New home inventory improves gradually

HONG KONG, 4 December 2024 – Comparing the available private residential housing supply (number of approved pre-sale consent and unsold units in completed projects) to primary transaction volume over the past 12 months, the months of supply has dropped to 78.2 months as of October 2024 from its peak at 101.6 months. New home inventory will approach a more balanced supply and demand level by the end of next year, according to JLL's latest Residential Market Monitor released today.

The Housing Bureau projects 108,000 private residential units will be available in the next three to four years, representing only a 10% increase from 2021's peak market levels. If comparing the monthly housing supply (number of unsold units in completed projects and projects under construction) with monthly primary transaction volume to assess the balance between supply and demand, the months of supply of residential housing reflected the downturn phase of the cycle. From 54.4 months in December 2021, it rose significantly to 95.4 months in 2022 and peaked at 101.6 months in 2023. Recent data shows moderation to 78.2 months as of September 2024, suggesting an improving absorption dynamic.

Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL in Hong Kong, said: "Looking into 2025, assuming primary market transaction volumes normalise to 18,000 units annually (less than 10% above the projected 2024 level), months of supply could moderate to 58.0 months by December 2025 and approach the level observed during more balanced periods, notably in 2021. Whilst current inventory metrics show elevated levels of unsold units in completed projects and those under construction, forward-looking supply indicators present a contrasting picture. Most significantly, the volume of potential units from disposed sites where construction could commence immediately has declined to 10,000 units as of September 2024 - the lowest level since data collection began in 2012 and a marked decrease from 25,000 units in March 2023. This structural shift in the supply pipeline suggests potential moderation in medium-term inventory growth, even as the market works through current stock levels. This trend may alleviate the competitive pricing pressures on new projects in the long run.”

Meanwhile, developers' active management of their development pipelines suggests effective housing supply may prove more moderate than aggregate statistics indicate. Supply management strategies have emerged across multiple channels: construction timeline adjustments, project repurposing, and optimising project launch schedules. SHKP's modification of its So Kwun Wat project timeline, citing design changes, exemplifies this trend. Moreover, in 2024, at least seven residential developments released a portion of their unsold units for letting, representing an adjustment to the disposal pipeline. Such strategic responses to market conditions introduce meaningful divergence between headline supply figures and realised inventory, potentially accelerating the convergence towards healthy inventory levels beyond current projections.

Cathie Chung, Senior Director of Research at JLL in Hong Kong, said: "Looking ahead, key macroeconomic headwinds that have pressured Hong Kong's residential market show signs of moderation, with geopolitical uncertainties - particularly the potential escalation of the US-China trade war - remaining a primary concern. Whilst current market conditions still suggest a complex path to recovery, improving fundamentals indicate potential for market stabilisation."