Hong Kong home prices could fall by 5 per cent to 10 per cent over the next three years, according to JP Morgan, which warned of the risks of an economic slowdown in the city.

A slowdown marked by falling retail sales and a softening mainland economy would adversely affect home purchasing power and buying desire, said  Cusson Leung, head of conglomerates and property research at JP Morgan.

Leung told a press briefing on Friday there were a number of factors that could affect the performance of Hong Kong property market, such as credit leverage and capital flow, while adding that he did not see any immediate risk of over-leveraging of real estate or capital outflow.

However, he raised concerns over a potential slowdown of the city's economy, linked to the risk of further decline in the mainland China economy.

'Retail sales are declining and international brands are talking about network consolidation in Hong Kong,' he said. "The unemployment rate is expected to rise.'

Leung said the impact of the negative factors would become more obvious early next year. '2016 will be a more difficult year when compared with 2015. Home prices could see a decline,' he said.

While saying that JP Morgan had not yet reached a house view on the degree of home price falls, he said it was possible prices could drop by 5 per cent to 10 per cent a year over the next three years, starting from next year.

Hong Kong home prices rose 13.5 per cent last year and 8 per cent in the first half of this year, according to the data from the Rating and Valuation Department.

Leung said home prices were unlikely to see a sharp plunge of 30 per cent in a year unless a crisis or really bad unexpected news hit the market.

Residential transactions in Hong Kong last month plunged 27.8 per cent month on month to 3,896, according to Land Registry data released on Wednesday, prompting some analysts to predict a modest decline in home prices in the second half of this year.

Alva To, senior managing director of real estate services firm DTZ/Cushman & Wakefield, predicted home prices could see a decline of 5 per cent to 10 per cent from current levels this year.

Leung, however, expects prices to remain stable this year, but begin falling next year.

Centaline Property Agency said its secondary home price index hit a record high of 146.78 yesterday, up 0.91 per cent week on week.

The decline in property transactions in the past two months was more related to a slowdown in project releases than the wealth effect from the stock market crash, Leung said.

His comments came a day after Sun Hung Kai Properties sold out all 328 flats at phase two of its Century Link development in Tung Chung.