Following comments made by Director of the Hong Kong and Macao Affairs Office Wang Guangya that the threat of a property bubble in the city needs to be resolved, Chief Executive Donald Tsang and Financial Secretary John Tsang quickly sprung into action.

They dropped hints that the government will pull no punches in its bid to cool down the sizzling property market and speed up the supply of affordable housing for the middle class.

One of the measures said to be under serious consideration is the resumption of the much called-for Home Ownership Scheme (HOS).

Wang's warnings have no doubt waken the SAR government from their periodic slumber - which in this case has meant that they have failed to keep a grip on the city's housing problems.

When Wang, as an outsider, can easily sense citizens in this city are as desperate as a cat on a hot tin roof dancing on the flames of a property bubble, it means the SAR government needs to take the matter seriously and follow through with immediate action. He also quickly spotted that the imminent bubble risk threatens not only people's livelihoods, but also Hong Kong's economic and political development. His messages were a signal that a wait-and-see or piecemeal approach to tackle this issue is no longer working and only further aggravating the roaring market.

In fact, Wang was spot-on about the housing problems that have been plaguing the city. Even though the government has launched a series of anti-speculative measures to curb runaway property prices, they are continuing to climb. Measures have included the imposition of a special stamp duty on second-hand residential properties, tightening the loan-to-value ratio of home lending for properties above a price level of HK$7 million, and increasing land supply. For the first time, they have also imposed extra restrictions on mortgages to non-resident borrowers, including mainland buyers. Two luxury residential sites at Mid-levels and Yuen Long recently went under the hammer for an impressive HK$12 billion. True, the sales of residential homes have gone down by 30 percent since last November, but prices of second-hand homes continue to hit record highs.

The crux of the matter is that the SAR government has misread the situation, which is that the housing market has undergone drastic structural changes. Apart from the fundamental culprit of the property bubble - the city's currency peg to the US dollar along with the US's quantitative easing policies that have caused local property market to be flooded with hot money - wealthy mainland home buyers have become a driving force in this property boom by forming a consolidated customer base in Hong Kong's housing market.

At present, mainland big spenders account for 30 to 40 percent of luxury home buyers. With the Chinese mainland's thriving economy continuing to give rise to more wealthy people, as well as the relaxation of the Individual Visit Scheme to the city, how many more mainlanders will flock to Hong Kong to snap up properties remains a big question. The dream of local residents climbing up the housing ladder is also getting further away. What if the tides turn and mainland property investors lose their interest in the city's housing market? Will Hong Kong be able to withstand the repercussions brought on by the change of heart in mainland investors?

Calls are therefore mounting for the government to consider imposing restrictions on mainlanders' property purchases, as well as providing fixed-size flats for only first-time local home buyers in the future. However, given the government's wishy-washy response so far, it seems that they have not conducted any assessment of the future demand from mainland buyers nor on their future purchasing powers, let alone their impact on our housing market in the future.

The government is said to be reluctant to restrain mainland residents from buying local property because this will interfere with the free market principles that they have adhered to. But desperate times call for desperate measures. If property becomes a primary speculative tool for mainland buyers who keep on driving housing prices higher and higher putting our livelihoods in jeopardy, restrictive measures on overseas home purchases should be considered. In fact, many countries such as Australia, Singapore and Malaysia as well as some Canadian cities have implemented similar measures to curb property speculation. The government should undertake an in-depth study on the future demand from mainland buyers and their spending powers to see whether it should consider similar restrictive measures on mainland investors.

To rein in the red-hot property market in order to provide affordable housing for local home buyers, the government of course needs to formulate a comprehensive long-term housing policy. It needs to be more proactive in the supply of land as well as reviving the provision of HOS flats and strengthening the rent-to-buy scheme. There are no doubt fears that reviving HOS may bring down the property market as occurred during former chief executive Tung Chee-hwa's era. As long as the supply of flats is limited to a reasonable level of around 10,000 to 20,000 units a year, it will help in curbing escalating housing prices while providing affordable housing for local residents. The main task is for the government to effectively formulate a population policy and accurately assess demand from local home buyers as well as their mainland counterparts.

The author is a current affairs commentator.

(HK Edition 06/23/2011 page3)