Pent-up demand and record low interest rates could push demand for new flats up by as much as 40 per cent in 2003, analysts at the Chamber's December 11 seminar on housing said.

Though expectations that the government's recent announcement to get out of the property market will help property prices rebound to pre-handover levels is mostly wishful thinking, analysts were nonetheless bullish that a recovery was on the way.

Peter Churchouse, advisory director, Morgan Stanley, said all the economic data is pointing to a rise in sales.

"Over 70 per cent of households in Hong Kong can now afford to buy an apartment. In 1997 only 20 per cent of the people could afford to buy a flat, and in 1980, it was only 5 per cent," he said.

Moreover, contrary to media reports that primary market sales are stagnant, almost 7,000 property transactions a month have been taking place in 2002, not far shy of pre-1997 levels.

Now that the government has abandoned the Home Ownership Scheme and mortgage interest rates are at record lows, he expects demand to gain momentum.

He dismisses fears that Hongkongers buying flats in Shenzhen will further push down prices here.

"This cross-border migration has to be the biggest red herring we've heard," he said. "I don't believe people will be packing up here and moving to Shenzhen."

The only exception to that, perhaps, is that some government housing tenants may be tempted to take advantage of the current market conditions and buy their own home across the border.

He also debunked the perception that Hong Kong is among the most expensive places in the world to live. Comparing incomes, taxes and home prices in Mid-levels with similarly graded neighborhoods in Sydney, New York and London, Hong Kong comes out well ahead. After taxes have trimmed disposable income, and price differentials are taken into consideration, people in these top cities need to earn over 60 per cent more than Hongkongers to buy a comparable flat. The ratios in Singapore and Shanghai are 18 per cent and 12 per cent, respectively.

The reason why Hong Kong residents are more well off than their international counterparts is due to the SAR's 15 per cent tax rate -- one of the lowest in the world -- compared to an average of 30-40 per cent in other world cities.

"I think there is this myth that goes around forever, and I don't buy into that. If you net all that out, it is a hell of a lot better here than in places like the U.S. or U.K.," he said.

K C Kwok, chief economist, NE Asia, Standard Chartered Bank, also believes that Hong Kong is far more competitive than critics would have us believe.

Hong Kong's exports of services have been rising steadily over the last three years ahead of Singapore, and prices of imported goods have been falling on average 2.25 per cent year on year.

Mr Kwok also noted that Hong Kong is not losing retail business across the border: "Less than 1 per cent of Hong Kong's private consumption expenditure is spent in Shenzhen," he said.

The biggest thorn in Hong Kong's side, however, is proving to be domestic demand, which is creating a vicious cycle by dragging down the retail sector, diminishing confidence, the property market, and ultimately the economy, he said.

Mr Kwok also pointed out that a number of substantive studies are proving that Hong Kong's economic downturn is mostly cyclical, not structural. By being pinned by the hip to the global economy, Hong Kong cannot help but be affected by any downturn in the international economy.

"I am not saying that Hong Kong's outlook is rosy, but I am saying that we need to put things into perspective," he said.

Franklin Lam, managing director, UBS Warburg, was bullish in his predictions and forecast that demand for property will rise 40 per cent next year. He also noted that the return on home purchase equity is running at better than 14 per cent, up from minus 1.5 per cent less than two years ago.

Though he said it was unlikely that prices will rebound to pre-1997 levels, market forces were showing signs of a modest rise in property prices of 2-3 per cent this year.

Slow demand in the secondhand property market, however, could spoil the party, because until the market recovers sufficiently for secondhand property owners to upgrade to a bigger or new flat, the primary market's performance will be limited.

"The real challenge is the secondary market," Nick Brooke, consultant, Insignia Brooke (HK) Ltd, said. "We have conservative valuations, conservative lenders, the inability to lend more than 50-60 per cent, and developers offering sweeteners. One way to boost the market would be for the Hong Kong Monetary Authority to raise its mortgage ceiling to 75 per cent," he suggested.