Reasonable' Move
The new instructions may lead average home prices to fall as much as 10 percent in the major Chinese cities, while values of mid- and high-end properties may drop 20 percent, Deutsche Bank's Ma said. Monthly transaction volumes could decline by more than 50 percent in the coming months, he added.

The latest measures are "reasonable" in helping to curb speculation in parts of the housing market, said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which oversees $90 billion. "Relying solely on monetary policy to cool the housing market could cause wider collateral damage to the broader economy which isn't necessary."

Haikou and Sanya, cities on the southern island of Hainan, led the 70 cities that posted the biggest jumps in property prices in March. Overall real estate prices in Haikou, Hainan's capital city, jumped 53.9 percent, while Sanya, which has hosted the Miss World beauty pageant, followed with a 52.1 percent increase, the National Bureau of Statistics said April 14.

Avoid Property
Shenzhen, a southern Chinese city that is also a manufacturing hub, came third with a 20.1 percent gain in prices.

Following the data, China raised mortgage rates and down payment ratios for second home purchases on April 15. Buyers purchasing their second homes must pay at least a 50 percent deposit, up from 40 percent, and interest rates should be at least 1.1 times benchmark rates, the State Council, the nation's cabinet, said in a statement.

Investors should "avoid the property, banking, steel and construction material industries," Morgan Stanley Asia Ltd.'s analysts Jerry Lou and Allen Gui wrote in a research note dated today. "The harsh tone in Saturday's statement suggests that containing property price is now the top item on Beijing's agenda."

The government may introduce more measures to cool the property market, including taxes. China may soon start trials of a tax on property transactions, the China Times reported, citing an unidentified person close to the Ministry of Finance.

Eoin Treacy's view With inflationary pressures rising, Chinese authorities continue to take aim at surging property prices and the one certainty to policy appears to be that they will continue to tighten until they get the result they desire. Saturday's announcement was the clearest signal yet of the government's intention to introduce a transaction tax on property sales. If the current measures are not seen to be effective there is a stronger likelihood that a capital gains tax on property and/or currency revaluation will be among additional options considered.

The launch on Friday of the long awaited futures contract on the CSI300 may also have had a contributing effect to the size of today's downdraft. While open interest on the new future is only 3500 contracts, the availability of new a hedging tool may have put at least temporary pressure on long positions.

The China Citic 300 (CSI300) pulled back in a dynamic fashion, and a countermanding advance is now needed to question scope for a further test of underlying trading. The China Citic 300 Financial Index which makes up 36.8% of the CSI300 fell to test to the early February reaction low and needs to rally sharply from here to countermand potential for additional downside.

The Hang Seng continues to encounter resistance in the region of the January and November highs and pulled back sharply today. However, a sustained move below the psychological 20,000 would be required to question the consistency of the overall uptrend.

The Taiwanese market encountered resistance in the region of 8000 following a persistent rally from the early February lows. A sustained back below 7250 would be required to question the medium-term uptrend. The Taiwanese Banks/Insurance sector has been underperforming the wider market and fell back below the MA today. It needs to find support above or in the region of the February lows to offset potential for additional lower to lateral ranging.