Moreover, if prices start falling significantly there is also a case for banks to extend the mortgage repayment periods of people with good repayment records without imposing administrative or other financial penalties. The government must avoid a situation in which struggling homeowners "dump" more houses on the market and where potential buyers delay entering the market in the hope that prices will fall further.

A third option would be to look at partial equity schemes. This has been an option for lower-income as well as middle-income families buying houses in high-priced areas of the United Kingdom. Such people purchase a part share in the property and for the remainder pay rent. Usually, they do it in partnership with housing associations, which are nonprofit social housing developers.

In China, this could be done in partnership with private developers who, from their perspective, may be willing to do so to generate cash flow without too large a drop in prices.

The essence of this scheme is that the partial equity buyer would have the option of purchasing the remainder from the developer at the original price for a period up to say seven years. If the buyer cannot do so, he/she would have the option of selling it back to developer at the original price. This would protect the buyer from the price risk of a falling market. The rent on the remaining part of the property would be low, with the developer being allowed to offset the debt interest on his/her retained holding against tax.

Another element supporting demand at the high end of the market, would be to relax controls and encourage purchases by foreign companies seeking property for their expatriate staff. Such a scheme could prompt thousands of overseas Chinese to invest in the country's property market. This would not reduce but increase tax revenues.

The above measures, applied together could help stabilize the market without triggering another round of price inflation. They cannot be considered in isolation from supply measures. Lending to developers needs to be tightened further, and should first be directed toward projects that await completion and new development projects undertaken by companies which have sold nearly all their existing units.

But for these measures and the property tax to work an orderly property market is a must - and that means taking care of demand.

The author is an international consultant with the EU-China Social Security Reform Cooperation Project.