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The Government-imposed cap on sales of subsidised housing will do little to help the property market this year in the face of abundant private supply, according to analysts.

Acting Director of Housing Marco Wu Moon-hoi said last week the supply of new flats under the Home Ownership Scheme (HOS) would not exceed 6,000 a year over the next five years.

The figure was lower than expected because Chief Secretary for Administration Donald Tsang Yam-kuen in September had announced a cap of 9,000 a year until 2005-06.

DBS Vickers Securities said there would be little impact from this reduction in supply. In a report, the securities house said the housing scheme had been a convenient 'scapegoat' for sluggish residential prices.

However, the fact that residential prices had continued to fall despite the moratorium on HOS sales showed there was little correlation between the HOS supply and private residential prices, it said.

HSBC Securities analyst Derek Cheung said the change in housing policy only created more confusion.

He said this kind of policy change should not be made in an interview with only one television station because people would not know about the change if they did not watch that particular television programme.

This indicated that the Government still did not know the proper way to convey important messages to the general public, which would only continue to create confusion in its housing policy, said Mr Cheung.

He said private supply alone was more than enough to fulfil market demand this year. Any additional supply of government flats for sale would worsen the oversupply problem.

He said the benefits of reducing supply would not be seen this year.

JPMorgan said private residential supply would remain plentiful this year, with an estimated 53,000 new units available. The relaunch of HOS flats should keep property prices under pressure, it said.

JPMorgan thought unlikely property prices would recover 10 per cent to 15 per cent this year as low gross domestic product growth and high unemployment were expected to persist.

It said a further fall in real mortgages would be limited while deflation should persist as economic integration between Hong Kong and the Pearl River Delta gathered pace.

Unlike in the late 1980s, land supply was no longer bound by the 50-hectare restriction under the Sino-British Joint Declaration. Land supply would be abundant this year from the Government's reserve list, MTR Corp's Tseung Kwan O projects and Kowloon-Canton Railway Corp's West Rail projects.

JPMorgan believed the four-year downward cycle in property was nearly over but a sharp rebound was unlikely.

Dao Heng Securities analyst Eric Yuen said private residential supply in the short term remained excessive and would cap any upside potential in the first half.

He expected absorption of primary flats to increase 20 per cent to 25,000 this year, bolstered by the strong purchasing power of end-users. If Hong Kong's unemployment rates declined in the second half and the economy gradually recovered, trade-up demand would rise.



Cap on sales fails to create optimism