Central banks in various Southeast Asian countries have been praised for recent efforts to cool their property and banking sectors to avoid a Thai-style crisis, but concern is mounting that any cooling could have serious repercussions on growth of the region's economies. 'The risk is that significant dis-inflationary forces will be released on Asean economies resulting in much lower nominal income growth, even as the export cycle turns up as expected,' Deutsche Morgan Grenfell chief economist Angus Armstrong said this week. It happened in Hong Kong in 1994 after the Government intervened to cool spiralling prices, and the economy has only recently started to recover. Analysts believe a similar fall-out could happen elsewhere in the region. The plunge in the property market in Hong Kong not only hit home prices but also the stock market and consumption as confidence was threatened. Salomon Brothers regional economist Kevin Chan said: 'This accelerated into a technical downturn in the economy. It just shows how important the real estate market is in Hong Kong.' Over the past month, intervention has been seen in Singapore, Malaysia and Philippines after witnessing the property-market collapse in Thailand this year. Even Hong Kong has been in for a second dose, though this time the knock-on effect is expected to be cushioned by a cyclical upturn in the territory's economy. Deutsche Morgan Grenfell says the most direct impact from over-supply and any subsequent correction in prices is the economy loses any stimulus from the construction sector, no matter how low interest rates are, until prices move back to equilibrium. In Hong Kong, this was compounded by a swift drop in consumer confidence, which, given that consumption makes up 60 per cent of gross domestic product in the territory, had fundamental repercussions. Last year, the construction sector in many Southeast Asian countries expanded by double-digit rates and helped serve as a backbone for economic growth in Singapore, Malaysia, Indonesia and the Philippines. Analysts say real estate developers' projections have been unrealistic. The supply of prime office space between 1995 and 1999 is expected to be 64 per cent higher in Indonesia than the four years between 1990-94. The jump is projected at 201 per cent in the Philippines over the same period. The problem is not confined to the office sector. In Thailand there is an estimated excess of 800,000 residential units, half of which are in Bangkok. In Malaysia's Klang Valley, the supply of retail space is expected to rise 250 per cent by next year, while Kuala Lumpur is being flooded with new office blocks. When too many resources go into a property sector relative to other productive parts of the economy, a bubble may emerge. 'The danger of a collapse increases and the repercussions are severe,' Mr Armstrong warns. 'Experience from the West and more dramatically Japan shows that falling asset prices tends to unleash dis-inflationary forces - essentially much slower growth in nominal income. 'An economy can be enjoying otherwise perfectly healthy economic growth, current account surpluses and fiscal surpluses and even controlling monetary base and yet still develop an acute financial bubble [if it has over-borrowed]. Step forward Japan.' The combination of persistent capital inflows, poor banking sector corporate governance and financial deregulation has led to bank loan growth of about 40 per cent around the region. The level of real estate debts is high and part of the blame lies with the unchecked growth of property loans in the last few years in some countries made possible by relatively easy credit. Property loan growth in Thailand has receded sharply, but in all other leading Asia-Pacific economies they exceed 20 per cent a year and account for more than 25 per cent of all outstanding loans. This is far ahead of nominal GDP growth - more than double in the case of Singapore, Malaysia and Indonesia, and even greater in the Philippines. Deutsche Morgan Grenfell sees the excessive exposure to property loans as potentially destabilising. Salomon Brothers chief regional strategist Deep Kapor believes it is essential not to tar all Southeast Asian countries with the same brush, and emphasises the situation needs to be looked at on a market-by-market basis. Mr Armstrong agrees that not all Asian economies share the same fate as Thailand. Thailand's exposure to foreign borrowing was significantly higher than anywhere else in the region and analysts say its cost of capital was mistaken. 'In our assessment, other Southeast Asian countries are not in such a dire situation as Thailand,' he said. 'Only the Philippines shows any similarity, although this has been over the past 18 months rather than four years.' The past few weeks have seen investors dump Philippine bank stocks in panic. 'Though in this case the bearishness goes beyond what the facts seem to warrant,' one JP Morgan analyst said. Central banks across the region have turned cautious. Singapore, whose problems pale in comparison to some of its neighbours, has added to its curbs introduced last year by announcing measures to cool trading of public housing units. In Malaysia, Bank Negara last month imposed restrictions on property and share financing. In the Philippines last week, the central bank capped the amount of property loans that banks can give to borrowers to 20 per cent of their outstanding loans. Mr Armstrong says the recent tightening by central banks in these countries is fully justified, but in some cases it is probably too late. 'Even without the foreign exposure, the dis-inflationary impact of excess property supply is likely to be depressing for the markets until the monetary authorities opt for easier policy,' he said.