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[Jimmy-T]

QUESTION: I have been a member of the executive committee and now Chairman, for about 12 years.  Our strata plan has over 80 units on 21 residential levels.

Our sinking fund usually has something in excess of $350K residing in “approved deposit ‘facilities.

The question is, why are the interest rates offered by the “approved” financial institutions not at all competitive with the interest rates that can be obtained in the wider market?  This in the context of the necessary risk and compliance requirement.

Furthermore, the “approved” financial institutions available to owners corporations and/or their strata manager, have not ‘prima facie’ been updated or reviewed for quite some time.

The combined total of funds invested through these sinking finds must exceed many millions of dollars, and the current regulatory environment favours the big banks, not the owners corporations.

ANSWER: The (over) simple answer is that the funding for owners corps to be able to fulfil their statutory duties to maintain and repair common property is too important to allow it to be used in any way that is even slightly speculative. That’s why the government has a list of approved financial institutions that will keep it safe for you. Their rates are low because they are conservative which is why they get the stamp of approval. I hate to think what might have happened if some of the high-risk, high result funds that came crashing down with the GFC had  been carrying a stack of sinking funds.

There’s also an element of not wanting to make too much profit as that can come back on to your individual tax bill without you ever seeing a cent of the money.  I’m sure there could be a more competitive system encouraging higher rates but there’s no incentive to rock this particular boat right now.

By the way (and this didn’t come up at Flat Chat Live) this is one of the reasons that Paul Morton of Lannocks says it is more cost effective to raise money as a strata loan when you need it than it is to salt it away at feeble interest rates while you are having to pay 20 percent on your credit card because your money is tied up in levies.

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