A night view of Hong Kong, China. [Photo/IC]

The Hong Kong government's surprise move to cool the world's least affordable home market is set to spur an immediate plunge in prices and transactions as buyers and sellers hit the pause button. A new stamp duty is expected to trigger a new round of price falls that will continue until late 2017 at earliest. Share prices of developers slumped in Monday trading.

The tax of 15 percent will be levied on all residential purchases－except for first-time buyers who are permanent residents. Until now, the highest levy for residents was 8.5 percent, while foreigner buyers already paid a 15 percent stamp duty. The changes mean foreign buyers will now pay an effective 30 percent stamp duty.

On Nov 5 and 6, the first weekend after the Nov 4 announcement, secondary home transactions decreased. Hong Kong major real estate broker Centaline Property Agency recorded seven secondary home transactions for its 10 major residential estates, the same as in the weekend of Oct 29 and 30. Midland Realty facilitated eight transactions in the same period, one transaction less than on the weekend of Oct 29 and 30.

Louis Chan Wing Kit, chief executive of the residential unit of Centaline Property Agency Ltd, sees transaction volumes plunging by 60 percent to 70 percent in the next three months, and now expects a 5 percent to 8 percent drop in prices, after previously projecting an increase in that range.

Ricacorp Properties, the subsidiary of Centaline Group, said transactions will drop 30 percent to 40 percent in the next two months and prices will fall 5 percent.

"The action is likely to have an immediate impact on the market, with turnovers and property prices obviously pressured in a short period," Ricacorp Properties Chief Executive Willy Liu Wai-keung added. "Small and medium-sized properties will be among the first to bear the brunt."

"The magnitude of the stamp duty increase is a little surprising," said Alan Jin, an analyst at Mizuho Securities Asia Ltd. "It is the toughest stamp duty to weigh on the sector's share prices. We estimate that transaction volumes will fall by 20 to 40 percent, with smaller units getting hurt most. While the earlier home price surge is likely to "fade", it is unlikely that we will see meaningful decline in short term as both buyers and sellers need time to gauge the impact."