The gap in yield between the two listed property fund types emerged after the listed property sector took a knock during the second half of last year as a result of weakened fundamentals in the commercial property industry.

The Rode survey says the sector took a dip last year mainly because rental income came under pressure due to oversupply, and listed property was hit by higher bond yields.

The survey says that while property unit trust income yields recovered slightly in the second quarter of this year, the property loan stock sector remains in the doldrums. Yields crossed paths just below 16% in the second quarter, with property loan stock rising further towards 20%, and property unit trusts moving in the opposite direction.

The survey says the yield gap between property unit trusts and property loan stock companies is not a new phenomenon, having been seen in 1996, 1998 and 2000.

'Noteworthy of these differentials is that they never last for long,' say the researchers. 'This gives the conservative speculator with the right timing some excellent quick arbitrage opportunities.

'We assume the yield differential seen at the second quarter was temporary and we expect the gap to narrow over the next few months.'

The Rode report says evidence of the convergence has been noted since July.

An analyst says the reason for the gap could be attributable purely to investors' average higher rating for individual counters in the property unit trust sector. 'In principle it is hard to think of a reason the two sectors should be rated differently.'

Business Day