SA's Listed property sector has enjoyed a good run in recent years, but there are signs of a slowdown.

Ernest Matthewson, head of corporate finance at Nedbank, says the listed property sector has provided a bright spot for investment banking activity over the past few years.

"The sector had become quieter due to concerns about a possible increase in interest rates. The recent decision to lower interest rates did create some interest but not as much as in the past."

He says the property sector was expected to provide investment banks with a lot of work, particularly as there was a trend towards consolidation in the sector and some groups were seeking greater market capitalisation.

It is felt that some of the larger property groups may acquire some smaller players, says Matthewson .

"A factor holding back further consolidation is the valuations at which listed property companies are trading. They are all at a significant premium to their underlying net asset value, evidenced by their dividend yields being very close to the government long-bond yield, a gap that has narrowed significantly compared with historical trends.

"There are no real value plays out in the market that might attract an acquiring company."

He says there was a major drive at one stage to create very large listed property companies as quickly as possible. The rationale behind the move was the fact that institutional investors had a cap of 5% of their funds under management in individual companies with market capitalisations of less than R2-billion.

"Once a company has a market capitalisation of more than R2-billion, institutions can invest as much as 10% of their funds in the company. There was also a view that larger funds attracted more liquidity.

"As a result there was a drive by some of the funds to get over the R2-billion mark. However, the theory has not been supported by events. Institutions have proved that they will still follow smaller funds as long as these funds have good management, high-quality portfolios and can demonstrate growth.

"The market is saying that property companies should not chase size for the sake of size."

He says while it is often easier for large funds to make acquisitions without diluting earnings significantly, it is difficult to achieve this when market valuations are high.