Hong Kong developers’ shares may not be much of a bargain even after suffering a $56 billion rout, as the correction in the world’s most unaffordable housing market is still far from over.

A gauge tracking the city state’s real estate developers has seen its market value shrink by over a fourth since late January, the worst-performing sector on the MSCI Hong Kong Index. Investors are bracing for further declines as the housing market is struggling with elevated borrowing costs and the threat of further home-price drop.

The market rout has pushed some developers’ valuations to extreme levels. Sun Hung Kai Properties Ltd. and Henderson Land Development Co., two of the city’s largest developers, are cheaper than they were during the Asian financial crisis. Analysts say it is still too early to sound the all-clear for these stocks.

“It’s clear that the Hong Kong property market is going south,” said Dickie Wong, director of research at Kingston Securities Ltd. “So, while valuations are attractive, it is not enough to lure investors when companies have diminishing earnings prospects and lower payout ratios.”

Home prices in the Asian financial hub have dropped 18% from a record high in 2021 to the lowest in more than six years, hammered by rising mortgage rates and sluggish economic recovery. Societe Generale SA is expecting another 10%-15% decline next year as the higher-for-longer interest rates continue to deter buyers.

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Hong Kong’s Chief Executive John Lee is expected to relax some key property curbs in his annual address this month. The city levies 15% stamp duty for local residents buying a second home. But investors remain skeptical.

“Even if there is policy easing, it should only be of partial support to the developers as they will still struggle in a high-rate environment,” said Andy Wong, a fund manager at LW Asset Management Advisors in Hong Kong.

Developers are expected to cut their dividends to cope with rising financing costs and slower revenue growth. Sun Hung Kai said it plans to lower its payout ratio to 40-50% of underlying profit from 60% last year, while the reduction in New World Development Co. sent its shares to 20-year low last week.

“Their dividends are at risk of falling due to a potential profit slump on rising interest costs, and lower home prices and office rents,” Bloomberg Intelligence analyst Patrick Wong wrote in a note last month.