THE supply of new flats this year may drop to the lowest level in almost two decades, far short of the Government's estimate, Centaline Property Agency says. Managing director Shih Wing-ching said 9,515 flats were completed in the first half, and if the situation did not improve in the second half, the full-year's supply would be only 19,030 units. 'This would represent only 60 per cent of the Government's initial forecast of 31,820 units and the smallest annual supply since 1977,' Mr Shih said. In view of the shortfall, the Government revised its forecast to 26,160 units earlier in the year. Average annual supply has been about 30,000 units in recent years. Mr Shih said the decrease in supply was a result of the slow progress of development projects. Although the Government's intervention had helped suppress housing demand and prices, it had squeezed developers' cash flows and deterred them from speeding up their projects, he said. 'This eventually leads to a shortfall in new supply,' he said, adding that buyers and investors would make a comeback and prices would rise again because of the limited supply. Although the Government had forecast a supply of 27,272 units for next year, Mr Shih said the actual supply could be less, depending on construction progress. The number of vacant units, estimated at 40,000 at the end of last year, would not have a material impact on the market. The vacancy rate of about four per cent was acceptable and many units were being leased. According to Centaline's estimate, the Land Registry recorded 6,049 property deals worth less than $20 million each last month. Primary market transactions fell 17.8 per cent to 1,370, while secondary-market transactions rose three per cent to 4,679. Mr Shih said there was an increase in luxury residential transactions, indicating the return of investor confidence. While October's figures better reflected the activity in September because of the time lag between transaction and registration, last month's market activity was also brisk. Centaline itself concluded 1,735 deals last month including 1,097 sale-and-purchase transactions, up 72 per cent from September. Commissions received by the agency exceeded $60 million, up more than 60 per cent on September's $36 million. 'Second-hand transactions in popular housing estates such as Kornhill, Taikoo Shing and Laguna City more than doubled last month,' Mr Shih said. He said residential prices rose three per cent in certain areas, and forecast prices could pick up by 10 per cent by April. With the decrease in supply and the market's pick-up, he said, the Government would maintain its controls, including restrictive mortgage lending and a ban on resale of unfinished flats, to suppress demand.