HONG KONG -- Overheating in the residential property market has cooled in recent weeks, suggesting the government's new anti-speculation measures were working, said a senior official of the government of the Hong Kong Special Administrative Region.

Acting Financial Secretary KC Chan said on Wednesday that as the special stamp duty is applicable to all residential units regardless of size or value, there should not be capital switching from the luxury market to the mass market.

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The government will ensure financial institutions remain prudent in extending loans, and forestall credit expansion and asset price inflation forming a vicious circle, thereby reducing shock in the event that capital retreats, he said.

"We will continue to monitor the market situation closely and introduce appropriate measures without hesitation when necessary," Chan said.

To clamp down on property speculation which helped heat up the property market, the Hong Kong government issued a new round of measures late November, including launching a special stamp duty on residential properties on top of the current property transaction stamp duty.

According to new regulations, residential properties bought from November 20 and resold within 24 months will be subject to the proposed special stamp duty paid by the buyer and seller, which will be up to 15 percent if the transaction takes place within six months.

Referring to the capital flows, Chan said as the second round of quantitative easing in the US may increase volatilities in local markets, it is difficult to predict the timing and impact of a reversal in capital flows because the external environment is fraught with uncertainties.

"On the policy front, the most important things are to ensure the sound fundamentals of the economy and the stability of the financial systems, to avoid over-consumption or over-borrowing at times of ample liquidity," Chan said.

"We will continue to monitor the situation and respond as necessary to changes in the environment."