Between October 2007 and late last year, many mainland developers lost between 80 and 90 per cent of their market value after Beijing tightened property regulations and cut off the supply of credit to the sector, bringing the mainland's real estate boom to an abrupt halt.

Worried that highly leveraged developers would soon begin sliding into default, equity investors sprinted for the exits, sending property stocks into free fall.

So when Beijing opened the credit taps again at the end of last year, throwing a lifeline to the sector, many developers were trading at a discount of 50 per cent or more to their net asset value.

As a result, when glimmers of light began to reappear in the underlying market recently, investors started to pile back in to developers' shares, attracted by the prospect of cheap assets and driven by hopes of an early recovery.

Unfortunately, those glimmers remain extremely faint, and investors' hopes could easily get extinguished.

The main cause of the latest bout of optimism is a pick-up in transaction volumes in the residential property market. As the first of the three charts below illustrates, sales in the mainland's major cities typically rose 30 per cent or more in the first two months of this year compared with the same period last year. In some cities, the increase was far greater.

Unfortunately, as the second chart shows, that rise in sales was achieved largely by cutting prices. According to property agency DTZ, residential prices in major cities are down by an average of around 14 per cent over the past year, and by even more in second-tier markets.

Anecdotal evidence suggests the true depth of the price cuts may be far greater, with stories circulating of apartments in Beijing offered for sale at just half their original asking price.

Even worse, the prospects for a sustainable recovery seem remote. As the third chart below shows, after the construction boom of the last few years, developers are sitting on a stock of unsold homes that will take a year or more to shift, even allowing for the recent pick-up in sales volumes.

And prices are likely to remain under pressure. Contrary to many investors' expectations, the government's latest round of economic stimulus measures included no initiatives aimed specifically at reviving the property market.

If anything, Beijing's stimulus programme is likely to erode private developers' margins even further. With the government planning to build nearly 10 million low-cost housing units as part of its efforts to boost economic activity, the new supply is bound to weigh on prices from below.

The outlook is scarcely any brighter in the commercial property market. China's pre-Olympic construction bubble has left both office and retail markets facing vast oversupply. According to Zhang Xin, chief executive of developer Soho China, 30 per cent of the office space in Beijing's central business district is now sitting empty.

And with foreign investors hurt by the credit crisis forced to get out of the market at fire-sale prices, some offices are for sale at prices no higher than the land they are built on.

None of these problems is going to be solved any time soon.

So although credit conditions for cash-strapped developers have eased, sales volumes have picked up and share prices have bounced, real recovery in the mainland property market remains a distant prospect.