The Hang Seng properties sub index fell 2.7 percent, its lowest level since last June, after US data fuelled expectations of further rate increases and local residential property prices fell over the weekend. Mid-tier developer Sino Land Co Ltd HK was the top blue chip loser, down 4.14 percent to HK$8.10
The city's top developer, Sun Hung Kai Properties Ltd, fell 1.48 percent to HK$73.05.
"We can see the real estate market react to interest rate rises with sellers starting to offer properties at a discount. Hong Kong of all the markets globally is one of the closest proxies for US interest rates and a rising US dollar is also a worry," said Trevor Cheung, strategist at DBS Vickers.
Cheung said Hong Kong stocks had benefited from a weak dollar for the past two years with the recent jump in the greenback making shares look expensive compared to global peers.
The dollar tapped a two-year high against the yen in Asian trade as investors priced in further US rate increases after data showing US wage inflation was on the rise.
The blue chip Hang Seng Index fell 1.5 percent, or 220 points, to 14,365.79.
Volume was in line with recent averages with HK$17.1 billion (US $2.9 billion) worth of shares exchanged.
OIL SHARES FALL:
China oil plays fell as crude prices dipped on unseasonably warm weather in the United States.
China's largest oil producer, PetroChina Co Ltd, fell 1.65 percent to HK$5.95.
Top offshore oil producer CNOOC Ltd fell 3.85 percent to HK$5.
Ports-to-telecoms conglomerate Hutchison Whampoa Ltd fell 2.8 percent to HK$71.90 on talk it may consider postponing the IPO of its Italian generation mobile phone business. The company is worried it may not achieve the 12 billion euro valuation that it and bankers put on their business, according to sources familiar with the deal.
Cheung Kong (Holdings) Ltd, the property flagship of Asia tycoon Li Ka-shing, fell 3.6 percent to HK$77.45 with weakening real estate prices and the 3G news both hurting its share price.
Retail shares were also among the top losers as background worries about bird flu continued to hurt sentiment.
Cosmetic retailer Sa Sa International, which caters largely to China tourists, fell 3.33 percent to HK$2.90.
Analysts expect leisure stocks including airlines, hotels and retail firms to be among the hardest hit should bird flu break out into a global epidemic.
"This is something that is hanging at the back of our minds," said DBS Vickers Cheung.
The market shut before the Hong Kong government said September retail sales rose by a less-than-expected 4.9 percent compared to the same month last year.