* Tokyo area new apartment supply forecast cut by 25 pct

* Tokyo apartment supply seen falling to 17-yr low

* New apartment supply down 26 pct in Jan-June vs year-ago

New apartments put up for sale in Tokyo this year are likely be a quarter less than previously forecast and hit a 17-year low as developers struggle to make sales, a research firm said on Tuesday.

Japan's property market, the world's second biggest, has been hit hard with a number of developers going bust as banks rein in lending and as consumers are reluctant to buy apartments amid the nation's deepest recession since World War Two.

The era of huge apartment supply is completely over. A string of bankruptcies following a spike in housing prices and the credit crunch has totally destroyed the market, said Akio Fukuda, chief researcher at the Real Estate Economic Institute.

I didn't expect medium-size developers would shrink supply this low... they're not strong enough to launch new sales now, Fukuda told reporters.

The real estate research firm now expects the number of new apartments to be offered in the Tokyo metropolitan area to total 35,000 this year, down an earlier estimate of 47,000 and 20 percent less than 2008.

That level would be the lowest since 1992 when the bursting of Japan's asset-inflated bubble economy triggered a steep fall in land prices.

In the first half of the year, new apartment supply fell 26 percent from a year earlier to 15,898 units with the average apartment price dropping 7.1 percent to 44.8 million yen ($481,600), the research firm said.

The average contract ratio in the Tokyo area stood at 68.6 percent during that period, up from 63.9 percent.

The ratio, the number of units sold as a percentage of units put on the market, is used to judge the market's health and a ratio below 70 suggests a weak market where consumers are reluctant to buy. (Reporting by Mariko Katsumura; Editing by Edwina Gibbs)