The Hong Kong government has raised the transaction tax on luxury homes and said it will increase the supply of residential apartments, as it seeks to cool off the property market, reports Bloomberg.

Stamp duty on homes selling for above HK$20 million ($2.6 million) will rise from 3.75 per cent to 4.25 per cent, the financial secretary John Tsang is reported to have said in his budget speech for the year beginning 1 April.

This comes after house prices gained 29 per cent last year, and a rise in the down-payment required from 30 to 40 per cent had little impact on prices.

Low interest rates in western economies have fuelled an inflow of funds to Asian and emerging markets, causing policymakers in those countries to worry about asset bubbles. Also, some have speculated that the Hong Kong property market has been boosted by the Chinese government’s economic stimulus.

“The inflow of funds has fuelled an increase in the prices of luxury flats, which to some extent has affected the prices of small and medium-sized flats,” Mr Tsang is reported to have said. “This, together with a relatively low supply of flats in the past two years, has led some people to worry that their plans to buy a home may be frustrated.”