UPDATE 2-Australia's biggest state taxes foreign property buyers as market cools

* Surcharge on foreign purchases rises from 4 pct to 8 pct

* Hits as property prices in Sydney and Melbourne soften

* Follows similar move in Victoria last year and national curbs (Recasts on timing of tax as real estate growth eases, and adds economist comment in para 8 and 9)

SYDNEY, June 1 (Reuters) - Australia’s most populous state announced a doubling in property taxes for foreign buyers on Thursday, a voter-friendly move set to discourage Chinese investment just as seemingly unstoppable markets in Sydney and Melbourne begin to show signs of strain.

Chinese are the largest foreign property buyers in Australia, and ploughed A$32 billion ($24 billion) into the real estate market in the 2016 financial year, according to government figures.

“I think it will heavily discourage their investment,” Ted He, managing director at CLG Corporate, a firm that advises Chinese property investors, told Reuters.

“If they do this too hard, it will just make the whole industry jump down so quickly.”

The tax hike in New South Wales state, where home prices in Sydney eased for the first time in 18 months in May, lifts a surcharge collected from foreigners on home sales from 4 percent to 8 percent. A land tax for foreigners is also being raised.

This follows a similar move a year go in Victoria, where Melbourne home values also fell last month.

The new charges, effective from July, come hard on the heels of curbs on permissible investments for foreigners and tighter immigration rules.

“It is whacking the market when it’s already turned,” AMP Capital chief economist Shane Oliver said.

“The big danger with all these moves to slow down the property market is, because they’re all coming at once, rather than apply the brakes its like we’ve come to a full stop, and you end up with a train crash: That’s the risk,” he said.

The Reserve Bank of Australia in April warned of rising housing debt stoking bubble risks in the property sector. Policy makers, concerned a blistering run in home prices could create the expectation of a further jump in home values, have blamed speculators, led by foreigners, of pushing prices to unsustainable levels.

The risk of a housing bubble and bust is a major reason the RBA has not cut rates from the current 1.5 percent after last easing in August.

Taking heed of growing consternation among voters worried that foreign buyers are pricing out locals, the government in its budget last month announced fresh fines for foreign owners with properties vacant for at least six months of the year.

It also promised to withdraw capital gains tax concessions for foreigners from 2019. All of this and a raft of recent regulatory curbs aimed at blunting speculative investments, and cooling the frothy market, are beginning to bite.

Home prices notched their first falls for months in May in Sydney and Melbourne, CoreLogic figures published Thursday showed, after dramatic gains of more than 15 percent there over the 12 months to April.

New South Wales Premier Gladys Berejiklian said the measure was part of a broader push to put downward pressure on property prices and make it easier for first-time buyers to make purchases. ($1 = 1.3508 Australian dollars) (Reporting by Tom Westbrook; Editing by Shri Navaratnam)