What is Sinking Fund?
What is Sinking Fund?
Sinking Fund is a certain amount of money that collected from each individual property owner in a villa, house or condominium project, only for one time to use on a rainy day. It is usually collected to use in a case of emergency, to repair something in the project, renovate some parts of the project, do a painting job on the exterior, fix or renew the elevators, swimming pool, pathways, roofs etc.
This amount is not going to be collected by the developer. It goes directly to the property management company to be used on emergency cases. In some cases the developer offers in-house property management to its buyers, then the developer collects this amount directly.
What’s the difference between Sinking Fund and Maintenance Fee?
There is Maintenance Fee or as referred as Common Area Fee (CAM fee) also collected from the owners monthly by the management. But this fee is commonly used for day to day maintenance and repair jobs.
When something unexpected occurs, or something needs to be replaced entirely, CAM fees won’t be enough for it. In those cases the management company uses the Sinking Fund to do the necessary work.
Common area fees usually covers the salaries of the staff working onsite. Meanwhile Sinking Fund is only used for emergency, unexpected or urgent repair, fix, change jobs.
How Much is it Usually?
This depends on project. Typically in Phuket it varies between 100 THB to 800 THB per square meter. If you have a 30 square meter condominium unit, you’ll end up paying something between 15.000 THB to 24.000 THB when you purchase the unit from the developer.
In the case of purchasing a villa, it is calculated from the land plot of the property, not the built-up area or living space. So if you purchase a pool villa with 350 square meter land plot, you are looking to pay something between 35.000 THB to 280.000 THB depending on the project,
How Frequently Needs to be Paid?
In many cases this amount is paid only once. Sinking Fund is collected as One Time Payment and never used unless it’s necessary. But in some cases, the compound needs a serious repair job or need some addition, then the juristic discuss with the unit owners and ask for a top-up or another set of Sinking Fund collection. This will be decided collectively by the unit owners, not only by the management company.
Why Sinking Fund is Important?
Sinking Fund is important because this fund almost guarantees that your compound will always be well maintained. Living in a compound that well maintained, well kept makes the whole difference in the world. In Phuket there are some nicely built condominium or villa projects, but the management company isn’t doing a good job and the projects look 10 years older than what they actually are. In some cases common areas stink, the pool has a lot of missing tiles, the elevator looks like from a horror movie.
When you don’t have a decent property management company to collect the Sinking Fund and Maintenance Fees regularly or properly and use them when necessary, you will have a tough time selling your property in the future. The value of your property will decrease dramatically and it won’t be your fault. So overall Sinking Fund and who is collecting it are two important topics.
Is Sinking Fund Paid on Every Property Purchases?
No. It is usually paid when you purchase a property directly from the developer first hand. If you buy a resale property from an individual owner, chances are the it is already paid by the first owner. Then again, sometimes the compound is running low on the Sinking Fund and they may ask you to top-up, then you need to investigate the case by your own.
Is Sinking Fund Refundable on the case of a sale?
No it is not. Once you pay the Sinking Fund, it is already added to accounts of the property management company. Though you have all the rights to ask the management company to give you an update on how much of it used on which tasks and how much left in the back at any time.
Why Is It Called Sinking Fund?
It is quite uncertain at this stage why is it called by this name but according to Wikipedia, it is first used in 18th century in Great Britain to reduce the national debt.
