HONG KONG (Reuters) -Hong Kong announced major measures on Wednesday to bolster its flagging real estate market by scrapping all tightening measures for residential properties, aimed at helping the city's economy which is expected to grow at a tepid 2.5%-3.5% this year.

The financial hub will cancel all additional stamp duties on transactions imposed in the past decade in a bid to boost the city's depressed real estate market, Financial Secretary Paul Chan told lawmakers in his annual budget.

Noting challenges including high interest rates, a complex geopolitical environment as well as ballooning recent budget deficits, Chan announced a mix of measures spanning property, tourism and financial services to lure back capital, businesses and visitors to the city, as well as restore fiscal balance.

On property, long a key pillar of the economy, Chan said all demand-side management measures for residential properties would be scrapped with immediate effect.

"We consider that the relevant measures are no longer necessary amidst the current economic and market conditions," Chan said.

These include cutting all additional stamp duties for foreign buyers and those for the purchase of second properties, as well as on those selling flats within two years of buying them, that had been imposed in the decade prior to the current slump to try to cool one of the world's priciest property markets.

In a parallel move, the Hong Kong's Monetary Authority (HKMA) adjusted measures for property mortgage loans, including raising the maximum amount homebuyers and investors can borrow for some purchases.

Ricky Wong, vice-chairman at developer Wheelock Properties, said the moves can "stimulate locals and overseas people to buy homes for their own use and attract investors to re-enter the property investment market."

The group would actively prepare for the launch of its new projects, he added.

Hong Kong's housing prices have plunged 20% since their 2021 peak given both economic and political headwinds, including a national security clampdown that stoked an emigration wave from the city and a slowing Chinese economy impacting potential Chinese home buyers -- long a driver of the market.

PROPERTY AGENCY STOCKS SURGE

Hong Kong's property sub-index rose more than 2% on the news before closing down 0.6%, compared with a 1.5% drop in the benchmark index. Shares of Midland Realty, a real estate agency, surged as much as 44.6%, while smaller rival Legend Upstar jumped as much as 16.5%.

"It is believed that in the short term, it will stimulate the trading volume, promote the recovery of the property market, restore market confidence, and stabilize property prices," said Martin Wong, Greater China head of research and consultancy at Knight Frank.

In a bid to curb smoking, the government increased tobacco taxes to HK$0.80 per cigarette, bringing the cost of a pack to about HK$94 ($12).

On Hong Kong's ballooning fiscal deficits, with the city running up deficits for four of the past five years, Chan pledged to "adopt a fiscal consolidation strategy to narrow our fiscal deficit progressively towards achieving the goal of restoring fiscal balance," though he didn't specify a timeframe.

Hong Kong posted a consolidated deficit of HK$101.6 billion for fiscal 2023-24, in line with market expectations, and a deficit of HK$48.1 billion is forecast for the coming 2024/25, Chan said.

In fiscal 2022/23 Hong Kong posted a budget deficit of HK$122.3 billion ($15.63 billion) after taking into account the proceeds of HK$66 billion received from issuance of green bonds.

The ratio of government debt to GDP will be in the range of 9-13% from 2024-25 to 2028-29, Chan said.

The economy expanded by a sluggish 3.2% in 2023, hampered by geopolitical tensions between China and the United States, while capital flight turned the Hong Kong stock market into the worst performing major index last year.

The government will roll out more than HK$1 billion ($127 million) in support measures for its beleaguered tourism industry, to help offset the impact from the struggling Chinese economy, which has resulted in fewer visitors from the mainland.

The city will stage more than 80 "mega events" in the first half of the year to boost tourism, including a monthly fireworks and drone show at its panoramic Victoria Harbour.

($1 = 7.8260 Hong Kong dollars)

(Additional reporting by Anne Marie Roantree, Donny Kwok, Jessie Pang and Dorothy Kam; writing by Farah Master and James Pomfret; Editing by Himani Sarkar, Neil Fullick, Lincoln Feast and Kim Coghill)