Canary in the coal mine? Trust asset value crashes following Gove’s proposed ground rent reforms
An investment trust that was set up to invest in ground rents has seen its net asset value slashed by around a quarter as it has started to factor in Michael Gove’s proposed ground rent reforms.
Ground Rent Income Fund reported the value of its portfolio had dropped by 24.6 per cent over the last year, and 20.7 per cent over the last six months.
The value of the trust’s portfolio has fallen to just £81.5m, with 97 per cent of the drop being attributed to uncertainty over both leasehold reform and building safety reform, it said.
The trust’s devaluation followed the government’s announcement last November of its plan to cap ground rents on leasehold properties.
“This consultation represented a significant shift in the Government’s approach to leasehold reform and has led to a pause in market activity and negatively impacted values,” the trust said in its unaudited portfolio valuation today.
The policy would have seen the government reduce annual payments to ‘peppercorn’ rates or almost nothing.
Experts had warned that the ground rent reforms could cost pension funds as much as £40bn.
Although Gove’s initial plans appear to have been watered down, reports have suggested Gove will still cap the annual charges levied on leaseholders at £250.
“The potential outcome of legislative change following the Government consultation remains uncertain,” the trust said.
Ground Rents isn’t the only fund to have invested in ground rents over the past decade as an alternative income stream. An internal Treasury analysis has suggested that Gove’s reforms could wipe out £30bn to £37bn of investment.
Today’s news from this relatively small investment trust could be just the start of a multi-billion-pound hit for investors in this asset class.