Few sectors of the stock market have rebounded quite as vigorously over the past few months as mainland property developers. As the first of the two charts below shows, the rally has been nothing short of spectacular. Since the beginning of March, shares in a clutch of Hong Kong-listed developers, including Hopson Development Holdings and Shimao, have climbed by more than 300 per cent. Over the same interval, Greentown China has shot up by an astonishing 450 per cent. The recovery is all the more remarkable when you consider that as recently as last December the mainland property sector was holed below the waterline, and many developers were in immediate danger of sinking for good. As home prices rose rapidly through 2006 and 2007, lots of developers leveraged up to fund land purchases at inflated rates and to help finance new construction projects. When the mainland authorities clamped down on bank lending and property speculation at the end of 2007 to prevent overheating, the developers suddenly began to look dangerously exposed. As sales volumes collapsed and prices subsided, they were left sitting on months' - and in some cases years' - worth of unsold apartments. With cash flows evaporating, heavy debts to service and little prospect of refinancing thanks to the credit crunch, by late last year several companies in the sector were widely expected to default and slide into bankruptcy. And then in the nick of time, the sector was rescued. Badly spooked by the collapse in the mainland's export volumes, Beijing ordered the country's banks in December to ramp up lending in order to bump-start stalled output growth. Since then, mainland banks have extended more than seven trillion yuan (HK$7.94 trillion) in new loans, equal to about 24 per cent of the country's gross domestic product last year. With the credit spigot open, developers were able to get financing once more. Even better, buyers were able to get mortgages again. Property transaction volumes began to pick up, reducing unsold inventories, and as the second chart below shows, home prices began to recover following last year's steep decline. Share prices also rebounded. With many developers trading on price to earnings multiples below 10 at the bottom of the market, bargain-hunting investors swooped in to snap up developer's stocks, driving prices - and valuations - up steeply. Today, several developers are trading on price to earnings ratios of 20 times or more, well in advance of the broader market, and still brokers are recommending their shares, based on their belief in the strength of the mainland property market. In the last couple of weeks, however, that strength has begun to look a little questionable. With about 20 per cent of the new loans made by mainland banks believed to have been channelled straight into the asset markets, there are signs that a new credit-fuelled speculative property bubble may be inflating. According to one report, residential prices in prime areas of Beijing shot up 6.5 per cent last week, while others describe frenzied bidding at land auctions reminiscent of 2007. Certainly the mainland authorities are getting concerned. In the last few weeks, central bank officials have repeatedly called on state banks to tighten their credit standards to avoid a rise in bad loans. But whether Beijing is prepared to pull the plug on the property boom any time soon is doubtful. With a robust recovery in international demand still a distant prospect, officials are anxious not to do anything just yet that might undermine growth or damage fragile domestic demand. But investors tempted to pile into the stocks of Hong Kong-listed developers should be aware that the recovery in the mainland property market is being propelled largely by massive injections of cheap liquidity, and that at some point in the future, that liquidity will be drained away again.