Lee recalls the costly debacle. 'Banks valued our flat at HK$1 million below our purchase price, and it was impossible for us to pay for the shortfall. We decided to back out of the sale-and-purchase contract. Our lifetime savings of HK$1 million were forfeited to the developer,' she says.

By 1998, defaults became common as property prices plummeted about 50 per cent from their 1997 peak. Conditions went from bad to worse: between 1997 and 2003, prices plunged by as much as 70 per cent. Many property owners were saddled with negative equity and consumer sentiment was severely dented.

The number of homeowners with negative equity reached its peak at 105,697 in July 2003, at the height of the Sars epidemic.

To shore up their cash flows, developers went head to head in price wars and even released their new projects at below land cost.

The rebound since mid-2003 has been just as spectacular as the downward slide. Home prices have rebounded by as much as 70 per cent, and the number of negative-equity home owners was down to 78 at the end of March this year.

If Lee had managed to keep the unit, she would be telling a different story now: home prices on average have surpassed their 1997 highs.

Hong Hong has had more than its share of unexpected challenges in the 15 years since the handover, notes Edward Farrelly, head of research for Hong Kong, Taiwan and Macau at CB Richard Ellis.

He cites the Asian financial crisis, the Sars outbreak of 2003 and the global financial crisis that began in 2008.

'Despite of all these challenges, we saw the Hong Kong property market still manage to recover at speed - and ride from strength to strength,' he says. The steady rebound in home and other property prices - due largely to continuing demand from end-users and interest from mainland buyers - had surpassed the 1997 apex by 2 per cent, Farrelly says.

But that temporary collapse of prices made Hong Kong property owners more conservative. At the 1997 pinnacle, Hongkongers were overstretching themselves in the market: the affordability ratio - a measure of mortgage instalments relative to household incomes - hit 90 per cent. That ratio fell to as low as 15 per cent in 2003 and now stands at a relatively sober 40 per cent, according to Midland Realty.

Driven by excess liquidity, Hong Kong property prices rose nearly 70 per cent from late 2008. That prompted the government to curb speculation in late 2010 through a string of measures including a special stamp duty and tighter lending for luxury flat purchases.

The stamp duty, introduced in November 2010 to rein in sky-high property prices, imposed an additional 15 per cent tariff on homes resold within six months of purchase, 10 per cent extra for those resold within a year and 5 per cent for those resold within two years.

The immediate impact was to prompt sellers to raise prices - to pass on the extra duty to buyers - deterring speculators but sidelining genuine buyers.

In the longer term, stamp duty meant most purchases were by end-users instead of speculators.

Today, nearly 90 per cent of buyers at Sino Land's Park Summit development in Tai Kok Tsui are end users, says Victor Tin Sio-un, general manager of sales and leasing. In late April, Sino Land sold more than 400 units at the 464-unit Park Summit, a joint venture with the Urban Renewal Authority.

'What makes today's market different from before is we see buyers not only from Hong Kong but also from China, Korea, Taiwan and other countries,' Tin says.

Buyers are becoming more demanding in terms of quality because the market is dominated by genuine home buyers, he says.

Tin remains upbeat about the housing market's prospects, saying property is still a desirable investment, with interest rates low and inflation rising.

With a limited supply for the next several years and low interest rates, already sky-high property prices continue to climb despite the government's cooling measures to curb speculation.

On May 3, a 626-sq-ft public housing flat in Cheung On Estate, Tsing Yi, sold for a record price - for that sought-after estate - of HK$2.85 million. The vendor paid the land premium before reselling the unit in the private market.

On May 8, a 395-sq-ft unit at City One in Sha Tin changed hands for HK$2.96 million, or HK$7,494 per square foot - setting a record for units of that size at City One.

The chief analyst at Midland Realty, Buggle Lau Ka-fai, says Hong Kong experienced a complete up-and-down cycle between 1990 and 2003. After bottoming out in August 2003, the property cycle has resumed its climb - until now. 'Hong Kong is one of the few places in the world where property prices have not only rebounded strongly but also surpassed the previous peak,' he says.