Chinese real estate shares plunged and the stock market suffered its worst daily fall in 28 months yesterday after the government unveiled tough policies to damp a rebound in housing prices.

The State Council, China’s cabinet, on Friday detailed a series of “control measures” to rein in the real estate sector. Housing prices, which the Chinese government succeeded in stabilising last year, had started to surge in major cities in recent months.

In the latest announcement, the government called for strict application of a 20 per cent capital gains tax on home sales, a rule that has been in place since 2005 but only patchily enforced. It also said that cities where prices had been rising too quickly should adopt targeted measures, including higher mandatory mortgage downpayments and restrictions on the purchases of second homes.