.
"Thirty percent is a rather high level. I don't see it climbing further next year," said Eddie Hui Chi-man, deputy director of Hong Kong Polytechnic University's Research Centre for Construction and Real Estate Economics.
"Some of them might be affected by the decrease in exports. But don't forget there are home purchase limits in effect in the mainland property market. If they can't invest [there], they can only go to other places.
"Hong Kong would still be one of their most preferred areas to buy property."
Hui said the local property market will stabilize if China's economic growth can be maintained at 8 percent next year. He foresees housing prices here slipping 5 percent in 2012.
Most property experts predict price drops ranging from 10 to 20 percent next year. However, former UBS property analyst Franklin Lam Fan-keung - who is known for his bullish views - forecasts prices to rise by 15 percent instead, despite a 5 percent dip in the short term.
"Exports in Hong Kong are still weak, due to the debt issues in Europe," said Lam, founder of the think-tank HKGolden50. "That will put some pressure on property prices in the short run.
"However, it has a limited effect on the unemployment rate, which remains at a low level. Expansion of the workforce will drive the hike in residential demand. Along with the continual low interest rate environment, and the tight land supply, the property market next year should see healthy development."
Lam cautioned the government against changing its policies according to market conditions, suggesting instead that it make the market adapt to existing policies.
Earlier this month, Secretary for Housing and Transport Eva Cheng Yu- wah hinted that the administration may review the Special Stamp Duty before it hits the two-year anniversary mark.
But the next day, Chief Executive Donald Tsang Yam-kuen reiterated that he has no intention of removing the property cooling measures.
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