Housebuilders shares have crashed today following Communities Secretary Sajid Javid’s scrapping of ground rents and ending the leasehold houses racket.
McCarthy and Stone was hardest hit with a fall of 10.3 per cent. Four per cent of its income comes from ground rents, which are historically high in retirement housing.
This is the highest proportion of all the listed housebuilders, although Churchill will be in the same boat.
Ground rents are for no service whatsoever, but make the freehold attractive to investors, many of whom are based offshore and anonymous.
More here:
Housebuilder shares have fallen as much as 10 pc today: Here’s why
Housebuilders were hit hard this morning after the government revealed new rules cracking down on leasehold practices described by communities secretary Sajid Javid as “feudal”. Shares in FTSE 250-listed McCarty & Stone, which specialises in retirement homes, fell 10.3 per cent to 152.3p on the news.
And here
Housebuilders hit as investors take fright at Government’s leasehold ban
Shares in housebuilders have dipped as investors take fright at the Government’s plans to ban new leasehold houses from being sold. In its crackdown on what communities secretary Sajid Javid described as “feudal” practices, it is also set to ensure that ground rents on new long leases in England are set to zero, for both houses and flats, as well as making it easier and cheaper for leaseholders to buy out their freehold.
Related posts:
Our ground rents are fair, says McCarthy and Stone (even though they go up to £600 and are for no service whatsoever)
McCarthy and Stone: Ground rents are not the future of retirement housing
APPG July 11: The case for ground rents from McCarthy and Stone
McCarthy and Stone says ground rents essential, but why sell freeholds to murky Adriatic Land?
ARCO snubs McCarthy and Stone / Churchill by saying there is no need for ground rents
Full government report on ‘Tackling unfair practices in the leasehold market’
Its game OVER for developers selling rip-off leases and cheating the buyers by deliberately creating a lessor to collect ground rent and take back the property after 99 years or 125 years..
The “leasehold property system” snares the family savings of several generations of leaseholders and transfers the value in the property to companies investing in ground rent income and managed by unscrupulous directors.
Nothing is mentioned regarding retirement housing. Does zero GR include all new build retirement flat leases? It should unless we still want the most vulnerable in society cash cows to the likes of Tchenguiz.
However, will this create a two tier system? Those still being monetised through existing leases, like those built by McCarthy $ Stone, sold to Fairhold. New flats will appear much better value to buyers than having to take older flats. Another negative, along with the price falls of 40% on these properties.
M$S are now managing their own service charges and GR but they have left thousands in the hands of the monetising freeholders. Pity their shares didnt fall 40% like their customer home values have.
What should have happened is all lease GR set to zero, everywhere. This would have destroyed the whole feudal system is one sweep.
So the house building industry say this action will result in fewer homes.Well, my message to them is, do what you will.
As far as I am concerned, NO houses being built are better than any that are leasehold.
Now all this is coming out more into the public domain I doubt if anyone will be drawn to buying a lease on a house in the long term future unless , at a minimum, the property has a extremely low non increasing GR, or a zero one, and the buyer has no alternative but than to purchase it (the lease that is, not the house!)
According to the House Builders Federation, this will have no effect on main stream developers. And since the House Builders Federation comprises the main stream developers it rather renders their pleadings a little hollow!
Every country in the world besides England and Wales manages to build freehold houses.
When powerful interests are threatened they put up this kind of nonsense. Every. Single. Time. Expanding the electoral franchise. Ending child labour. You name it.
We’re to believe that the abolition of leasehold will have an adverse impact on the housing market? Where is the evidence? Show us the data from Scotland, Ireland, Northern Ireland or anywhere else.
It can’t be done, because no such data exists.
The claim has no merit. It is based on an entirely hypothetical calculation — the extra houses that could have been built with the profits diverted into the pockets of greedy freeholders, if they weren’t so greedy.
Unfortunately, they have proven so incorrigibly greedy that market intervention is required. They have only themselves to blame. Does anyone have a very small violin?
Clive Fenton CEO McCarthy & Stone says that retirement developments should be excluded from any action on ground rents as in the case of McCarthy & Stone developments rely on ground rent income to maintain the grounds they are built on. Excuse me? Is that not what service charges are for?
Ground rent is purely to pay for the rental of the ground the development is built on.
To use any such income as part of maintenance surely cannot be lawful?
At the very least it would evade any laws surrounding the collection and accounting of service charges.
Easy to verify perhaps? Publish ground maintenance invoices to compare to itemised service charges and ground rent charges in same period.
There should be no contradictions or double counting.
Landlords can spend their ground rent on what they like I’d imagine. But cannot charge for a cost already paid.
All lessees could perhaps take this revelation to a tribunal under liability to pay for a backdated determination?
Paddy, It is correct they can spend what they like with their ground rent income, but any funds for maintenance must be within current legislation. How for example could expenditure be challenged if it is not within the remit of service charges? How could funds set aside be accounted for in the service charge budget? How could such funds be held in a statutory trust?
