Property prices in Hong Kong have surged nearly 45 percent from their trough at the end of 2008, while prices of some luxury flats have returned to, or surpassed, the peaks of the 1997 boom.

"I think the effect will be modest. It is the government's intention to gently head off the bubble, which is not easy to do. In this global environment, the government is anxious not to tip over the market."

Simon Smith, head of research at the consultancy Savills Valuation and Professional Services, said the measures will have a limited impact.

Mainland investors have long been lured by the prospect of residency in Hong Kong, a financial center and gateway to the mainland that is run under a different legal system and boasts higher living standards.

Tsang said the government will adopt a temporary amendment to Hong Kong's Capital Investment Scheme, preventing investors from gaining residency in the territory through property purchases from Oct 14.

He also said the government will consult the public on proposals to reclaim land elsewhere than the crowded Victoria Harbor, where space has steadily shrunk over the years due to property development.

Tsang announced plans to build residential property on the city's old airport, Kai Tak, which was closed down in 1998. The prime harbor site remains undeveloped as the government cleans up pollution created by heavy air traffic.

"Over the past few years, the private housing supply has been relatively low. We should address the fundamentals by increasing land supply in response to market demand."

Noting that property prices have risen 20 percent in the past year, Tsang said in his annual policy address: "Housing is currently the greatest concern of our people.

Some 200 protestors shouted slogans and waved placards outside the Legislative Council, demanding more public housing and decrying the control of private property developers over the market in land-starved Hong Kong.

Chief Executive Donald Tsang said he was responding to public anxiety about a shortage of residential housing and rocketing prices during a rowdy session of the legislative assembly, in which one lawmaker stormed out of the chamber.