Fall in new-home starts is forecast to continue

The first-quarter figures show a 35pc decline on the same period last year

Construction started on just 3,500 flats in the first three months of this year, the Housing Department said last night, confirming expectations of shrinking property supply.

The figure is more than 35 per cent down compared to the 5,400 units of a year ago but higher than last quarter's 1,000 starts.

BNP Paribas Peregrine property analyst Adrian Ngan said construction starts would probably slow until at least the end of the year, as government land auctions resumed only last year.

'Construction on some of the auctioned sites should start by the second half of this year but I don't think the major sites have started work yet,' he said.

In 2004, construction started on 14,000 flats. Actual construction of flats has fallen each year since it reached 35,300 units in 1998.

Shih Wing-ching, chairman of property agency the Centaline Group, noted that the slowdown in the supply of residential property would be even more severe in 2006 and 2007 as developers continued to pace construction to take advantage of rebounding prices.

According to Housing Department data, this year's supply of flats in the primary market that are ready for occupation may also fall to the lowest level since the Asian financial crisis, as only 3,900 units were completed in the first quarter.

'The number of completed units will continue to trend down until 2008, after which the supply should start picking up. The current rise in property prices is already discounting that,' Mr Ngan said.

He expected the number of completed units in 2005 to be in the 'low 20,000s'.

This year's first-quarter completion figure pales in comparison to the 4,400 flats completed in the same period last year and the 6,900 units finished last quarter. The full-year number of completed units has topped 20,000 in each of the past six years and only dropped to 17,100 in 1998, the Housing Department said.

Mr Shih noted that, although 56 per cent of households already own homes, a shrinking inventory of units without a corresponding drop in vacancy levels would not be healthy as that would indicate speculation was occurring.

As of the end of last month, the primary housing market had an inventory of 62,000 flats, of which 6,000 were still being constructed but had been presold. Of these 6,000 units, 2,000 were presold in 2003 and 4,000 before 2003. No units were presold last year.

Another 41,000 unsold units are under construction, while the remaining 15,000 units have been completed but have not yet been snapped up by buyers. The unsold but completed units are mainly from developments from 2004 and before 2003.