THE 50-basis-point interest rate cut came as a surprise to the listed property sector, which is now poised to benefit substantially in terms of growth in distributions to investors in property stocks.

Property commentators say the cut means listed property funds will now have lower interest costs on the portion of their loans that are "floating", or not fixed.

The cut may also lead to renewed confidence in SA's economy, resulting in an increase of space let in the office property and industrial sectors, they say. This may boost the industrial and office property sectors.

Colin Young, fund manager of Old Mutual's SA-listed property funds which include the Old Mutual SA Quoted Property unit trust says listed property unit trusts stand to benefit more than listed property loan-stock companies from the reduction in interest rates.

The reason is that some listed property unit trusts, such as Sycom and Grayprop , have yet to take advantage of their increased borrowing capacities.

In the past, listed property unit trusts could borrow only up to 5% of their total assets, but with the introduction of the Collective Investment Schemes Control Act, promulgated last year, they can borrow up to the value of 30% of their total assets.

Young says funds such as Grayprop and Sycom, which have large property developments in the pipeline, are going to use debt to fund these developments and fix it at the lower interest rates.

"This means less interest costs in the income statements and more profits, and therefore higher distributions to unitholders."

On the other hand, a large portion of the debt of listed property loan-stock companies is already at a fixed interest rate so they have less opportunity to benefit from the rate cut, he says.

Young says the cut will also spur economic growth rates in SA. This in turn will lead to greater demand for office space in the medium term.

This benefits listed property funds because the rentals they charge for a square metre are likely to increase.

Young says this has positive benefits for the office property market, which has been weak for a number of years as a result of oversupply of space.

He says now may be the time for listed property funds to seek out investment opportunities in the office property market.

Mariette Warner, fund manager of Stanlib Property Income Fund, believes the reduction in interest rates will benefit the listed property sector across the board because the bond market reacted positively to the cut.

The performance of the listed property sector tends to track the performance of the bond market because they are both income- generating investments. Warner says any of the property funds with interest rate fixes that are maturing will soon benefit.

Those listed property companies with a large amount of debt in floating interest rate facilities will benefit immediately from the cut in interest rates, says Warner.

Anton de Goede, investment analyst at Catalyst Securities, says the benefit of the interest rate cut is two-fold for the listed property sector. "It will benefit long bond rates which are used as a proxy in the valuation process of listed property stocks because when bond yields come down that equates into a capital value appreciation," says de Goede.

Secondly, he says listed property funds will have a lower interest cost on the portion of their loans that are not fixed . "That will flow into distribution growth."

While De Goede also believes a general spin-off from the interest rate cut within the economy could be increase d business confidence, he says this will relate specifically to the industrial sector. This could benefit listed property funds further, especially those with industrial property portfolios.

De Goede says the rand devalued when interest rates were cut.

This means the weaker rand will benefit SA's export industry, positively influencing the industrial property sector.