Chinese shares were down 3.05 percent in early afternoon trade Monday as property stocks were hit by government measures announced last week to control housing prices, dealers said.
The benchmark Shanghai Composite Index slid 71.92 points to 2,287.59.
Home sellers will have to pay a capital gains tax of 20 percent on their profits, the State Council, or cabinet, said in a statement late Friday. China previously taxed homeowners one to two percent of the sale price.
The government also ordered the central bank to raise downpayments and mortgage lending rates for buyers of second homes in some cities, and told local governments to stop non-residents from buying more than one home.
"The new measures are dealing a big blow to property stocks. The implementation of imposing a 20 percent capital tax on property transactions will definitely affect housing demand," Capital Securities analyst Amy Lin told Dow Jones Newswires.
"Property is a heavy-index sector to the stock market, and it has close relations with a wide range of industries, such as cement, steel and banks. So, a major correction in China shares will likely be inevitable in the short term," Lin added.
The Shanghai stock market's property sub-index was down nearly eight percent in early afternoon. Poly Real Estate plunged almost 10 percent to 11.37 yuan ($1.83), while developer Gemdale also dropped nearly 10 percent to 6.42 yuan.