Many in the property sector are wondering if home prices will surpass the dizzy heights of 1997. Prices on Hong Kong Island have been steadily rising as solid demand and abundant liquidity continue to prevail in the low-interest-rate, yet inflationary, environment. According to the Centa-City Index (CCI), produced by Centaline Property Agency, which tracks prices using 1997 levels as a comparison, the index in the second quarter reached 110 compared with a base score of 100 in 1997. Over the past two or three months, the CCI has risen for eight consecutive weeks before easing, partly reflecting concerns about uncertainties over chief executive-elect Leung Chun-ying's housing policies. Wong Leung-sing, associate director of research at Centaline, says luxury home prices on Hong Kong Island are already well above the 1997 peak, and this is especially true for deluxe houses and new projects that are commanding exceptionally high prices. 'There are good signs that the overall property index will go upwards further and surpass 1997 levels, thanks to continuous buying interest in the market,' Wong says. 'In the latest market rally, the mass sector has actually outperformed and recorded a stronger price hike with the release of pent-up demand, especially for properties in major private housing estates.' Trade has become brisk over the past two months, with developers acting decisively to take advantage of the buoyant sentiment with the launch of new projects. At Chun Fai Terrace in Tai Hang, Mid-Levels, The Signature is reaping strong buying interest. The new project, jointly developed by New World Development and Peterson Group, provides 66 luxury homes. New World says the sales response has been great, with about 70 per cent of units sold at an average price of about HK$23,600 per square foot as of the end of April. Swire Properties has just launched Argenta in Seymour Road at an average price of about HK$27,000 per square foot, while continuing luxury sales on Hong Kong Island include Park Haven in Causeway Bay, The Serenade in Tai Hang by Hongkong Land, The Altitude in Happy Valley, One Wanchai in Wan Chai, and Shouson Peak in Island South. Patrick Fung, sales director for central and western Mid-Levels at Midland Realty, says the market rally since the start of this year stems mainly from the release of accumulated demand from many home seekers who had opted to stay on the sidelines after the government's introduction of cooling measures last year. 'After several months of waiting on the bench, many home seekers have become keener to find their favourite properties, particularly when prices did not fall as expected. And that kick-started a buying flurry and pushed prices up again,' he says. Fung says new luxury properties on Hong Kong Island can easily sell at HK$25,000 to HK$26,000 per square foot. Even old properties, with the potential for redevelopment, have been popular with investors looking for long-term gains. 'With the free flow of capital and continuous buying interest from mainland and overseas investors, luxury homes here are much in demand as Hong Kong is a world-famous city. Scarcity is always the key. Supply of land for luxury development on Hong Kong Island is extremely limited while strong demand continues to prevail,' Fung says. The secondary market also recorded brisk activity. A 3,279 sqft property at 56 Repulse Bay Road changed hands for HK$155 million, or HK$47,271 per square foot. An apartment at Hatton House in Mid-Levels sold for HK$51 million, or about HK$18,000 per square foot. While the Centa-City Index shows Hong Kong's home prices reaching new highs, Wong says the real price increase has not been so great over the years if the factor of inflation is taken into consideration. 'Our luxury residential prices have been rising along with the depreciation of hard currency,' Wong says. 'The extraordinarily low interest-rate environment and high liquidity will continue to be the two main factors driving the market.' He says property is a key economic pillar for Hong Kong and he does not expect to see any drastic change in government policy after Leung Chun-ying, the new chief executive, takes up his post officially. What that means, in his view, is the prospect of continuous and steady growth for home prices.