Ground Rents Income (GRIO) sank to an all-time low today after the prime minister set a £250 limit on the annual charge that leaseholders pay freeholders.
The cap is part of major changes to home ownership published by the government in a draft Leasehold and Commonhold Reform Bill.
Schroders-managed GRIO, which invests in ground rents, tumbled over 16%, or 4p, to 20p, reducing its market value to just £19m, well below a £32m bid approach from Victoria Property a year ago.
Once the cap comes into force in late 2028, ground rents will reduce to a peppercorn level after 40 years, reducing the income stream for institutional investors.
In a statement to the stock market, the investment company estimated the cap could reduce its ground rent income by around 26% to £3.8m compared with its financial year to 30 September.
Applying a benchmark multiple of nine years purchase to residential ground rent income implied a potential reduction in portfolio value of 44% to £31m. This would in turn suggest a net asset value of approximately £27.4m, or 28.6p per share, compared with £52.2m, or 54.5p in September, it said.
The bill will also make it easier for leaseholders of a flat to convert to commonhold, which means they can jointly own the ground a flat is built on as well as the building.
Prime minister Keir Starmer announced the move in a video on TikTok saying: “Good news for homeowners, we’re capping ground rent at £350. That means if you are a leaseholder, and your ground rent is more than £350, you’ll be paying less.”
GRIO, which began a managed wind-down in 2023, has been under pressure from leasehold reform since 2017 when ground rents were abolished on most new residential leases and its shares peaked at 140p.
It was one of six claimants which saw their request for a judicial review of 2024 legislation increasing leaseholders’ rights dismissed by the High Court in October. The group had been waiting to see if an appeal could be made to the European Court of Human Rights.
Tougher building safety legislation brought in after the 2019 Grenfell Tower fire in London have also required slow and expensive remediation work across much of its portfolio although most of the costs have been paid by developers.
Until May 2019 it was run by Brooks Macdonald with the mandate then switching to Schroders which retained James Agar as the portfolio manager until 2021 when the current manager Chris Leek took charge.
Lacking distributable reserves, GRIO has not paid a dividend for two years and amid deep market uncertainty is struggling to sell its assets, which stood at 378 last September. It will face a continuation vote by November 2027 so may not be around to see the legislation take effect.
