SHANGHAI—Property developers in two cities in eastern China have started to cut prices of new homes in a bid to spur sales, raising fresh concerns about the health of the market and sending property stocks sliding Monday.

Real estate companies said that prices at two big apartment projects in Hangzhou and Changzhou have been cut recently, and analysts said this could be a signal of broader market weakness ahead.

This has already begun to push down prices at similar developments in neighboring projects, according to local media.

Developer DoThink Group last week said it cut prices by 12.2% at its North Sea Park project in Hangzhou from to 15,800 yuan ($2,592) per square meter from 18,000 yuan per square meter. The Hangzhou-based property developer said as part of its goal to purchase more land and clear inventory, it started discounting apartments at its 12-tower high-rise project on Wednesday, which had been on sale in phases since April 2012.

Hangzhou is a large, second-tier city about an hour away from Shanghai that attracts many wealthy home buyers from Zhejiang province. Analysts said the price cuts are an indication that there are oversupply problems which could spread to larger cities.

"We believe the risk in the property sector is currently underappreciated, and the price cuts in Changzhou and Hangzhou are worrying signals worth investor attention," said Nomura economist Zhiwei Zhang in a note to clients.

"A sharp slowdown in property investment is possible and would increase systemic risks," said Mr. Zhang. "We are more concerned with the property sector, because its contribution to GDP growth has been critically important over the past five years and the government may not have the proper policy tools to manage a situation where oversupply eventually causes property prices to fall, particularly in third- and fourth-tier cities."

Prospective home buyers in Changzhou, a city in coastal Jiangsu Province that lies between Shanghai and Nanjing, also said they saw discounts at a luxury property project.

Agile Property Holdings and Star River Group, which are jointly developing a 21-tower property project, also announced discounts last week. Prices were reduced to an average of 7,000 yuan per square meter, with some units selling for 5,380 yuan per square meter, down from a 11,000 yuan price tag in December last year, according to data from property broker SouFun Holdings.

Guangzhou-based Agile Property has yet to respond to queries by The Wall Street Journal.

Shares of property developers were sharply lower Monday. At midday, shares of China Vanke, the nation's largest property developer by revenue, fell 6.2% to 6.72 yuan, and Poly Real Estate Group skidded 8.2% to 6.79 yuan. The Shanghai Composite Index was down 2.0%.

Concerns that banks are reining in lending to the property sector have also fueled the decline.

Industrial Bank Co. , a midsize bank in China, has stopped issuing new loans to property developers due to rising risks in the sector, according to the Oriental Morning Post, citing an internal document issued by the bank.

The newspaper also said the bank would strictly control loans to the property sector though it also quoted a bank official as saying the measures were temporary. The bank declined to comment to The Wall Street Journal.

— Grace Zhu contributed to this story

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