Prices of Hong Kong’s residential properties plunged to a near five-year low as rising interest rates and a mass exodus of expat workers drove down prices in one of the world’s most expensive cities to work in.

And industry insiders warn that the worst is yet to come.

Hong Kong’s home price index for October fell 2.4% to 352.4 compared to the previous month, marking the lowest level for the gauge since November 2017.

According to a Natixis report, the city’s property prices could plummet 25% from its previous peak in late 2021 before it starts to recover. 

The slump is expected to deepen by 12% in 2023, and subsequently by just 2% in 2024, analysts led by Alicia Garcia Herrero said.

Hong Kong, the world’s least affordable housing market, saw dips in some of its largest private housing estates. In YOHO town, a 393-square feet apartment that’s currently listed for 5.98 million Hong Kong dollars — that’s about HK$15,216 per square foot, and a 20% drop in price compared to the previous month.

A confluence of factors including weaker growth predictions and mainland Covid policies contribute to the grim outlook, but Hong Kong’s immigration crisis and snowballing interest rates remain salient sticking points. 

Hong Kong recently hiked benchmark interest rates to 4.28%, pushing up borrowing costs to the highest since March 2008.

“The weak economic environment both in Hong Kong and globally, and rapidly rising borrowing costs are the most important contributors to the decline in property prices,” Nelson Wong, executive director of research at real estate company Jones Lang LaSalle told CNBC.

“The magnitude has been somewhat deeper than expected primarily due to the escalated geopolitical risks [from the Ukraine war] and the sharp interest rate hike trajectory,” Wong continued.

Hong Kong’s growing population plays a decisive role in its home demand.

“While there is pressure from the deteriorating fertility rate and the rapidly aging population, the collapse of immigration and the heated emigration wave have added fuel to the fire,” Natixis said.

Hong Kong’s residents have left the city in droves since 2021, driven in part by strict Covid measures implemented in 2020 which was only recently relaxed in October. In his inaugural speech as chief executive of Hong Kong, John Lee pledged to draw talent from around the world.

From 2015 to 2019, Hong Kong saw an average increase of 53,000 new residents each year. However, that is roughly the same number of people who departed during the first two weeks of March this year, according to the city’s Immigration Department.

In the last 60 years, Hong Kong’s population has grown almost every year, from some 3.2 million people in 1961 to 7.5 million in 2019, according to Hong Kong’s Census and Statistics Department.

While the property market downturn will likely extend, the pace of decline may slow in the next two years, according to Natixis.

The French investment bank said there will be limited declines in 2024 if there are no further economic and policy adjustment to shore up sentiment.

However, the analysts say that a lift in China’s Covid restrictions could restore investor confidence.

Further easing of stamp duties for non-permanent residents and for permanent residents intending to buy a second property could also help bolster the property market, they said.

— CNBC’s Monica Pitrelli contributed to this report.