The government will take action against speculative activity in the city's housing market, Chief Executive Donald Tsang said Friday at the Foreign Correspondents' Club of Japan in Tokyo.

Tsang has been in Japan to attend the leader's summit of 21 members of the Asia-Pacific Economic Cooperation (APEC) forum in Yokohama. He is attending in his capacity as the Chief Executive of the Hong Kong Special Administrative Region of the People's Republic of China.

Tsang, who also said that Asian economies are attracting "huge amounts" of liquidity and increasing inflationary pressure on asset and consumer prices, did not say what measures the government would take.

"The measures must remain secret until they are released, otherwise they become ineffective," Tsang said. "I'm not discouraging the healthy movement of the property market. As the market grows here, definitely property prices will grow gradually, along with the economy. But if it's moving out of kilter with the economy then something must be done, particularly if that growth is generated by speculative activities."

Tsang also had harsh words for the US, criticizing the decision by the Federal Reserve to launch a second round of quantitative easing (QE2), saying he was "concerned" by its impact.

"We may be out of the eye of the storm but we certainly remain in a dangerous storm," he said. "International investors should tighten their seat belts and get prepared for unprecedented turbulence in currency markets, bond markets, stock markets and the property market. The next wave will hit at the corporate level through massive volatility in the currency and securities markets."

The government has already taken measures this year to dampen the property market, including higher down-payment requirements, increased land supply and the raising of stamp duties on luxury flats.

However, property prices in the city have more than doubled from a trough in 2003 on a recovering economy, interest rates at a two-decade low, and an influx of buyers from the mainland.

Analysts and property firms in the city think that prices will climb higher yet.

Residential property prices will likely gain 30 percent from now until the end of 2011 because a weaker US dollar will boost asset inflation, Cusson Leung and Joyce Kwock, Hong Kong-based analysts at Credit Suisse Group AG, wrote in a note to clients this week.

Meanwhile, a local property price index published by Centaline Property has reached 87.55, its highest level in 13 years. The property agency has predicted it will reach 90 by the end of this year. Its associate research director, Wong Leung Sing, said that due to the QE2 policy, local residents are proactively purchasing properties as a hedge against inflation.

Eric Wong, head of Asian real estate research at UBS, said property prices may jump even as much as 40 percent in the next two years, propelled by a real negative interest rates, tight supply, a high affordability ratio and an influx of mainland buyers.

Bloomberg and Dow Jones contributed to this report.

China Daily

(HK Edition 11/13/2010 page2)