THE debt levels of the territory's 13 major property companies have increased by 51 per cent over last year to $97.9 billion, but total debt-equity ratios have remained the same at just over 20 per cent, according to a Morgan Stanley report. The report said total equity of these companies had increased by 55 per cent, mainly through revaluations, although share capital had increased by 16 per cent. With the focus on debt issuance in recent months, Morgan Stanley has been concerned that debt levels may be blowing out, with some risk to local property companies, just as in the early 1980s and as has been the case in most major Western countries in the past few years. 'These fears are probably exaggerated,' the report said. The structure of debt has changed, with more focus on long-term debt such as the use of longer duration convertibles and syndicated financing. This was positive for companies building investment property portfolios, the report said. Since December last year, the year-end of most property investment companies, office property values have increased by about 40 per cent. At the end of this year, revaluation surpluses were likely to increase further, it said. Net profit margins of the 13 property companies had risen to 55 per cent from 48 per cent the previous year, but they were expected to decline slightly due to the slowdown in the residential property market, Morgan Stanley said. 'We do not believe they will collapse, but we cannot expect too much upside in margins,' it said. For most investment property companies, debt-equity ratios have declined, mainly due to the rapid rise in office property values over the past couple of years. Debt-equity ratios have risen mainly among developers, but only one company in the survey has a debt-equity ratio above 40 per cent, according to the report. It also said interest cover of these companies was a healthy 14.1 times, similar to that of last year, but might fall slightly. 'As total debt in the industry has increased by about $33 billion over the period and interest rates have risen sharply, we can expect total interest costs within the industry to rise sharply this year.' Taking account of higher rates and higher debt, Morgan Stanley expects interest costs could rise from $5.2 billion to around $9.1 billion. 'This is hardly likely to threaten earnings but will dull margins,' it said.