StockMarketWire.com - McCarthy & Stone has said it is disappointed by the proposal by the Department for Communities and Local Government (DCLG) to reduce ground rents on new long leases to zero.

McCarthy & Stone has made a case to DCLG for the exemption of retirement housing providers from such action.

Clive Fenton, chief executive of McCarthy & Stone, said the proposal will result in a disruption of housing supply and contradicts the government's stated objective of seeking new sources of housing.

He added: "We understand and support the need for action to address leasehold housing and aggressive escalation clauses for ground rents, however this blanket approach will result in reduced housing delivery as well as choice for ordinary people.

"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."

McCarthy & Stone does not build leasehold houses and does not employ the types of escalating ground rents which have been the cause of DCLG's review. 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.

McCarthy & Stone has fully disclosed its practice of aggregating and selling forward its freehold reversions. In FY18, the profit to be generated by the group's freehold reversion sales is expected to be around £33m, of which £13.4m was already held on the balance sheet at 31 August 2017 to be recognised in line with FY18 unit sales. This profit stream is expected to increase in line with volumes in future years.

The potential change to the structure of ground rents will be immediately reflected in the cost of land secured for development by McCarthy & Stone with a margin-neutral impact for shareholders in the medium term. However, in the short term, if the group is unable to secure exemption from the measures announced, it will seek to employ a combination of strategies in order to mitigate the impact of such a disruption on the profitability of its current land bank, including land price renegotiation, S.106 contribution renegotiation, pricing reviews, and management fee reviews.


At 9:31am: [LON:MCS] McCarthy Stone Plc share price was -17.1p at 152.6p



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