Sinking Fund

Under the Building Maintenance and Strata Management Act, an MCST is required to keep the sinking fund as a separate account from the maintenance fund. The maintenance fund pays the recurring, operating bills of running the development, cleaning, security, utilities, and minor repairs. The sinking fund is the capital account that pays for the big, infrequent items a strata building eventually faces as it ages, such as repainting the facade, replacing lifts, waterproofing the roof, resurfacing car parks, or upgrading fire safety systems. Both funds are collected from owners at the same time, usually as one combined bill, but they are meant to be spent very differently.

The council recommends a contribution rate for the sinking fund each year as part of the annual budget, and it is put to owners for approval, typically alongside the annual accounts review at the AGM. There is no single fixed formula every development must use, and how adequate a fund is depends on the building's age, size, facilities, and the condition of its major systems, so a fund that looks healthy in dollar terms can still be thin relative to what a twenty year old lift bank or facade will actually cost to fix.

What commonly surprises owners is that a sinking fund set too low by the original developer, or one that has not kept pace with rising construction and labour costs, does not stay hidden forever. It shows up later as a special levy, a lump sum bill on top of the usual fees, raised when a major repair can no longer wait and the reserve cannot cover it. Owners who bought years ago sometimes assume the fund is the MCST's problem rather than their own money, when in fact every unit owner collectively owns and is responsible for topping it up.

Before buying into any strata development, it is worth asking for the last two to three years of financial statements and AGM minutes, checking the current sinking fund balance against the building's age and any known upcoming works, and asking directly whether a special levy has been discussed or voted. This information is general and does not replace a proper review of the specific MCST's accounts and by laws, which a conveyancing lawyer or the managing agent can help you obtain before you commit.

Winfred Quek is an Associate Marketing Consultant at Crestbrick Pte Ltd (CEA Licence No. L31010886H). CEA R073319H. This page is for general information only and does not constitute financial, investment, or legal advice. Verify current figures with IRAS, HDB, CPF Board, or MAS before making any decision.