Why overall supply continues to rise in Hong Kong primary housing

End-September's data is the highest so far.

As of end-September 2014, the Hong Kong Government has estimated that private housing supply numbers at 74,000 unit, up by 1,000 units compared to the 73,000 units back in June 2014.

According to a research note from Barclays, furthermore, through the first three quarters of 2014, the overall private housing supply figure crept up by 1,000 units in each quarter.

At 74,000 units, this also puts the overall private housing supply at the highest level since the Hong Kong Government began releasing its quarterly “Statistics on Private Housing supply in Primary Market” back in September 2004.

The report said that what is also notable for the 74,000 private housing supply figure at the end of September 2014 is that 3Q was a very strong quarter for the developers with some 5,219 units being sold (up 59% q/q).

The fact that overall housing supply went up by another 1,000 units implies that total land released during the period was 6,219 units.

One way to interpret this, the report said, is that as quickly as developers are clearing their stock, the Government is just as quick in releasing land.

Here's more from Barclays:

Alternatively, it also suggests that as long as the Government continues to fill the land release pipeline, developers will continue to try to shift volumes.

That said, one positive take away from the 3Q 2014 data is that the effective months of inventory has come down.

Against the current quarter’s 5,219 units sold, the 74,000 units of primary supply implies 43 months of stock being held by the developers.

While this has helped bring down developers’ effective months of inventory below the just-in-time level of 4.2 years (time to take a project from start to completion), as total supply (i.e. the numerator) remains elevated at 74,000 units, developers would have to try to maintain an elevated take-up rate (i.e. the denominator) in order to keep inventory around just-in-time levels.