President of Community Association Institute, Vishnu Sharma in his opening address at the IRECMS- Dubai/World Realty Congress, shared that more than 50% of the home owners associations in the US have no reserve for capital expenditures for their estates. Fortunately, the banks in the US are willing to lend funds to home owner associations for renewal works. A loan committed by a home owner association were repaid via special levies against the lot owners. The right for recovery of that special levy could be novated to a bank (lender) against a defaulting lot owner, if there is.
There are also body corporates in Australia that do not have sufficient sinking fund for capital expenditures. The banks in Australia are willing to lend funds to body corporates. The disincentive is interest rate charged may not be attractive enough for the body corporates. As Christine Gow shared one of the lot owners in her portfolio has chosen to borrow from his usual bank at a low rate to pay for the special levy.
A similar scenario has occurred in Singapore where management corporations do not have sufficient sinking fund for replacing essential systems such as lifts and escalators. When a motion for a special levy were defeated, the essential works were forced to be deferred, thus causing great inconvenience to lot owners and tenants. Most banks in Singapore asked for guarantors or collaterals from a management corporation when granting a loan. It is almost impossible to find someone coming forward to offer himself as a guarantor for any loan taken for the purpose of the common property. Since more strata buildings would require funds for renewal works, it may be time that the Building Maintenance & Strata Management Act be amended to allow for provisions that enable easier facility for loans, repayment and recovery process. Alternatively, an innovative funding method could evolve that allow management corporations to seek loan facility.
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