A number of people who are on the hunt for their first condo home have asked many questions on online forums and via face-to-face conversations. Leasehold or Freehold? Facilities, residential profiles, monthly maintenance fee, etc. Within that monthly maintenance fee lies two components; the managing fund (MF) and the sinking fund (SF).
In other words, the SF takes care of the big items in the near future, while MF runs a monthly expense to keep the condo operational. Therefore it is crucial to find out what are the SF reserves an existing condo have. And whether it is financially stable to fund future works. If not, an extraordinary AGM may be called for all owners to cough up a lump sum. (see Case study: Killer lifts?)
One advice for first time condo buyers: ask the seller for the recent AGM booklet. Reading it will give you an excellent idea of how well the place is managed. And whether the existing sinking funds are sufficient to cover outstanding and future liabilities.
Take the case of Viz Holland and Citylights. Both are 99 year leasehold condos; built in 2008 and 2007. On first look the key difference is that Viz Holland has 165 units, while Citylights have 600 units.
In the span of 12 years, Citylights would have collected $8,396 from a unit owner. Viz Holland would have collected $9,240 from a unit owner since its beginnings. Yet, a chunk of Citylights sinking fund has already been spent and only 37% of total collections remain. What does it mean? Bear in mind things like lift overhauls, pipes and pumps replacement, roof works can easily cost $100k- $1 million, especially over the 10 year mark.
Whereas for Viz Holland, 70% of the sinking fund remains to be deployed. The numbers do look much better and prudently managed. The question to ask then is whether Viz have done their 10 year replacement items? If not, when is it due? And what is the financial impact?
Again the details can be sourced from the Seller and verified with an on-site visit. If all things are equal, then clearly one is far better than the other. Go see for yourself. Caveat emptor.