THERE is a growing trend among property groups that are listing to have shorter five-year contracts with asset managers with the option to renew.

Anton de Goede, investment analyst at Catalyst Securities, says that in the past year the listed property market has become far more transparent in terms of its asset management agreements. He says this development augurs well for the quality of new listings.

However, De Goede says that measures must be put in place for the termination of asset management contracts if certain performance measurements are not met. Termination clauses for asset managers of listed property funds are currently not the norm.

De Goede says that the market would find it difficult to accept any new listing with an asset management contract of more than five years.

Angelique de Rauville, MD of listed asset management company Provest, which is part of Investec Property Group and does monthly reports on the listed property sector, says that unacceptable conditions for new listings include asset management contracts that are "onerous in terms of their tenure, meaning that some companies are listing with asset managers having 10-year contracts".

"If managers underperform, the companies cannot cancel the contracts," De Rauville says. Contracts should be shorter a reasonable term being between two and five years.

De Rauville says asset managers' fees should be market- related. At present the market-related fee is 0,5% a year calculated on the market capitalisation and longterm liabilities, says De Rauville.

To ensure that investors invest in quality property listings, they must be well informed. Fortunately, the listed property sector has become well researched in recent times.

At one stage last year there was a dearth of researchers focusing on the listed property market.

"Investors need to place far more emphasis on the research that is being produced and that way there won't be support for certain listings that are unacceptable by industry standards," De Rauville says.

Some of these unacceptable conditions, apart from excessively long asset management contracts, include unacceptably high promoters' fees, financial structures that can dilute earnings and unrealistic property valuations.

Feb 25 2004 07:50:19:000AM Nick Wilson Business Day 1st Edition