“Yah lar,” cries my friend over kopi. He laments the existing playground and landscaping are not properly maintained. Some parts of the rubber-floor lining had dislodged due to wear and tear. Nothing done. The greenery used to be tended by two gardeners, now only one.
But as he showed me the financial reports, I pointed out the total Strata funds are plentiful and robust. That is, the total of Sinking funds (SF) and Managing funds (MF).
How did I know? Well, let me show you a real-life example of one condo running out of funds. An almost twenty year old condo development in Upper Bukit Timah, I call “PanCit”. A relative had bought a unit and appointed me to take charge of it.
PanCit awakening from ten years of grandiose
In 2018, PanCit finally voted to raise their SF from $15 per share value to $25, and to increase MF from $72 per share value to $78. Managing agent had highlighted the operating deficit over the past two years. This resulted in drawing down from the existing MF. The SF had approximately $2.1 million(M). Taken together, total funds was $2.56M.
To put in perspective, this condo with about 350 units comprises of three blocks. Since TOP, the maintenance fees were largely unchanged. Annual contributions amounted to $1.16M for MF, and $0.24M for SF. Over the past 17 years, total collections are as shown below.
Managing Funds (MF)
Sinking Funds (SF)
PanCit’s funds as of end year 2018
Most of the building, equipment and facilities were estimated to have a lifespan of 10-20 years. MA calculated weighted average of 16 years and projected $750,000 annual provision. In total that’s $12,000,000 replacement costs. It is already the 17th year. Assume all monies accumulated in SF since have been used for replacement. There is still a shortfall of $8,000,000.
MF isn’t doing too well either. The operating deficit raised earlier meant whatever was collected was spent, and more. No wonder both MF and SF were raised, albeit insignificantly, amounting to less than $260,000 annually.
How do we raise $8,000,000? Oh dear, now it’s clear. We could not afford those gardens, pools, guards, cleaners and fresh coat of paint for the past ten years. Not possible, unless we triple the recent increments from $260,000 to $780,000, ten years ago. We thought we could have our cake and eat it.
During the circuit breaker period, tenants have been given rent reprieves to cope with the downturn. With the worsening of Singapore’s GDP (-13.2% for Q2 yoy), there is an on-going second round of retrenchments and pay-cuts. Some condo owners are finding themselves in financial difficulties. They have been asking for a reduction in MCST maintenance fees, which can amount to $250-$800 per month (depending on development size and facilities).
Council members review contributions and expenses continuously. I would say this is their biggest concern and main responsibility. Once a year, all owners are informed during AGM and given the opportunity to voice out regarding this matter. Therefore such contributions should either be sufficient or with a small buffer (in older and more conservative condos).
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.