A sinking fund is a shared reserve of money contributed by residents of a strata property. It is specifically set aside to cover large-scale repairs or major works on a building. Think of it as a financial safety net or a "rainy day fund" to ensure the property can handle significant expenses without burdening residents unexpectedly.
Examples of expenses covered by a sinking fund include:
Roof repairs or replacements
Structural maintenance
Elevator upgrades
Major repainting projects
What’s the Cost of a Sinking Fund ?
The sinking fund is maintained separately from maintenance fees and is usually calculated as a percentage of the service charges.
Standard Sinking Fund Contribution:
10% of total service charges
For example, if your monthly service charges (maintenance fees) are RM500, your sinking fund contribution will be RM50.
Since it is tied to the overall service charges, properties with higher maintenance fees - often those with extensive facilities - will have higher sinking fund contributions.
Are the Sinking Fund and Maintenance Fee Mandatory?
Yes, residents are legally required to pay both the sinking fund and maintenance fees under the Strata Management Act (SMA) 2013. This law ensures proper upkeep and management of strata properties.
Legal Framework: Strata Management Act (SMA) 2013
Establishment of a Joint Management Body (JMB):
Developers must establish a JMB at the first general meeting of a development within 12 months of the transfer of ownership of the first unit.
Role of the Joint Management Body (JMB):
Maintain and manage the building.
Set and collect charges, including maintenance fees and sinking funds.
Fulfil all obligations under the Strata Management Act 2013.
Formation of the Joint Management Committee (JMC):
Elected by the JMB.
Comprises 3 to 14 members to oversee day-to-day property management and long-term planning.
The JMB is legally empowered to manage the property and collect funds to ensure its sustainability and upkeep.
Why is the Sinking Fund Important ?
Financial Preparedness:
It prevents the need for sudden, large payments from residents in case of unexpected major repairs.
Property Value:
A well-maintained property supported by a healthy sinking fund retains its value better in the market.
Legal Compliance:
Payment into the sinking fund is not optional - it is a legal requirement for strata property owners.
Summary
The sinking fund is a vital component of property management, ensuring long-term financial stability and effective maintenance. Residents should view their contributions as an investment in the property’s value and functionality, providing peace of mind in case of unforeseen costs.