WHAT IS SINKING FUND?
When it comes to purchasing a Phuket condominium, it is essential to know about a sinking fund. A sinking fund is a reserve fund set up by the owners within a development, which acts as a savings account, set aside for a rainy day. It is typically called upon in the case of an emergency, or for any significant repair work on the building structure, the pathways, borders, roofing, elevators, or even the swimming pool. Here’s everything you need to know about sinking funds.
What is a Sinking Fund?
A sinking fund is a reserve fund set up by the owners of a development. It acts as a savings account that is typically called upon in the case of emergency, or for any major repair work on the building structure, the pathways, borders, roofing, elevators, or even the swimming pool.
Each owner contributes a one-time payment to the sinking fund, usually at the time of purchase. The money is handed over to the management company or the Condominium Juristic Person (CJP) and is not paid to the developer. If there are any unsold units when the resort is finished, the developer is responsible for transferring further sinking fund monies to the CJP as these are gradually sold.
Why is it Necessary?
The sinking fund is essential when extraordinary expenses arise, which are outside the regular budgeted costs for the condominium. It is not used for the day-to-day running costs of the resort, which are covered by the regular common area maintenance (CAM) fees. The sinking fund ensures that the capital is always available and helps to safeguard your investment in any condominium and to ensure that your unit maintains its value.
How Does It Benefit and Protect You as an Owner?
A sinking fund is absolutely essential to safeguard your investment in any condominium and to ensure that your unit maintains its value. It helps to take care of any extraordinary expenses and keeps your investment safe and secure. Without it, the condominium may never get repaired or painted, making it impossible to sell.
How is the Amount You Contribute Calculated?
The sinking fund contributions are calculated by taking the size of the unit (in m2) and multiplying that by the fixed sinking fund rate. Rates vary in Phuket, but the average tends to be around 500 Baht per square meter for standard new development. This can be much higher for luxury condominiums.
Will the Sinking Fund Ever Have to Be Paid Again?
Occasionally, owners are asked to replenish the sinking fund after many years. But as the costs are shared between all owners, it is easier to manage. The monies are retained by the management office to cover any wear and tear or repairs that have gradually become necessary during the time you lived in the condominium.
Where is the Sinking Fund Held?
A sinking fund is typically held in a ring-fenced account, so it cannot be mixed up with the monies used for the everyday running of the resort. This makes perfect sense, but a separate account is not mandated by law in Thailand. In a well-run condominium or one with an active owners committee and professional CJP, the owners and management can insist that the monies for the sinking fund are held separately.
A sinking fund is necessary to cover all future major repairs and upgrades. These costs usually only arise after many years, and are one-off expenses, but taking care of them is essential to protect everyone’s investment. To safeguard your investment in a condominium, it is essential to understand sinking funds and their purpose.
