Retirement housebuilder McCarthy & Stone (MCS) is clearly feeling pretty bruised as it responds to proposals to reduce ground rents on new long leases to zero. Shares in the company drop 10.25% to 152.3p, while other housebuilders are also lower.
The issue of escalating ground rents on leasehold properties has hit the press in recent months and the Department for Communities and Local Government has gone further than many expected with this morning’s announcement.
McCarthy & Stone says it should be exempt as it does not employ the kind of rapidly increasing ground rents targeted by the review. It says that its ‘retirement apartment model incorporates an annual leasehold ground rent charge to ensure that the long-term maintenance of the development is effectively managed on behalf of elderly homeowners who have less desire to be directly involved in this activity.
‘These ground rents have been long-established on fair and consistent terms, with rental growth linked to the higher of 2% or RPI.’
It notes this profit stream is reflected in the price it bids for land, helps fund communal areas and facilities and enables pricing to remain affordable. In the August 2018 financial year it was expected to deliver profit of around £33m. To put this into context, the profit forecast for the year as a whole is £110.3m.
The company is considering several measures to mitigate the impact including renegotiation on land prices and a review of management fees.
McCarthy & Stone chief exec Clive Fenton says: ‘We are disappointed that our representations on this topic and those submitted by others within our sector have not been directly reflected in the Government's response.
‘However, this is the first in a number of steps and we will continue to work positively with DCLG to ensure they recognise the importance of retirement housing in the face of an ageing population.'
