Property owner Carmen Lau's New Year wish is to upgrade her living standards by moving into a new apartment. But as Lau bought her flat when home prices peaked in 1997, and its value has still not climbed back to those levels, despite the recent surge in prices, she faces a dilemma. Lau is torn between waiting for the value of her flat to reach break-even on her investment or buying a new home now before prices rise beyond her reach. In September 1997, just one month before the Asian financial crisis began unfolding, Lau and her husband bought an 801 square foot unit in Hibiscus Park, a 'sandwich class' housing scheme, for HK$2.49 million. Hibiscus Park was one of 10 such developments built by the public housing provider, the Hong Kong Housing Society in the 1990s. Some 7,000 units in the projects were sold to middle-income families - the sandwich class - at concessionary prices subject to a five-year lock-up period on resales and repayment of the subsidy before the conclusion of the scheme in 2000. The price Lau paid represented a 35 per cent concessionary discount on the unit's market value. 'Last year we thought of buying a private housing unit in a newer development with a budget of about HK$2 million. However, home prices rose too fast and it was very difficult to find a unit that met our requirements,' said Lau. Home prices rose 30 per cent in 2009, according to data from Centaline Property Agency, but Lau said that despite these strong gains the capital value of her unit had not changed much over the past 12 months due to low sales in sandwich class housing developments. The latest transaction on Centaline's website is a 801 sq ft unit on the 24th floor of Hibiscus Park which sold in July last year for HK$2.9 million. 'I guess the market value of my flat is about HK$2.7 million,' said Lau. 'But when we sell the unit we are required to pay the Housing Society a premium which is equivalent to 35 per cent of the current market value, and in our case this will be more than HK$800,000.' As flats are sold under the scheme at subsidised prices, owners are expected to live in their units and are not allowed to sell or rent them unless they have paid back the government subsidy in the form of a land premium. That condition means Lau will only get back a small amount after repaying the outstanding bank loan and the premium to the government. Even though she is not in negative equity, Lau says her position is not much better. The number of home loans in negative equity dropped to 835 at the end of September, the lowest since the Hong Kong Monetary Authority began collating the data in 2001. That compares with the peak of 105,697 cases in June 2003, at the height of the Sars epidemic. Lau is a typical example of a home owner suffering from the volatility of the residential market in the city. Home prices fell to 45 per cent of 1997 level in the last quarter of 1998 and picked up slowly in the following years. But in 2003, the Sars outbreak saw home prices fall to one third of their 1997 level before climbing to 73 per cent by the end of June 2008. Prices slumped once again in the fourth quarter of 2008 and have since recovered to levels reached in June 2008, according to Centaline Property. Centaline research associate director Wong Leung-sing said owners of sandwich class flats had not enjoyed the full extent of the price recovery because that segment of the market was small and property buyers generally preferred to buy private housing units. But Michael Wu, a director in Fitch Ratings' Asia-Pacific corporates team, said Lau could see her New Year wish come true this year. 'Following a 30 per cent rise in home prices in 2009, the market will see a consolidation,' said Wu. This could lead to some renewed interest in ' sandwich class units as the pace of price growth slowed in the private sector. Wu did not expect to see continuing high growth in hot money flowing into Hong Kong this year and while interest rates would remain low, sales could slow in the absence of continued strong capital inflows. He said buyers such as Lau could start doing their homework now in order to be ready to take the opportunity to enter the market when it softens in the second half of the year. Victor Lui Ting, an executive director of Sun Hung Kai Properties Real Estate Agency, a unit of Sun Hung Kai Properties, has a different view of how the market will develop. He said home prices, including prices in the mass housing segment, were likely to continue rising given the low interest rate environment and buying interest from mainlanders. Which scenario will best suit Lau? 'The best scenario is that home prices fall this year and we will take this opportunity to pay a smaller premium for my flat (which is calculated on the basis of market value). Then prices can go up and allow us to sell at a higher price and shift to a better quality private housing unit,' she said.