Sinking Fund

During every AGM, the issue of the quantum of contribution to the maintenance of the estate is the most discussed matter. It impacts everyone and determines the amount each owner has to pay the following financial year.

The sinking fund is one part of the overall contribution. The other is the maintenance fee.

The sinking fund is a saving that sometime in the future, the estate management has to draw on to do major repairs or replacements. Thus, it is important that the estate builds up enough savings for that.

Sometimes, the existing owners are not willing to face a high overall contribution bill. As such, they vote against and delay the increase in sinking fund payment.This means that subsequent owners will have to foot a heavy price in terms of sinking fund later. The original owners may have sold their property by the time replacements are needed. This is unfair to the new owners. It is important that prospective buyers of properties check the quantum of sinking fund accumulated by the estate to avoid being called to make a huge one off payment after purchasing the property.

The owners have a challenge to keep pace with inflation. All the replacement items may cost 2 or more times more than when it was first installed. One should ensure that the Management Council should not invest the sinking fund in shares, currencies and other risky instruments. During the AGM, only allow the management to park the sinking fund in secured fixed deposits or government bonds. Shares, currencies etc can drop drastically and the fund may be lost if a financial crisis happens. Even if the economy recovers, the fund may not recover to its previous value. This puts pressure on owners to top up the fund if the need for replacements happen then.

For Council members, as responsible representatives of the owners, the sinking fund should only be parked in fixed deposits and government bonds. This is to avoid any loss or accusation of corruption or shadiness in dealings.

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