Hong KongÆs residential real estate market is showing chinks in its armour, according to property consulting firm Vigers. July sales volume and prices extended their decline from June after a slight rebound in May.

According to Hong KongÆs Land Registry, 8,930 sales and purchase agreements were filed in July, down 24.8% from the month of June and down 19.7% on a year-on-year basis. Sales volume was valued at HK$32.7 billion ($4.2 billion), representing declines of 43.1% month-on-month and a 14% year-on-year.

July figures are less than half that of November during which 18,105 sales contracts were signed, Vigers notes. Also in November, total sales volume was worth HK$32.7 billion ($4.2 billion), already down 4.3% from the previous month and down 14% from the previous year.

Of the total sales and purchase agreements filed in July, 7,433 were deals done for residential properties, amounting to HK$25.1 billion ($3.2 billion) in transaction volume, down 27.7% from June and 19.1% on a year-over-year basis.

ôA combination of inflation, weakening stock market, expected higher mortgage rates and the worldwide credit crisis has hit the local market hard,ö Vigers says in its latest Hong Kong property market report.

Entering the second quarter, the real estate market began to soften after five years of steady growth. As early as March and April this year, the market showed sign of a sales slowdown with home prices having declined by 5% to 8% off their 2007 peak.

Vigers expects home prices to bottom in the summer of 2009, by which time they will be 20% off the peak, with no appreciable gain in prices for another year.

ôIt is reasonable that after a 25% surge in prices between the second half of last and first half of this year, the marketplace corrects itself naturally and is heading towards a buyerÆs market,ö Vigers says.