McCarthy & Stone PLC Statement on MHCLG's response to consultation (7395D)

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RNS Number : 7395D

McCarthy & Stone PLC

28 June 2019

27 June 2019

Statement on MHCLG's response to its October 2018 consultation on leasehold reform

The Ministry of Housing, Communities and Local Government (MHCLG) has today published its response to its October 2018 consultation on ground rents.

McCarthy & Stone (the 'Group'), the UK's leading developer and manager of retirement communities, is pleased to note that MHCLG has confirmed that the retirement community sector will be given an exemption and permitted to charge an economic ground rent after they are reduced to zero elsewhere. The Ministry continues to recognise the unique way the sector uses ground rents to recover much of the construction costs of the significant shared areas that are integral to retirement living and which deliver direct benefit to customers.

John Tonkiss, Chief Executive Officer for McCarthy & Stone, said:

"Retirement communities make a real difference to the lives of our customers by bringing older people together, addressing loneliness and improving their overall wellbeing. The shared areas in our developments are the key to providing these benefits, and include communal lounges, restaurants and well-being suites. However, these spaces cost between GBP1 million and GBP2 million per development to build. Consequently, we require an additional funding stream to cover this cost and ensure our apartments remain affordable for our customers.

"We therefore fully support today's announcement from the Government to exempt ground rents in retirement communities as it ensures these shared areas remain viable to provide. It also means the customer is in full control of how they pay for these costs, by choosing to pay either an economic ground rent or a higher purchase price. This option is aligned to our new strategy of providing greater customer choice."

The Group will continue to discuss the detail of the exemption with Government over the coming months. This announcement has no impact on this financial year and reduces the need to take mitigating action in future years.

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Background on ground rents:

Ground rents charged by McCarthy & Stone are on fair and stable terms, averaging GBP466 per annum and are fixed for 15-year periods, with increases linked to inflation and accumulated yearly. The Group also remains as the landlord and managing agent on all developments built since 2010. This means it retains full operational responsibilities for these developments, ensures customers are fully supported and protected, and helps to maintain long-term value.

Capitalised ground rent income helps pay for the construction of the extensive communal areas provided within the Group's developments, which typically account for c.30% of total floorspace and cost between GBP1-2 million per development. These areas are unique and integral to retirement communities and include communal lounges, restaurants, mobility scooter rooms, well-being suites, guest suites and staff accommodation.

Within the Group's representations to Government, it has been made clear that the loss of ground rent income would make many schemes unviable and the sector less competitive in the land market, resulting in fewer properties being built. In response to the uncertainty resulting from the Government's initial announcement on ground rents, the Group exercised additional caution throughout FY18, exchanging on just 54 new sites compared to 75 in FY17.

c.90% of the private retirement housing sector uses capitalised ground rents to help pay for the construction costs of its shared spaces. While some others do not use ground rents, they charge customers large exit fees at the point of resale to recover part of their capital costs, based on the resale value of apartments. These exit fees total up to 30% of the resale price and can mean consumers pay more overall.

The Group also supports MHCLG's proposal to provide new customers in retirement communities with a choice between paying an economic ground rent or the full purchase price. This puts the consumer in control of how they pay for the costs of their purchase and is aligned to the Group's new strategy of providing greater customer choice.

McCarthy & Stone remains committed to the highest levels of transparency on all costs and services for its customers. The Group's focus on its customers is one reason why it is the only developer of any type to have achieved a Five Star rating in the Home Builders Federation (HBF) annual customer satisfaction survey for the past 14 consecutive years, which is every year this survey has been run. In 2018, 92.5% of customers would recommend the business.

Download McCarthy & Stone's briefing note on its ground rent position here.

For more information, please contact:

Powerscourt, 020 7250 1446 / [e-mail]

Justin Griffiths

Nick Dibden

Notes to Editors:

McCarthy & Stone is the UK's leading developer and manager of retirement communities, with a significant market share. The Group buys land and then builds, sells and manages high-quality retirement developments. It has built and sold more than 56,000 properties across more than 1,200 retirement developments since 1977 and is renowned for its focus on the needs of those in later life.

There is growing demand for retirement communities. There are currently 11.8 million people aged 65 or over, rising to 17.3m by 2037, representing a 47% increase(1) .[1] For those aged 85 or over, the increase will be larger, from 1.6m to 3.0m, representing an 87.5% increase. One in four over 60s are interested in retirement living(2) , yet only c.162,000 units of specialist retirement housing for homeowners have been built(3) .

McCarthy & Stone has two main product ranges - Retirement Living and Retirement Living PLUS - which provide mainly one and two-bedroom apartments across the country with varying levels of support and care for older homeowners. Retirement Living developments provide independence in private apartments designed specifically for the over-60s, as well as facilities such as shared lounges and guest suites that support companionship. Retirement Living Plus developments, which are designed specifically for the over-70s, offer all of this plus more on-site facilities such as restaurants, well-being suites and function rooms. Importantly, they also provide flexible care and support packages to assist those needing additional help.

All developments built since 2010 are managed by the company's in-house management services team, providing peace of mind that it will look after customers and their properties over the long term. This is a key part of how McCarthy & Stone seeks to enrich its customers' lives. This commitment to quality and customer service continues to be recognised by homeowners. In March 2019, the Group received the full Five Star rating for customer satisfaction from the Home Builders Federation for the fourteenth consecutive year - making it the only UK housebuilder, of any size or type, to achieve this accolade.

For further information, please visit www.mccarthyandstone.co.uk

(1) ONS household projections: 2016-based (2018)

(2) ONS (2017, 2014 based figures)

(3) Knight Frank, Retirement Housing (2018)

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June 28, 2019 02:00 ET (06:00 GMT)