The Bank of East Asia has painted a positive picture for the residential property market, predicting prices will rise 10 to 20 per cent per annum in the next three years. The bank's economic research department said the shortfall of supply would support a steady rise in house prices. However, it warned that if prices persisted in rising strongly, there was a possibility that the Hong Kong Monetary Authority would adopt more radical restrictions on banks' mortgage exposure. It also said the outlook for the property market largely depended on whether the Government adopted further anti-speculative measures. The bank said it believed the Government would impose a short-term property capital gains tax if the market continued to surge, adding that a tax would be the most effective move in curbing speculation. 'Such a tax could be levied on both companies and multi-unit property owners who sell units within a certain period - say, six months for companies and one year for individuals - after the purchase,' it said. 'This period could be adjusted, as could the rate of tax. 'This would curb speculation without hurting end-users and long-term investors.' The bank said better economic fundamentals, expectation of mild interest rate increases, buyers' financial strength and developers' optimism supported the market. Although a slower growth in mass property prices was expected in coming months, it predicted that mass price growth for the whole year would average 30 per cent. In the longer term, rising population, at an annual rate of 2.5 per cent for 1997-2000, and the fall of the average household size, would greatly increase demand for housing. The Government's policy would also stimulate demand, through the provision of subsidised housing schemes and loans, it said.