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(HONG KONG) -- Speculators are having a field day in Hong Kong's frenzied home market. The government is fighting hard in this city of seven million residents to keep the price bubble from bursting.

Here is what is happening:

• Prices have surged 28 percent this year alone.

• Down payment requirements have been tightened for the first time since 1991 on luxury homes of $10 million-plus.

• Mortgage insurance for rental properties has been suspended.

• Investors are selling property stocks to reap a quick profit while the housing market is still hot.

• New mortgage loan approvals have dropped for the third straight month.

• Old Chinese money is buying dwindling supply of luxury shelter in all-cash transactions.

• Henderson Land Development Co. sells a flat for what it called a world-record  HK$88,000 a square foot (U.S. $11,360).  One Hong Kong dollar equals 13 cents  U.S.

• Hong Kong billionaire Joseph Lau pays HK$170 million ($21.9 million U.S.) for a 5,657-square-foot duplex.

Cullinan condo towers, Hong Kong

The impact on property prices will "probably start at the beginning of next year when buyers become more convinced that interest rates are going to go up in the middle of the year," Stanley Wong, deputy general manager at Industrial & Commercial Bank of China Asia Ltd., the Hong Kong unit of China's biggest lender, told Bloomberg.

For home buyers wishing to borrow as much as 95 percent of a property's value, the corporation cut the maximum loan to HK$6 million from HK$8 million, according to the Hong Kong Mortgage Corp., a government-backed home loan insurer. The agency will also suspend insurance for homes that aren't owner-occupied, it said.

But that move shouldn't affect all-cash buyers, notes Marcos Chan, head of research for the Pearl River Delta at Jones Lang Lasalle. "Most buyers are those with old money and who hardly need to get financing from banks."

Sales of homes in Hong Kong worth more than HK$10 million almost tripled in September, according to the Land Registry. The property market has been boosted by an influx of money from China, where a $585 billion stimulus package has driven an economic rebound.

John Tsang

The Hong Kong Mortgage Corp., a government-backed home-loan insurer, says  it will limit coverage on loans of more than 70 percent of a residence's value to borrowings of HK$12 million or less, down from a maximum of HK$20 million.

"The developers are requesting the government put the prices closer to the market level," Stewart Leung, an executive director at New World Development Ltd., told reporters in Hong Kong  after a meeting with the city's Financial Secretary John Tsang. "We also hope that the government will increase the opportunities for selling land via applications."

Sun Hung Kai Properties Ltd., the world's biggest developer by market value, and rivals including Cheung Kong (Holdings) Ltd. fell in Hong Kong trading after the government tightened down payment requirements for luxury homes,and suspended mortgage insurance for rental properties.

"These measures are unlikely to cool down the market significantly as they won't hurt the ability of those who can afford to buy these homes or want to rent properties for yield," Patrick Chow, a Hong Kong-based analyst at Everbright Securities Co., told Bloomberg.

Sun Hung Kai dropped 3.4 percent to HK$118.20 at the close, trimming this year's gains to 83 percent. It earlier declined as much as 5.1 percent, the most since June 8. Cheung Kong, controlled by Li Ka-shing, Asia's second-richest man, fell 3 percent to HK$102.30.

The government in January 2004 introduced a system of selling land through auctions only after developers promise to pay a minimum amount, part of an undisclosed reserve price.

Thomas Kwok

On May 5, the government sold a residential building site for a higher-than-estimated HK$61 million ($7.9 million), the first of the fiscal year that started April 1. It was the first public sale of a building site at least partially designated for housing since May 2008, according to the Lands Department.

Executives from some of the city's largest developers are meeting daily with Hong Kong government officials to try and stabilize the housing market.

Victor Li

The developers include Thomas Kwok, vice chairman of Sun Hung Kai; Cheung Kong Deputy Chairman Victor Li; Robert Ng, chairman of Sino Land Co.; and Hang Lung Properties Ltd. Chairman Ronnie Chan

Hong Kong government chief executive Donald Tsang says the government may release more land for developers to stem price increases.

Robert Ng

The index that tracks six of the city's biggest developers had HK$20.7 billion wiped off its value  after the Hong Kong Monetary Authority raised deposit levels for luxury apartments on Oct. 23.

The city's de facto central bank made the change, the first since 1991, after record-low interest rates fueled a surge in home prices this year.

The measures gave investors a reason to sell property stocks to profit from this year's gains, says Chow of  Everbright Securities. He downgraded Sun Hung Kai to "accumulate" from "buy" "simply because the stock has risen so much."

Donald Tsang

Henderson, controlled by billionaire Lee Shau-kee, fell 4.3 percent to HK$52.90.

But the price bubble is still showing no signs of bursting.

For example, Sun Hung Kai Properties Ltd., Hong Kong's biggest developer by value, says it expects to fetch HK$50,000 per square foot for its three-storey penthouse condominium units at The Cullinan, an under-construction  property, according to the Hong Kong Economic Times.

Lee Shau-kee

Buyers from China, Australia, Europe and the U.S. have expressed interest in the pre-launch sale of the penthouses, Victor Lui, executive director of Sun Hung Kai Real Estate Agency, told the Hong Kong Economic times..

Almost 60 percent of the interested buyers for the 825 units at The Cullinan, are from China. Located in Kowloon, the 270-meter The Cullinan will be Hong Kong's tallest residential project.  

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