'We are not talking about the Government changing the policy today and the completed flats disappearing tomorrow,' he said.

'We need to study the short-term impact, as well as whether there is the need to review the policy in the long term.'

His remarks came after property tycoon Li Ka-shing of Cheung Kong (Holdings) called last week for construction of HOS flats to be cut, then scrapped. Mr Li's comments were endorsed by Henderson Land chairman Lee Shau-kee.

The latest estimates from the Housing Authority show more than 61,000 flats are due to be completed in the next four years. About 28,000 are now under construction.

Speaking at the Guangdong business fair in the Convention and Exhibition Centre yesterday, Mr Leung said Hong Kong had adjusted its housing policy over the past 20 years according to circumstances and local conditions.

'The economy and the rate of formation of new families have changed. The property market has also changed. The demand for HOS [flats] has indeed dropped. Realistically, and practically speaking, the oversupply has created pressure on the property market. 'Whether to reduce [the HOS] is a medium-term question. There is a great supply of HOS flats in the short term. They were in fact planned before 1997 and will be completed within two years,' he said.

The Government needed to formulate housing policies which 'meet the needs of society and the people while not adversely affecting the market', he said.

Property developers yesterday repeated their support for cutting the supply of HOS flats. Henderson Land's Mr Lee said reducing the number would ease competition but it would not help the overall economy.

'Whether it should be scrapped entirely depends on the needs of the public. It is also impossible to halt all the flats suddenly as they are under construction.'

Thomas Kwok Ping-kwong, vice-chairman of Sun Hung Kai Properties, said: 'Mainland cities like Shanghai, Beijing and Guangzhou no longer provide housing for people. Instead they subsidise people to buy flats. Hong Kong could learn from them.'

Liberal Party chairman James Tien Pei-chun, who has been urging that the HOS scheme be scrapped, said the Government had been considering its future.

Democrat Albert Chan Wai-yip said it looked as though Mr Leung was giving the go-ahead to cut back the scheme. Lau Ping-cheung, a Housing Authority member and legislator representing the building profession, said it was time for the Government to clarify its policy. But another authority member, Wong Kwun, said it was unlikely the Government would scrap or largely reduce the scheme as long as there was a demand.

Centaline Properties senior manager Wong Leung-sing said the competition between the Government and private developers had escalated.

All major developers had delayed applying to the Lands Department for pre-sale consent for more than 20,000 flats which were nearing completion and were ready for sale. They were holding about 16,000 more flats which they could not sell due to the competition with HOS flats and the sluggish market, he said.