Listed property stocks have already reaped the immediate benefits of the interest rate cut, with listed property prices moving up significantly shortly after the surprise announcement last week.

And the stocks are set to benefit further from the cheaper costs of borrowing, as well as renewed interest in the sector from investors, say analysts.

The 50 basis-point cut in interest rates announced by the monetary policy committee on Thursday is also seen as an added stimulus to growth in the physical property market.

The listed property sector has recently enjoyed a good run in terms of unit prices, with some large funds on the JSE Securities Exchange SA trading at a premium of 25% to net asset value.

Mariette Warner, fund manager of Stanlib Property Income Fund, says that while the long-term correlation between yields on listed property is closer to long bonds than the prime interest rate, there is also a reaction to changes in short rates.

Their performance tends to track the performance of long bonds because both are income-generating investments.

Warner says the market had been expecting rates to remain unchanged because of consumer spending and risks in the oil price, and therefore, inflation.

"Minutes after the rate cut announcement, the listed property prices moved up significantly, with the South African Listed Property Index closing 1,7% higher," says Warner.

There were further price increases in Friday's trade.

But, says Warner, the major implication for listed property is in the cheaper cost of borrowings, even though there is not a significant exposure to prime interest rate-linked borrowings in the sector, where most loans are fixed over varying terms.

From an investor?s perspective, a rate cut means that listed property becomes a more attractive income generating investment than cash - and the resultant higher demand created for listed property leads to a short-term price run, says Warner.

"Because of continued strength in the underlying physical property market, this decrease in rates underpins my expectation of a 15% total return from listed property over the next 12 months," she says.

Andisa Securities property analyst Len van Niekerk says the cut is "good for the sector. The market has already started pricing it (the cut) in. The immediate effect was the strong price run."

He says one of the longer-term effects is that it will make debt cheaper, which enhances "positive gearing" when companies make acquisitions.

"If they were borrowing, for instance, at a prime interest rate of 11%, they are now borrowing at 10,5%," Van Niekerk says.

He says the cut will also further stimulate demand for physical and listed property, and lead to more capital gains because, as interest rates come down, they will support higher property valuations.

Van Niekerk says the cut will probably stimulate growth in the economy and demand for all types of accommodation, including offices, retail and industrial properties as businesses expand and consumer spend increases.

"The other thing we could start to see with lower interest rates is further stimulation in office building. It makes it cheaper to develop because the holding costs are lower (in a lower interest rate environment)," he says.

Colin Young, fund manager of Old Mutual?s South African-listed property funds, says the cut is positive for residential property and the listed sector, and would spur economic growth.

Young says that on the day the cut was announced the R153 long bond dropped 35 basis points and listed property "also reigned strongly".

Business Day