Angelique de Rauville, MD of Provest, says securitisation would reduce the costs associated with the existing and future financing activities of many of the property companies and funds.

"As the cost of financing properties is reduced, earnings growth will be enhanced and a subsequent rerating in share price can be expected. This assumption can be made on the back of Provest's analysis demonstrating that earnings, and earnings growth translate directly into share price performance," says De Rauville.

Securitisation, which was raised by De Rauville and others in a workshop held at commercial property association Sapoa's annual convention in Cape Town last week, is the conversion of mortgages into tradable securities.

De Rauville says an example of this is the conversion of some of the current R7bn debt in the property unit trust and property loan stock sectors into tradable securities.

She says this debt is attracting in the region of 12% for two years.

De Rauville says there is an opportunity for some of these property unit trusts and property loan stocks to securitise this debt.

This would mean dividing up the debt, having it credit-rated and then retailed at a cost lower than the current 12% cost of debt. She says the market for securitised debt would come from both retail and institutional investors, who would consider this investment as an alternative to cash and bonds.

De Rauville says the biggest competitor for successful securitisation would be the bond market, especially now that it has been opened up to the retail market through Finance Minister Trevor Manuel's recent retail bond offering with a minimum investment of R1000 and yielding 9,25% for two years, 9,3% for three years and/or 10% for five years.

"These are very attractive rates, and securitised debt marketed to the retail investor would have to offer a similar yield to that offered on Manuel's retail bond. The pricing to the institutional market could be more competitive than this."

Colin Young, fund manager of the Old Mutual SA Quoted Funds, says in the US the size of the debt securitisation market among Real Estate Investment Trusts is worth about $500bn. He says it is by far the preferred method of finance.

Young says there is a market for it because the debt can be offered at a higher yield than traditional government-issued long bonds. If the bond defaults, the person invested in the bond can acquire property and sell it to get their money back making it a secure investment.

Young says the only downside is that property funds will have to "ring-fence" property assets because they are then defined as assets to back the bond.

Ring-fencing links the debt with the asset and includes credit-rating the entire asset, as well as the tenants occupying it. This makes them less tradable.

Young says that if for example a large listed property company like Growthpoint wanted to sell a shopping centre it would be able to in the normal course of business.

If Growthpoint had debt securitised it would have to get rating agency permission, as well as the permission of property bondholders to sell the property. This would result in a number of regulations that would slow down the process and make them less competitive and the asset less tradable.

The bigger funds, like Growthpoint, Sycom, Martprop and Grayprop have bigger core assets, which are properties they do not want to sell. Because the property portfolios of such funds are so large they can afford to ring-fence the core assets and would raise a lot of money. However, Young says debt securitisation would not be attractive to the smaller funds because the amount of money raised would not be worth the costs involved.