Ever wondered what that sinking fund entry is on your housing society maintenance invoice? Generally speaking, a sinking fund is an account where you set aside money to pay off a debt or for a planned expense. In the context of a gated community, a sinking fund has a similar purpose. There are specific rules for its calculation and usage.
What is a sinking fund in a housing society?
A sinking fund for a gated community has a similar purpose as in the case of personal finances. The main intention is to ensure that there are enough funds for necessary structural repairs or to plan for a contingency. A sinking fund ensures that the community is not overwhelmed by debt or an urgent expense.
Many of the facilities and infrastructure in gated communities are depreciating assets. A sinking fund ensures that necessary repairs can be undertaken without worrying about the cost. It offers financial protection for any urgent expense.
What is a sinking fund utilised for?
A sinking fund is meant for major undertakings like structural repairs. Unlike regular maintenance, these include heavy repairs or reconstruction. However, any resolution to deploy the fund must be passed by the general body of the society. In addition, it must be as per the guidance and opinion of the society architect.
How is the sinking fund calculated in a housing society?
As per the Bye Law No. 13 (C), “The General Body can decide the Sinking Fund contribution, subject to the minimum of 0.25% per annum of the construction cost of each flat incurred during the construction of the building of the Society and certified by the Architect, excluding the proportionate cost of the land”.
In practice, these provisions can be less than straightforward. The construction cost can be different for each flat, depending on its size and even the date of construction. The cost may be difficult to estimate where the builder has marked up the costs. Hence, housing societies often have to explore alternative means to calculate sinking funds.
One of the common alternatives is to take the reconstruction cost as the base for all calculations. This ensures that the calculations are based on current rates and there are no discrepancies. However, this rate must be decided in consultation with the society architect.
ApnaComplex offers a data repository where you can find all critical information. You can check your maintenance invoice for sinking fund charges.
Want to know more about maintenance charges? Read our article to Know all about Society Maintenance Charges. Find out how ApnaComplex facilitates society maintenance here. Worried about escalating maintenance charges. Discover the secret to reducing your society’s maintenance fee!