Thai Rating and Information Services Co Ltd (TRIS) has upgraded the unsecured bonds of two property companies, Preuksa Real Estate Plc and Supalai Plc, due mainly to their strengthened financial status and ability to maintain profit margins in the first five months of the year.

Preuksa's unsecured bonds were upgraded to BBB+/Positive from BBB/Stable, while Supalai's unsecured bonds were upgraded to BBB+/Stable from BBB/Stable. Among 11 property firms rated, Land and Houses' unsecured bonds ranked highest, at A/Stable.

The local ratings agency said Preuksa and Supalai were also strong in terms of competitive control of their construction costs. NC Housing Plc's unsecured bonds were rated BBB/Negative, reflecting its higher risk in the wake of the weakening property market.

TRIS said property developers' credit risks looked set to increase this year. Pressure from rising interest rates and inflation will increase the industry's production costs, while demand for homes is expected to boost the industry's low growth rate.

A decrease in the influx of residents to the greater Bangkok metropolitan area last year is also beginning to have an impact. The growth in the number of newly registered houses in and around the city was just 4.4 per cent last year, compared with 23.1 per cent in 2004 and 50.8 per cent in 2003.

The decreased supply in the housing market is partly due to property developers acting cautiously by focusing on the middle market, which makes up the highest proportion of the total market, while the high-end residential market remains saturated.

TRIS found that demand for housing units under Bt5 million has also slowed, as shown as shown by the drop in the number of such units sold each month.

Last year, an average of 10 new houses were sold at each housing project per month, compared with 15 per month in 2003. The number of prospective buyers visiting new housing projects also fell.

Mortgage loans for new houses fell to almost Bt279 billion last year, from Bt294 billion in 2004.

A decrease in fee levels associated with the hand-over of land and property last year from 2004 also reflected a fall in demand for residences.

In addition, property developers' average profit margin fell to 20.56 per cent last year, from 25.88 per cent in 2004, due mainly to intense competition.

However, property firms have kept their debt-to-capitalisation ratio low since the economic crisis. Last year, the ratio fell to 42.8 per cent, from 70.5 per cent in 2004.

Rising interest rates this year have had a psychological effect on prospective home-buyers, who are now more reluctant to buy. TRIS found that home-buyers had to pay back an extra 6-7 per cent on their loans for each 1-per-cent rise in mortgage rates.