Hong Kong introduced the Special Stamp Duty (SSD) Policy in 2010, increasing selling costs of short-term property holders up to 20%. We find SSD effectively curtailed speculation, reducing flippers’ market presence from 21.1% in 2010 to 1.3% in 2013. Meanwhile, the market cooling effect is not obvious, as housing price kept trending up by 12.64% and 15.76% in the primary and secondary markets respectively one year after the SSD introduction. As property holders strategically deferred sales after SSD lock-in period, SSD substantially reduced liquidity in the secondary market. Consequently, supply from the secondary market dried up and homebuyers were crowded into the primary market, driving up home prices of both markets. Our finding sheds light on the implications of stamp duty policy on speculative activities and real estate market dynamics.