The residency measure will particularly hit wealthy investors from mainland China, whose buying spree in high-end apartments has done much to stoke fears of a new bubble in the Hong Kong economy.

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

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.

Before storming out, radical lawmaker "Long Hair" Leung Kwok-hung threw a polystyrene clock at Tsang, arguing that time was running out for elderly people forced to live on meagre savings in the absence of state pensions.

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.

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

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

He also said the government would consult the public on proposals to reclaim land elsewhere than the crowded Victoria Harbour, which has steadily diminished down the years due to property development, angering environmentalists.

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

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

The speech sent share prices in major property developers plunging before the sector recovered much of its lost ground. SHK Properties finished down 0.59 percent and Sino Land fell 0.12 percent.

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

"The new policy measures are fairly conservative," he told AFP.

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

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.

Public anger was on display outside as Tsang spoke inside the British colonial-era Legislative Council.

"With property prices soaring to new heights, the poorer sections of society have no hope of buying their own apartment," protestor Penny Keung told AFP.

"The government should help alleviate conditions for the poor instead of catering to the interests of big businesses," she said.

In August the government said it would further increase land supply and tighten mortgage lending to avert a property bubble. While that dented the volume of property transactions, prime land still goes for giddy amounts.

On Tuesday demonstrators interrupted an auction of an upmarket residential site in the Kowloon area that fetched a record 1.63 billion Hong Kong dollars (210 million US).

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