Hong Kong not only has one of the most institutionally-involved housing markets, but also one of the most developed stock markets in the world. In the meantime, the function of real estate has become increasingly important, yet increasingly vague at the same time. This paper attempts to explore the significant factors in the price adjustments of residential properties. It is found that while most market fundamentals are not significant in explaining property price movements, the roles of investment concerns and of government policy changes in assisted homeownership (HOS) are much more critical in this regard. On the one hand, real estate prices are driven more by investor demand, rather than by user demand; and residential properties are used to hedge against price risks in the stock market, instead of against inflation. On the other hand, while the upgrading hypothesis is confirmed in this study, the situation of Hong Kong turns out to be a bit different from the Singapore experience. As the production of HOS flats is suspended until further notice, the resale HOS market has managed to pull a fraction of homebuyers from the private sector. This particular finding shows that the government’s decision to suspend HOS flat production and sale in Fall 2002 has not accomplished what was intended to achieve. Instead, this leads to several implications, which are then discussed. ► We explore the crucial factors in the price adjustments of residential properties. ► Most market fundamentals are not significant in explaining property price movements. ► Yet, investment concerns and policy changes in HOS much more critical in that regard. ► Real estate prices are driven more by investor demand, rather than by user demand. ► Real estate is used to hedge against stock market risk, but not against inflation.