Flexibly Adjusting Land Supply to Maintain Private Housing Supply-Demand Balance
Flexibly Adjusting Land Supply to Maintain Private Housing Supply-Demand Balance
The source text is in Chinese. This English version is for reference only. In case of any discrepancy between this English version and the Chinese version, the Chinese version shall prevail.
Residential property prices in 2025 reversed their decline and began to recover, drawing market attention once again to price trends. However, behind this price rebound, a more revealing shift in underlying market dynamics is taking place: the "months of supply inventory," which reflects supply-demand pressure, has shrunk dramatically from 102 months to 49 months over the past two years — a reduction of more than half. This indicator calculates the number of months required to absorb all completed and under-construction but unsold units at the current average monthly transaction volume of first-hand private residential sales. The higher the figure, the greater the oversupply pressure; the lower the figure, the stronger the market's absorption capacity, suggesting that supply may be tightening.
The sharp reduction in this figure is not attributable to a single factor. On the supply side, private residential completions are expected to enter a cyclical low in the near term. On the demand side, the continued influx of talent and homebuying demand generated by the interest rate cutting cycle are poised to further boost transactions. With supply and demand pulling in opposite directions, tension is quietly building. In the face of this potential tightening of supply and demand, passively waiting for the market to self-correct is unlikely to be a sound strategy. What we need is a land supply strategy capable of dynamically adjusting in response to market conditions — one that enhances both monitoring sensitivity and execution flexibility on top of existing mechanisms.
Unlike traditional property price indices that merely record the value of completed transactions, "months of supply inventory" considers both potential supply and actual absorption speed, offering significant forward-looking early-warning capability. When the figure remains persistently high, developers accumulate pressure to clear stock even if prices have not yet responded; conversely, when the figure falls to a low level, it signals that near-term supply may tighten, driving concurrent upward price pressure. Tracking this indicator in tandem with price trends helps the government gain a more comprehensive grasp of market conditions, providing an objective basis for dynamic policy adjustments.
Once the data is in hand, execution mechanisms also require reform. We propose adopting a more "market-responsive" land sale model: dynamically adjusting the pace, scale, and flexibility of land disposal in response to market absorption capacity and bidding sentiment.
Under this government-led model, the relevant authorities can proactively adjust the pace of land releases based on market absorption capacity and bidding sentiment. In the fourth quarter of 2025/26, the government successfully tendered two sites — Choi Ha Road in Ngau Tau Kok and Main Street East in Shau Kei Wan — marking the first time since the second quarter of 2023/24 that two residential sites were put to tender within a single quarter. This clearly demonstrates that when developers' appetite for land bidding recovers, the government should be able to release land more precisely in step with market momentum.
Reforming the Current Land Sale Model
Regarding land parcel size, over the past two financial years the government has mostly released small-to-medium sites capable of yielding several hundred units. While this was prudent and measured during a period of market adjustment, when buyer confidence stabilises and bidding sentiment turns buoyant, the authorities should release larger-scale sites in a timely manner to meet developers' needs for economies of scale and planning flexibility. The recent MTR Kam Sheung Road Station Phase 2 project, comprising 1,290 units, successfully attracted eight tenders, demonstrating that market absorption capacity for larger sites far exceeds expectations. The government can draw on this precedent and, when conditions permit, inject appropriately larger parcels into the supply pipeline.
To further enhance responsiveness to the market, the government can also flexibly release sites not originally included in the land sale programme. The Mei Tin Road site in Tai Wai and the Area 106B site in Tung Chung, released in the third and fourth quarters of the 2024/25 financial year respectively, were both absent from the original land sale programme, successfully establishing a precedent. This mechanism allows the authorities to flexibly increase supply when strong demand emerges for a particular type of land or location, unconstrained by the annual land sale framework.
While flexibility in land release strategy is important, maintaining market bidding appetite is equally crucial. The government can endeavour to maintain simplified land sale conditions — for example, removing onerous public facility construction requirements — thereby reducing development risk and capital expenditure. In the past, certain sites carried complex community facility or road realignment requirements that significantly increased cost and completion time uncertainty, undermining developers' willingness to participate. By lowering the barriers to "entry" and execution, the tendering process can be made more stable and competitive, attracting a greater variety of developers. A more diverse and active bidding market is itself the best guarantee of effective land pricing and absorption.
"Months of supply inventory" provides a forward-looking early-warning mechanism; flexible land release arrangements confer adaptive execution capability; and simplified land sale conditions sustain market participation appetite. These three elements complement one another, forming a framework for flexibly adjusting land supply. This is not about seeking to precisely predict shifts in market trends, but rather about establishing an adjustment mechanism capable of continuous recalibration in response to change. How to strike a balance among land supply, market demand, and price stability is ultimately a test of institutional resilience and responsiveness. We recommend that the relevant authorities consider adopting this framework to establish a more robust and forward-looking foundation for land supply in Hong Kong's residential market.
