12/30/2008

What is Sinking Fund for?

Quek Soo Beng’s letter in the Today paper yesterday asked some pertinent questions about the Sinking Fund and the Town Councils Act and role with respect to the fund. For all intent and purposes, the money collected from the residents in the form of conservancy charges etc and placed in the Sinking Fund is for the purpose of maintaining the estate. It was never meant to be used for investment purposes. Should the Town Council intend to invest the money, the main concerns will be capital preservation and not risking it for higher returns. The provisions of the Town Councils Act may be give the wrong impression that it is expected of them to use the Sinking Fund for investment. This unintended function of the Town Council may lead to situations where the main function of the Sinking Fund be forgotten and with the residents contributing unnecessarily more money to it. When the Town Council sees its role as investing the money collected, then there is no limit as to what is enough in the Sinking Fund. And when there are profits from investments or when the Sinking Fund is bloating with excess, there will be no requirement to return the extra fund to the residents. And for all purposes, the residents may be expected to contribute more and more, for investments and more returns, and for the building up of a bigger reserve. It is therefore very important that the purpose of the Sinking Fund be made very clear, ie., to set aside enough money to maintain the estate. And when the amount is sufficient, then it should stop collecting or increase the conservancy charges. The collecting of conservancy charges is not for fun or for the purpose of keeping for rainy days or for investment. When there is a need for more money for estate management, the fees may be raised accordingly. For expediency and contingency purposes, Town Council may want to set aside a little more as a reserve. This amount too must be spelt out. Otherwise the reserve can be for 20 years or 100 years.

8 comments:

Anonymous said...

You are abdolutely right. There is no limit as to how much sinking fund is required and they will continue to collect more and more, because the cost of maintaining the covered walkways and gardens will be quoted as the reason for their having to increase the monthly conservancy charges. It is just like the CPF minimum sum and medisave accounts. Each time they reach the ceiling they will raise it further.

As for returning the excess collection to the residents, wait long long lah. Even when cost of maintenance go down, they will think of a reason to collect more. And Singapore just have to pay and pay.

Anonymous said...

we must know the timeframe of our total reserves, is it meant to buffer singapore for the next 500 years or 1,000 so that when there is more than enough, everything, medical charges, petrol, food, transport, social security, pension etc can be fully subsidise with our excess reserves.

Anonymous said...

i was just reading the BT report abt china eastern airlines, china's 3rd largest carrier. apparently, our SIA wanted to buy a key stake in the company early this year. by a stroke of luck the deal was called off. SIA is lucky becos the china carrier has since lost almost 80% of its share price.

this again brought home the risk of investment, how dangerous that can be.

at the peak of the previous cycle, singtel wanted to buy cable and wireless. had pccw not frustrated the deal with a higher offer, i think singtel would have been bruised badly becos this deal supposedly occurred at the peak of a market cycle. as it turns out that the heavily geared white knight li was dealt a big blow instead when market subsequently turned and prices collapsed in a stunning way.

these are just 2 examples of harrowing escapes, unfortunately we did not escape the abc learning deal. one of our corporates lost a BIG bundle in a short time.

so, the article about investing with sinking funds has its merits.

redbean said...

there must be a cap to our sinking fund and to the national reserves. whatever number they come up with is better than no numbers. the nkf is a good reminder of how people could keep stashing up the reserves when there is no cap and no limit, reserves for 10 years, 20 years or 200 years.

as for the sinking fund, this is particularly important as it affects the hardlanders pocket. when it is enough it is enough and they should not be make to keep paying and ever higher S&C charges.

in all the recent reviews of town councils, this is a point that needs to be addressed.

Anonymous said...

Perhaps the govt shudnt be too conservative about hoarding the reserves forever, 10 years is good enough.

Why should the country keep so much reserves instead of addressing the present social welfare, unemployment benefits, health and pension needs.

Afterall those reserves belong to the country and its people, not the government of the day. Is it wrong to ask for the redistribution of the accumulated wealth to the people?

redbean said...

keep questioning. why 10 years and not 2 years or 3 years. or why not 1000 years?

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