The authorities in Hong Kong have decided to halt land sales until the end of 2003 in an attempt to stop a slide in property values.

"The measures are aimed to restore public confidence in property ownership, and in the end to speed up the recovery of our economy," said Hong Kong's chief executive Tung Chee-hwa.

Land auctions make a hefty contribution to government coffers, so economists fear the plan to support the property market could exacerbate the growing budget deficit.

Hong Kong's real estate used to be among the world's most expensive but prices have plummeted 65% since the Asian financial crisis erupted in 1997.

On the wrong track?

Property development firms, whose stocks make up a big slice of the Hong Kong Stock Exchange, have suffered a profits squeeze and weaker share prices.

Ordinary home owners have been left nursing big debts on properties that are worth less than they paid for them.

Announcing the land sales freeze, Mr Tung said that Hong Kong has had 30% deflation since 1997 and that between half and three-quarters of this was due to falling property prices.

But economists were sceptical about how effective the measures would be in boosting the economy.

Some said the government should do more to tackle unemployment, currently at 7.4%. Two recessions in five years has also pushed personal bankruptcies to record levels.

Property stocks

"The major property companies will benefit but I am not sure about the small guys," said Stephen Brown, head of research at Kim Eng Securities.

Stock prices of property firms are suffering

"This is exactly the opposite of what they should be doing," said Barclays Capital economist Pieter van der Schaft.

"They are just helping the property developers and not helping to improve the government's finances," he said.

"Property shares may go up a bit on the back of this news, but people will still not be buying properties because unemployment is so high."

Government officials have declined to say how much the freeze on land auctions would cost the government.

Currency jitters

Hong Kong's budget deficit is likely to be about HK$60bn ($8bn; �4.8bn) in the current fiscal year to 31 March, according to credit ratings agency Standard & Poor's.

The scale of the government's funding shortfall has led to speculation in recent weeks that it risks being forced eventually to devalue the Hong Kong dollar if it lacks funds to defend the currency.

S&P has cut its long term outlook on the Hong Kong dollar from stable to negative.

Economic growth was flat last year and is forecast to come in at 1.5% this year.