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“Sinking funds” or capital reserve funds: what they are for?

Posted by BKK.CONDOS on 15/12/2019
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When you buy a condo in Bangkok, as discussed previously, you will need to pay a monthly management fee to cover items such as the cleaning and maintenance of common areas, security and so on.

Some buyers are not aware of or get confused when they hear about “sinking fund” or capital reserve funds. But, the purpose of these funds it’s really quite straightforward. For ease of reference, let’s just call them capital reserve funds.

When a buyer buys a new condo in Bangkok, he/she will be asked to pay an amount which goes into the capital reserve fund. These funds are managed by the juristic person and are meant to cover extraordinary repair or maintenance items to a condo building. Obviously, as a building ages or the developer’s warranty is no longer available, certain relatively major repair, maintenance or even improvement items will be required.

Examples of such include: repairs to or replacement of air conditioning chillers, roof waterproofing or painting the exterior of the building to maintain its image and maintain its investment value. Improvements may be a new, longer swimming pool, updating the equipment in the gym room or even refurbishment of the lobby areas.

The sinking fund is a reserve fund set up by the owners within a development, usually units of condominiums

Such expenditure is usually major and is not covered by the monthly management fees for the daily and monthly operation of the building. In theory, the money in the capital reserve fund is to be used for items of a capital improvement or repair nature. However, some juristic entities and their associated Owner’s Committees prefer to raise funds for such works by imposing a “special levy” on condo owners. This is notwithstanding there are ample funds in the capital reserve fund (which is usually held in a longer-term bank deposit and earning interest for the condo owners).

Any amount due from condo owners via special levy will, usually, be paid at the beginning of a calendar or financial year and will be available for the works budgeted under the “capital works plan”.

Interestingly, if you buy an older condo some sellers will ask you to also pay for their original contribution to the capital reserve fund which they paid when they bought the condo. Some sellers will not.

In any case it is always wise to find out what sum is in the capital reserve fund. This should be shown in the annual accounts produced by the entity managing the condo. You can also check before you buy a condo in Bangkok what plans there are for upcoming capital improvements and the costs thereof.

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