The source text is in Chinese. This English version is for reference only. In case of any discrepancy between this English version and the Chinese version, the Chinese version shall prevail.
Residential property prices in 2025 reversed their decline and began to recover, drawing market attention once again to price trends. However, behind this price rebound, a more revealing shift in underlying market dynamics is taking place: the "months of supply inventory," which reflects supply-demand pressure, has shrunk dramatically from 102 months to 49 months over the past two years — a reduction of more than half. This indicator calculates the number of months required to absorb all completed and under-construction but unsold units at the current average monthly transaction volume of first-hand private residential sales. The higher the figure, the greater the oversupply pressure; the lower the figure, the stronger the market's absorption capacity, suggesting that supply may be tightening.
The sharp reduction in this figure is not attributable to a single factor. On the supply side, private residential completions are expected to enter a cyclical low in the near term. On the demand side, the continued influx of talent and homebuying demand generated by the interest rate cutting cycle are poised to further boost transactions. With supply and demand pulling in opposite directions, tension is quietly building. In the face of this potential tightening of supply and demand, passively waiting for the market to self-correct is unlikely to be a sound strategy. What we need is a land supply strategy capable of dynamically adjusting in response to market conditions — one that enhances both monitoring sensitivity and execution flexibility on top of existing mechanisms.
Unlike traditional property price indices that merely record the value of completed transactions, "months of supply inventory" considers both potential supply and actual absorption speed, offering significant forward-looking early-warning capability. When the figure remains persistently high, developers accumulate pressure to clear stock even if prices have not yet responded; conversely, when the figure falls to a low level, it signals that near-term supply may tighten, driving concurrent upward price pressure. Tracking this indicator in tandem with price trends helps the government gain a more comprehensive grasp of market conditions, providing an objective basis for dynamic policy adjustments.
Once the data is in hand, execution mechanisms also require reform. We propose adopting a more "market-responsive" land sale model: dynamically adjusting the pace, scale, and flexibility of land disposal in response to market absorption capacity and bidding sentiment.
Under this government-led model, the relevant authorities can proactively adjust the pace of land releases based on market absorption capacity and bidding sentiment. In the fourth quarter of 2025/26, the government successfully tendered two sites — Choi Ha Road in Ngau Tau Kok and Main Street East in Shau Kei Wan — marking the first time since the second quarter of 2023/24 that two residential sites were put to tender within a single quarter. This clearly demonstrates that when developers' appetite for land bidding recovers, the government should be able to release land more precisely in step with market momentum.
Reforming the Current Land Sale Model
Regarding land parcel size, over the past two financial years the government has mostly released small-to-medium sites capable of yielding several hundred units. While this was prudent and measured during a period of market adjustment, when buyer confidence stabilises and bidding sentiment turns buoyant, the authorities should release larger-scale sites in a timely manner to meet developers' needs for economies of scale and planning flexibility. The recent MTR Kam Sheung Road Station Phase 2 project, comprising 1,290 units, successfully attracted eight tenders, demonstrating that market absorption capacity for larger sites far exceeds expectations. The government can draw on this precedent and, when conditions permit, inject appropriately larger parcels into the supply pipeline.
To further enhance responsiveness to the market, the government can also flexibly release sites not originally included in the land sale programme. The Mei Tin Road site in Tai Wai and the Area 106B site in Tung Chung, released in the third and fourth quarters of the 2024/25 financial year respectively, were both absent from the original land sale programme, successfully establishing a precedent. This mechanism allows the authorities to flexibly increase supply when strong demand emerges for a particular type of land or location, unconstrained by the annual land sale framework.
While flexibility in land release strategy is important, maintaining market bidding appetite is equally crucial. The government can endeavour to maintain simplified land sale conditions — for example, removing onerous public facility construction requirements — thereby reducing development risk and capital expenditure. In the past, certain sites carried complex community facility or road realignment requirements that significantly increased cost and completion time uncertainty, undermining developers' willingness to participate. By lowering the barriers to "entry" and execution, the tendering process can be made more stable and competitive, attracting a greater variety of developers. A more diverse and active bidding market is itself the best guarantee of effective land pricing and absorption.
"Months of supply inventory" provides a forward-looking early-warning mechanism; flexible land release arrangements confer adaptive execution capability; and simplified land sale conditions sustain market participation appetite. These three elements complement one another, forming a framework for flexibly adjusting land supply. This is not about seeking to precisely predict shifts in market trends, but rather about establishing an adjustment mechanism capable of continuous recalibration in response to change. How to strike a balance among land supply, market demand, and price stability is ultimately a test of institutional resilience and responsiveness. We recommend that the relevant authorities consider adopting this framework to establish a more robust and forward-looking foundation for land supply in Hong Kong's residential market.
