Falling prices need soft landing

Any doubts I had about a bubble in China's property market were dispelled during a recent visit to a third-tier city. The hundreds of half completed and completed but empty apartment blocks were matched by the number of desperate sellers who approached my colleagues and me.

The property bubble has to be deflated, and the government has recognized the importance of doing so. It has applied the brakes on the property market by raising the percentage of down payment needed and banning outright bank loans to people buying a third house.

The difficulty, however, is that such government actions risk either stalling the property market altogether, which could have serious consequences for the whole economy, or letting the market run away again by loosening the controls too early. What it needs to do is to find a way of decelerating the market through a change of gears. But the question is: Does it have the right levers to slow the market down?