Property speculation has resurfaced despite the government's new measures to crack down on speculators by increasing the risks and transaction costs of their activities. The latest land auction proves that recent restrictions on mortgage lending have failed to dampen developers' demand for land, while prices in the secondary market have also rebounded. Two basic factors drive property prices: supply and demand. Demand can be divided into genuine housing needs and investment needs. Obviously, prices are being influenced by Hongkongers' insatiable investment needs. To overcome the effects of the global financial crisis, many central banks have pumped money directly into the economy. The excess cash has pushed up economic and investment activity, and banks' increased willingness to lend owing to the excess cash has helped inflate property prices worldwide. It is not difficult to understand why Hong Kong home prices remain high, in defiance of government measures. The city is a well-established premier financial hub for Asia, the preferred city for regional headquarters of multinational corporations, and a beneficiary of the persistent inflow of mainland capital. The US Federal Reserve's key interest rate remains at a record low, with no signs of upward movement. This will pump up asset prices further. With the US dollar peg, Hong Kong mainly follows the interest rate adjustments by the Fed. Small players either invest in stocks or the property market, owing to a lack of other options. But after the financial crisis, many see the stock market as a bad place to be, and thus the property sector has become a safe haven. When the financial crisis first hit, property prices took a tumble. At the time, even the ever-optimistic Shih Wing-ching, chairman of Centaline Property Agency, warned that the sector was facing not only a harsh winter, but was stuck in an ice age. Then, out of the blue, Beijing announced a 4 trillion yuan (HK$4.5 trillion) stimulus package to boost its economy and domestic demand. The force of the stimulus-driven rebound boosted the amount of mainland capital flowing into Hong Kong, once again pushing up the value of local properties. And the rush of cash has boosted prices across various market sectors. Because the market offers plenty of speculative opportunities, the inflow of mainland capital has increased greatly. Such speculative trends have inflated the prices of small and medium-sized units, and even government-subsidised apartments. Property speculation is a worldwide phenomenon; when there is an inflow of foreign capital, prices will shoot up, pushing genuine buyers onto the sidelines. If we look at properties on The Peak and in Mid-Levels, most new buyers are wealthy mainlanders. Many are eager to purchase properties in Hong Kong as a way to transfer cash out of the mainland to evade tight monetary policies there. Unless we ban all mainland capital here, there is no way of stopping their 'shopping spree'. A more pertinent question is: can we afford to impose such a ban? The administration should help solve our urgent housing problems by relaunching government-subsidised flats and providing more public housing. But, to make the scheme work better this time, it must segregate the investment-driven private market from the genuine user market subsidised by the government. In the former, which is intrinsically profit-led, participants would have to bear all investment risks, while the latter would offer prices unrelated to the highly volatile private sector, and in line with economic growth and individual purchasing power. Owners of subsidised housing could then sell their properties only if they paid the government land premium and allowed the administration to have the first buyback option. Moreover, the secondary market should be restricted to Hong Kong residents. These measures are our only hope to curb runaway prices and prevent a potential bubble in the local property market. Albert Cheng King-hon is a political commentator