Chinese stocks plunged on Monday after Beijing introduced new policies to control the property market.
The Shanghai Composite dropped 2.9%, with property developers leading the fall, after the central government late last week introduced measures such as higher down payments and mortgage rates in cities where house prices have risen too quickly, as well as stricter enforcement of a 20% capital gains tax on property transactions.
The Property Index was down 9.1% in Shanghai, while its counterpart in Shenzhen dropped 8.7%. Big developers dropped to their daily limit: China's largest property developer China Vanke fell 10.0% in Shenzhen, while Poly Real Estate Group also lost 10.0% in Shanghai.
"The measures are a big blow to property stocks. The implementation of imposing a 20% capital tax on property transactions will definitely affect housing demand," said Amy Lin, analyst at Capital Securities.
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Mainland developers were also down in Hong Kong, where the Hang Seng Index dropped 1.3%. China Resources Land fell 7.7% and China Overseas Land & Investment retreated 5.2%.
Also in Hong Kong, China Merchants Bank declined 2.3% despite the lender announcing that its fiscal year 2012 net profit rose 25.3% on-year, beating analysts' expectations.
The impact was even felt in Australia, where the S&P ASX 200 was down 1.4%, as local resources companies extended their declines as weakness in the Shanghai market became apparent. China is Australia's largest trading partner and a slowdown in the resource hungry property market could affect demand for commodities.
Rio Tinto dropped 3.2% and Fortescue Metals Group lost 3%.
More broadly across the region, investors were digesting mixed economic developments from the U.S. on Friday. The manufacturing sector grew at its fastest pace since June 2011 in February, according to the Institute of Supply Management's manufacturing purchasing managers' index, while U.S. consumer confidence was at its highest level since November, according to Thomson-Reuters and University of Michigan's consumer-sentiment index.
This was offset however, by concerns over the sequester, $85 billion in automatic budget cuts that started Friday in the U.S. after lawmakers in Washington failed to reach a deal to avert the situation.
The U.S. dollar dropped against the yen Monday at �93.36, eating into Friday's 1.1% gain, after Bank of Japan governor nominee Haruhiko Kuroda delivered no surprises while speaking to parliament, saying that his most important task will be to end deflation as soon as possible.
The comments come ahead of the Bank of Japan's next policy meeting, scheduled to start on Wednesday and conclude on Thursday.
Current Bank of Japan governor Masaaki Shirakawa "is unlikely to do anything, so the focus will be on the Kuroda rhetoric. There are expectations of further action when Kuroda takes over in April," said Wee-Khoon Chong, Asia rates strategist at Soci�t� G�n�rale in Hong Kong.
Japanese stocks started the session with a strong gain, though this moderated as the yen pushed higher against the greenback. The Nikkei Stock Average was last up 0.4% at 11,650.62, after marking a fresh 2013 high above 11,700 in early trading.
Exporters and property developers gained in Tokyo: Toyota Motor Corp added 0.6% and Mitsubishi Estate rose 4.2%.
South Korea's Kospi Composite was down 0.4% after a holiday-extended weekend.
Write to Daniel Inman at daniel.inman@wsj.com
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