The Chinese government's new rules to curb soaring housing prices are shaking the real estate market. The country's first-tier cities are feeling the pinch, with shrinking sales and dropping prices.

The central government's new round of rules to rein in the real estate market drastically dampened optimism that persisted in the past month.

The past week saw property sales in the Chinese capital shrink.

Zhu Jing, Branch Manager, Centaline China, said, "After the announcement of the new rules, our transaction volume dropped sharply, especially those of pre-owned homes. The prices went down as much as 5-thousand yuan per square meter. And the number of people breaking contracts also increased."

Figures show sales of pre-construction homes in Beijing slid 30 percent last week from the same period in March... and completed housing fell 10 percent.

There are now many concerns about the market.

Zhu said, "Transactions may rise slightly during the upcoming May Day holiday. But the overall market will not bounce back in the short term. And housing prices are likely to bottom out around October. "

The pessimism forced many developers to offer discounts and preferential prices to attract buyers.

Deng Wei reports, Real estate experts are divided on whether or not the government's new property policies are starting to have an effect on the market. Some say the policies are already working given the dropping prices. Other experts say it's still too early to predict the long term trend. But, they all agree on one thing -the future of a healthy property market relies on tax reforms.