If McCarthy & Stone went bankrupt what would happen to funds (supposedly set aside for ground maintenance?)
Whilst there is an argument to be had that an “exit fee” can be justified to keep monthly service charges down, what McCarthy & Stone are doing is nothing short of “gaming” the system and turning an unearned and undeserved profit.
And instead of looking at McCarthy & Stone as a wonderful principled company , that has the welfare of retired folk at it’s heart, look beyond them. Look at the ruthless asset management companies that “own ” them?
A couple of months ago I asked Churchill Retirement if they were contributing to the Government consultation on Leasehold.
They informed me they were and particularly mentioned the problem of unfair escalating ground rent fees..
On investigating I found that Churchill Retirement developments ground rent fees can be very high many being over £600.pa.
I asked if they would be reviewing them but since have had no reply.
Now the Government have said existing ground rents must be reduced to reasonable or zero. I wonder what the reaction of the likes of Churchill, M&S etc.will be.
Will they be reducing the Ground Rents on future sales and past sales or ignoring the Governments recommendations and carrying on charging the same.
Michael, That Churchill Retirement have very high ground rents as is the case wit McCarthy & Stone should not come as a surprise given that John and James McCarthy are directors of Churchill Retirement
We are considering a buy of a Macarthy resale retirement property. Should we push for a zero GR bearing in my new legislation? Any suggestions welcome.
Clare, i’s all, NO NO NO.
The new legislation is a very long way off.
It is not guaranteed to be implemented by any means so totally ignore it if you buy anything before it is in force.
It will not be backdated to previous properties in exactly the same way, even if it is introduced/passed/the conservatives remain in government.
You would not, in any event, get a single apartment in a multi block to have a different GR agreement as to the others.
I have been helping over 55s in leasehold apartments for years.
My advice to you is do not go near them, or even modern age leasehold houses.
If you must have an apartment find one where the residents/leaseholders all own an equal share of the freehold, lock stock and barrel. Freehold owned by residents is quite rare but the only safe way to go. YOU are in charge, not the managing agent.
If it is for later years in life I would recommend finding an appropriate small bungalow that’s FREEHOLD and, when the “bad times come” have carers come to attend in your own place. That’s
what I will/am doing.
Of course, if you have money to burn/give away to extortionate management/landlord charges for little in return and want to leave the grand kids a flat that is worth thousands less in 10 years time than what you paid for it by all means, ship into McCarthy Stone or similar (Don’t forget, even if the flat sells 10 years later at same as it’s original purchase price, re inflation etc it has still lost thousands) Also service charges have to be paid even on empty flat. Maybe exit, sale comm fees.
Clare,
For the most part a McCarthy & Stone apartment has proved a very poor investment. Many have lost shed loads of money within a few years of purchase (even as the wider property has increased in values)
McCarthy & Stone apartments are generally over priced and have an artificial “Lifestyle” value element included in the selling price.
I know it is not like for like, but if you see a similar non retirement development apartment and compare the selling prices and service charges, it will give you a better understanding of the premium you will pay for your “lifestyle” choice.
Leaseholders in McCarthy & Stone developments are also running the risk that if McCarthy & Stone income falls and pressure increases on them to meet loan obligations they may decide that one way of increasing revenue is to find inventive ways of increasing the scope of works needed on their developments and profiteering from that? They do have their own in house property management company. And as was the case with older McCarthy & Stone developments (when connected to Peverel/Firstport) the temptation may prove to great!
You should also be aware that the facilities that you have been offered can be taken away.
For example, if McCarthy & Stone find the need to raise funds they may sell off house manager’s flats?
If you wish to move to a retirement development, than personally I would rent for a couple of years to await the outcome of the latest moves in the leasehold sector.
Clare – I can only echo what Trevor & Michael are advising.
Buying a McCarthy & Stone flat is nothing more than buying a long rental. So if the idea of the ‘lifestyle’ appeals – rent. Do NOT buy.
Alternatively, either future-proof the house you’re already living in. Or, if that’s not possible, find a suitable freehold property, and buy in the services you need, at the time you need them. It will be less expensive, and you’ll stay in control.
That’s what I’ve done. Our family was once bitten … never again!
McCarthy & Stone are operating on a very short-term basis. If they provided attractive accommodation, at a fair price, without ripping people off, the sons & daughters of the current residents would be queuing up to move in. As it is, we are running a mile. Says it all.
Thanks for sharing your thoughts. It’s such a major decision. It’s back to the drawing board for us.
Best decision Clare, walk away. Hopefully these posts and related publicity will stop many others falling into the trap and losing thousands.
Happy new year to all with special thanks to LKP.
No doubt about it, if it wasn’t for LKP leasehold would be a million times worse off than it is now. We will, and are “getting there”.