Just three months after Hong Kong rolled out a tough new round of property cooling measures, home prices have again climbed to record highs with demand unusually strong for new flats over the normally quiet Lunar New Year holiday break.

Hong Kong officials have stressed repeatedly that reining in the city's property market, now one of the world's most expensive, is a policy priority to restore affordability and to mitigate a major threat to the economy of the affluent Asian financial hub.

After five previous rounds of efforts to curb prices since October 2009, including a 15 percent property tax on foreign buyers, mortgage restrictions and quick resale taxes, the home-price juggernaut rolls on and the challenge remains enormous.

"The overheating property market remains the biggest risk factor to the stability of the Hong Kong economy," said Norman Chan, head of the Hong Kong Monetary Authority, the city's de facto central bank, who also said household debt was now at 59 percent, close to a record high of 60 percent in 2002.

Property prices per square foot now exceed HK$10,000 ($1,300) even in drab, unglamorous districts such as Taikoo Shing on Hong Kong Island, where thousands of 700 square-foot units sell for more than $1 million apiece, more than a large cottage in Provence, France, a 2,700 square-foot bungalow in Hawaii, or a 1,300 square-foot flat on Manhattan's Upper West Side.

With affordability reduced in a city with a monthly median household income of about HK$20,000 and one of the widest wealth gaps in Asia, anxiety has grown among its seven million residents.

That anxiety, however, didn't stop buyers flocking to newly built units at Sun Hung Kai Properties' Residence 88 in a far-flung district close to the border with China, snapping up 150 of the 352 units over three days at an average price of some HK$8,000 per square foot.

"Sun Hung Kai was testing the market," said property research analyst Wong Leung-sing with Centaline Property. "People still want to buy flats. The desire is strong. They don't think the market will fall."

The upcoming annual budget presentation by Hong Kong's financial secretary could, however, see a fresh round of market curbs that would likely face opposition from Hong Kong's powerful big five developers.

Together these giants - Cheung Kong (Holdings) Ltd , Sun Hung Kai Properties Ltd, Henderson Land Development Co Ltd, New World Development Co Ltd and Sino Land Co Ltd - control around 90 percent of new property sales.

Hong Kong's embattled leader, Chief Executive Leung Chun-ying, has pledged to raise the land supply for housing in the medium to long term that should provide 175,000 public units in the coming decade and boost private sector units. Demand however, continues to outstrip short-term supply.

The Centa-City Leading Index, a widely used indicator of the city's residential price trends, is now at a record 121.7, 5 percent higher than the same period in mid-January.

Tycoon trouble

A sub-index of Hong Kong property stocks that includes bellwethers Cheung Kong and Sun Hung Kai, has gained 9 percent since the last cooling measures announced on Oct. 26, beating an 8 percent rise in the benchmark Hang Seng Index.

With substantial land banks and lack of competition, these developers have huge leverage over a government that is keen to encourage a swifter rollout of new flats and which could offer incentives to convert and rezone land for residential use.

Henderson's billionaire owner, Lee Shau-kee, who expects a 5 to 10 percent price rise this year, recently called on the government to waive expensive land premiums for agricultural land to allow the construction of HK$1 million flats.

Hong Kong's leader recently hinted, however, that he may be more inclined to take on the property tycoons whose wealth surged last year as they saw their rankings rise on the Forbes global billionaires’ list.

"In recent years, our urban development has taken a disturbing turn. All too often, there are wrangles over land use and infrastructure projects, leading to sluggish land development and housing shortages," Hong Kong's Leung said during his policy address in January. "In cases of market failure, the government must take appropriate action to address the problem," he said.

'Masses can't afford it'

Although property prices remain stubbornly high, new mortgage applications fell 30 percent in December from November, leading once-bullish analysts like Nomura's Paul Louie to turn cautious.

"Our property market and economy have just become very imbalanced and everything is just catered towards the top 1 percent...the masses really can't afford it," said Louie. "We expect property prices to stall, with only a mid-single digit rise over the next two years."

With more than 200,000 people currently on waiting lists for subsidised public housing, droves have downsized or moved into factory buildings, sub-divided "slaughtered" flats that can accommodate multiple families, or moved into "cage homes", wire-mesh hutches stacked on top of each other in crowded rooms.

For the likes of Wong Chi-ho, the solution to the housing problem lay in skirting the law. He moved into a cheap factory space despite the risk of eviction by officials who ban such usage on fire-safety grounds.

"What it says is that Hong Kong property is so ridiculously overpriced and over expensive, that it's pushing people of modest means to do illegal things like this," said Wong, who has seen half his building fill up with similar tenants.

Flats, meanwhile, have been growing smaller as developers try to preserve margins and a semblance of affordability.

With more than half private dwellings now measuring less than 538 square feet, a cottage self-storage industry has mushroomed across Hong Kong, with industrial warehouses diced up into labyrinthine storage cubicles to cater for people whose lives have spilled beyond the walls of tiny homes.

"We've seen more and more people using storage basically as everyday part of their lives," said Matt Chun, a director of SC Storage, the city's biggest self-storage chain with 47 sites.

"It's a home away from home for some people...Personally, do I wish that people have to live like that? No, I don't think anybody deserves to live like (that). But it is what it is."

For many regular Hong Kongers, there are no easy answers.

"We don't even have enough money for food...but the government has hardly done anything to fix the market," said Michelle Wong, a single mother raising her baby daughter in a damp, 80 square-foot sub-divided flat with a ruptured sewage pipe that she rents for HK$3,000 per month.

Unable to afford anything else, she's been waiting three years for a public housing unit.

"It's a very poor life that I lead."

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