For example, a 3,347 sqft luxury apartment at sought-after Estoril Court in central Mid-Levels changed hands for HK$93.8 million, or about HK$28,000 per square foot, early this month. A 905 sqft flat at Taikoo Shing sold for HK$10.8 million, or HK$11,934 per square foot.

Even government officials note that the residential market rallied after the Lunar New Year, with average prices gaining 5 per cent in the first quarter. By March, overall flat prices surpassed the previous historical peak in 1997 by about 10 per cent. Agents say prices have gone up further in April and May.

News of worse-than-expected gross domestic product growth for the first quarter dented market sentiment slightly. Hong Kong's economy slowed in the first quarter, with real GDP posting slight year-on-year growth of 0.4 per cent, mainly dragged by the lull in exports amid a difficult external environment. Domestic consumption remained strong and helped cushion the economic performance.

Global luxury property prices in the first three months saw the first quarterly fall since the beginning of the global financial crisis, but prices for Hong Kong's high-end homes managed to edge up 1.1 per cent, according to a report by Knight Frank.

Thomas Lam, head of research for Greater China at Knight Frank, says overall market sentiment remains positive with the conclusion of some large investment deals. High-quality flats in the residential sector continue to fetch high prices, but the reduction in transaction activity indicates the rally is unlikely to last long.

'People still like to put their money into bricks and mortar,' Lam says. 'There are no signs of any major exodus of investors in the marketplace. Homes on Hong Kong Island, with such limited supply, are likely to see prices go up further in particular. The stock market volatility has not been too significant so far. Developers will continue to release their projects in small batches to attract buyers, especially purchasers from the mainland.'

In the primary market, Wing Tai is selling the remaining luxury flats at Seymour Road in Mid-Levels West with average prices at more than HK$30,000 per square foot. The company's other new luxury project at Coronation Terrace in Mid-Levels will also go on sale soon.

Sino Land recorded sales of new flats at Providence Bay in Pak Shek Kok at nearly HK$10,000 per square foot. New flats at Park Haven in Causeway Bay are selling at more than HK$20,000 per square foot.

Swire Properties is offering its luxury project Argenta in Mid-Levels West at an average price of about HK$28,000 per square foot. The developer's super-deluxe project, Opus Hong Kong at Stubbs Road near The Peak, is up for grabs subject to buyers' offers, with agents suggesting selling prices may exceed HK$60,000 per square foot. Another luxury project is Cheung Kong's Kennedy Park in Central.

Lam says it is possible to see prices falling this year, but they will probably be modest unless the euro-zone debt crisis ends in a fiasco.

Gary Yeung, director for Hong Kong Island at Midland Realty, is still positive and says the chance of home prices falling looks pretty slim given tight supply, extremely low interest rates and the sustained interest in buying properties for investment and hedging against inflation.

'The recent stock volatility and Europe's continuous uncertainty may have put a dampener on sentiment, but homeowners are positive about the outlook and remain firm on asking prices. Most property investors today are very cash-rich and are holding properties for longer-term gains,' he says.

'We continue to see higher rents achieved in the residential leasing market and that should lend support to prices. Economic performance will be a key factor. The economic outlook is still positive and that will bode well.'

Hong Kong has virtually full employment and increased household income. If the government is right with its forecast, the economy will regain momentum in the coming quarters to make everyone happier.