When first-time buyer Judy Kwan heard a flat was for sale in a street she admired in Hong Kong's Wanchai district, she snapped it up within 24 hours without even seeing it, inheriting a tenant she had never met.

Now she wants to buy another as the property market surges from a strong economy and mortgages become cheap as local interest rates drop in line with rates cuts in the United States.

Kwan hopes property investment will allow her to retire in five years' time, aged 50.

'The price was right and the market's going up,' said Kwan, an accountant, who paid $282,000 for the boxing ring-sized flat in November.

The apartment's value has risen 10 per cent since then and analysts predict that falling interest rates and rising salaries will propel prices back to a heady 1997 peak.

Hong Kong's economy is riding on the coat-tails of China's boom, but its currency peg with the US dollar forces the territory to officially track US interest rate cuts.

Local banks have more leeway but have still slashed rates by 100 basis points in the past two weeks as the US federal funds rate has fallen to 3 per cent.

So the housing downturn and mortgage crisis that threatens the US economy has indirectly bolstered Hong Kong property.

Monthly transactions for mass market housing in the final three months of last year were on average 63 per cent higher than in the rest of 2007, hitting their highest level for a decade.

Real Hong Kong mortgage rates are now negative, below inflation of 3.8 per cent and it has become cheaper to buy than rent, analysts say.

A Merrill Lynch property analyst has predicted a 50 per cent rally in property prices in the next two years, prompting several Hong Kong employees at the bank to go on an apartment hunting spree.

UBS has the same forecast. Geoff Lewis, head of investment services at JF Asset Management, said the property might 'catch fire'.

The expected boom fed a price rally late last year in Hong Kong's biggest developers, including Sun Hung Kai Properties, Cheung Kong Holdings and Henderson Land Development but Hong Kong's property sub-index has see-sawed this year.

Several Hong Kong developers are also expected to get an extra kick from their fast-growing mainland China businesses.

But many analysts say buying an apartment is better than buying shares, as equity markets will probably stay volatile. Others suggest that investors suffering share losses might have less cash to invest in real estate.

New housing supply in the next three years is forecast at half levels seen during the 1990s boom, and interest rates could fall further while inflation heads above 4 per cent, economists say.

With no control over monetary policy and inflation on the rise, a 50 percent appreciation in flat prices could pose a risk for an economy that saw property prices nosedive 65 per cent when the last property boom burst 10 years ago.

Economists, however, are not worried about an asset price bubble just yet.   They think a strong property market will create wealth, spur consumer spending, and enable the territory to still notch up 4-5 per cent economic growth even if the US economy tips into recession and hits exports from one of the world's busiest ports.-Reuters