Analysts blame weak demand in the mass market on buyer concerns over poor land auction results last month and a confidence-sapping retreat in share prices, captured by a fall of 1,046 points or 5 per cent in the Hang Seng Index over the month.

However, wealthy buyers were evidently undeterred by the events.

'They are cash-rich. If a property has scarcity value they are willing to offer a higher price,' Margaret Ng, senior director of Greater China research for CB Richard Ellis, said.

For instance, property tycoon Lee Shau-kee paid HK$1.82 billion or HK$68,229 per square foot for a site at 35 Barker Road on The Peak last month, she said.

Rating and Valuation Department figures show that only 7 per cent of the total private housing stock has a saleable area of 100 square metres or above.

'You can see from such data that the supply of large-sized units is tight. But the demand for luxury units is strong and the city remains full of rich buyers,' Ng said.

Kenneth Chiu, a sales director at Ricacorp Properties, agreed with this view.

'The supply of luxury residential houses remains tight, particularly in Island South and The Peak. This is helping flat owners to achieve higher prices,' he said. 'None of the flat owners are willing to cut their asking prices. Prices in a number of luxury housing estates are still rising.'

Chiu cites a deal done at Ming Wai Gardens in Repulse Bay, where a 1,900 sq ft flat on the 16th floor was sold for HK$40.08 million, or HK$21,095 per sq ft, this month. The price was 2.5 per cent higher than that of a flat on the 18th floor of the 37-year-old estate sold three months ago.

However, the Centaline data appear to have been skewed to some degree by some unusually big-ticket deals in the luxury market. In the biggest deal of last month, a house at Mount Kellet Road was sold for HK$175 million.

In the wider market for big apartments (flats with floor areas larger than 1,300 sq ft located in traditional luxury residential districts such as The Peak and Mid-Levels), luxury home prices declined 2 to 3 per cent in May, after rising a mere 0.6 per cent in April, consultancy Knight Frank said.

Simon Lo Wing-fai, a director of research and advisory at consultancy Colliers International Hong Kong, estimated that luxury residential prices rose by only 1.3 per cent in April and were likely flat or slightly higher last month - while prices in the mass residential market dropped some 3 per cent on average.

That fall in mass residential prices drew buyers back and a total of 342 deals were done over the week to June 6 in the 50 major housing estates monitored by Ricacorp Properties. That was up 12 per cent on the previous week and 35 per cent higher than the 285 deals recorded three weeks ago.

The average price at which the transactions were done was up 0.9 per cent on the previous week.

'Many buyers who had been waiting to enter the market did so after prices dropped slightly. They worried they would lose a chance to buy at lower prices if they waited,' Ricacorp director David Chan said.

But Chan does not believe the strong rebound in last week's sales will be sustained.

'Flat owners have already responded to the latest increase in demand by raising the asking prices at which they are prepared to sell. But potential buyers will hesitate to pay a higher price as long as the market outlook remains uncertain,' he said.

While sentiment in the mass market turned weak in May, opinions were divided on the outlook for the luxury sector.

'Multinational financial institutions are expanding in Hong Kong. They are hiring more foreign expatriates and this has increased leasing demand in the luxury residential sector,' Lo said.

'With an increase in inflation in the second half of the year, more tenants would buy flats rather than continue renting.'

Lo expects luxury residential prices to rise a further 5 per cent by the end of the year.

Ng said the luxury leasing market had been active since early this year due to the expansion of foreign financial institutions and hedge funds. 'This will benefit the sales market in the sector. Property prices will rise further by up to 7 per cent by the year's end,' she said.

But Knight Frank said it expected luxury residential prices to retreat from present levels and fall by about 5 per cent over the remainder of the year.