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Hong Kong Unveils More Property-Cooling Measures

Residential and commercial property in Hong Kong, China.
Mike Clarke | AFP | Getty Images
Residential and commercial property in Hong Kong, China.

Hong Kong is imposing higher stamp duties and home loan curbs on property transactions, officials said on Friday, the latest effort to cool an overheated property sector that boasts some of the world's most expensive apartments.

Financial Secretary John Tsang said "exuberance has regained momentum" in Hong Kong's property market, and for this reason stamp duties for flats would be increased across the board for most buyers.

Tsang said the measures were needed to keep the potential economic risk from spreading in the financial hub.

(Read More: Property Prices Pose Biggest Risk to Stability of Hong Kong Economy)

"The risk of an asset bubble is increasing. If we allow the bubble to grow, in the end it will affect the macroeconomy and also the stability of the financial system. It will be very damaging to society," Tsang told reporters.

"These measures will help narrow the supply-demand gap, contribute to the stable development of our property market and the stability of our financial system," Tsang said.

For flats costing less than HK$2 million (about $258,000), the stamp duty would be increased from HK$100 to 1.5 percent of the transaction price, while the stamp duty for other properties would be doubled to as much as 8.5 percent of the residential transaction price.

The increased stamp duties, however, would not apply to Hong Kong residents buying residential property for the first time in the city, in a bid to allow new local homemakers to enter the market, while other limited exemptions were possible.

The government also said it would standardize the stamp duty regime for non-residential properties such as shops, factory space, office space and even car parking spaces to avoid speculative hot money flowing into these other categories.

"It will help forestall any possible shift in exuberance from the residential market to the non-residential market by raising the costs," said Tsang.

This week, the controversial sale of 360 hotel suites by leading local developer Cheung Kong Holdings drew scrutiny, with buyers able to avoid paying regular stamp duties charged to residential units, given the commercial nature of the suites. Tsang, however, refused to be drawn on whether the latest move was an attempt to close off this legal loophole.

(Read More: Priced Out of Hong Kong Homes? Try Hotel Living, Says Bernie Lo)

The city's ultra-low interest rate environment, tight supply and abundant liquidity, pushed property prices up 2 percent in January, Tsang said, while overall residential property prices have jumped 120 percent since 2008.

While Tsang said some of the market frothiness had come from hot money flows from the United States in response to quantitative easing and a low interest rate regime, this could change earlier than some people expect. That would cause mortgage repayments to balloon while "price fluctuation risks would be increased", he said.

The city's de facto central bank, meanwhile, issued mandatory guidelines to banks to tighten home loan approval criterion including maximum loan-to-value ratios of mortgage loans for all commercial and industrial properties. These would be lowered 10 percentage points from existing applicable levels.

Some analysts expected the latest round of measures to help arrest the rise in property prices, for now.

"There will be a big impact in the short term, the transactions will decrease, as well as speculation," said Thomas Lam, director of research at Knight Frank "But I think they (the government) will do more if the property price continues to increase after 3 months."

(Read More: May Car Park Investment Has Skyrocketed. But Who Cares?)

The latest round of property cooling in Hong Kong comes on a series of seemingly tit-for-tat moves by the Singapore government that has also sought to rein in its own market.

As centers of finance and trade, Singapore and Hong Kong are on the front line of global hot money flows. Each exports the equivalent of more than 100 percent of their GDP each year. They're not the only Asian countries confronting this problem. Others affected include South Korea, Thailand and even China.

Since October 2009, the Hong Kong government has taken a series of steps to curb prices, including a 15 percent property tax on foreign buyers, mortgage restrictions and taxes on quick resales. However, home-price pressures have continued to pose policy challenges for officials.

As Hong Kong felt an initial squeeze from property measures imposed in October, including the 15 percent tax on foreign buyers, private home sales in Singapore jumped nearly 30 percent in December from November.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.