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Apartment Sinking Fund and the Difference from Service Charges

 

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If you intend to live in an apartment, there are several costs that must be prepared. One of them is the apartment service charge or Environmental Management Fee (IPL). In short, apartment IPL is the cost of building maintenance that is borne by the owner or tenant of the apartment unit.

Not only IPL, there are other costs of living in apartments that must be considered, namely sinking funds. So, what is a sinking fund? Find out more below.

What is a Sinking Fund?

To clarify, there are two meanings of sinking fund. From a financial management point of view, a sinking fund is a special fund set aside for future expenses. These funds will later be used for planned purposes, such as school fees, holidays, or even the budget to buy a vehicle.

Meanwhile, sinking funds for apartments are long-term savings that must be issued by tenants for apartment maintenance. Similar to IPL, this fund is a special savings account for building management on a regular basis. The amount can be arranged based on an agreement with the party who rents out the apartment.

However, in general, apartment sinking funds are paid once a year or in monthly installments, before the year's lease period ends. The amount set is around 10–15% of management fees per month.

Difference between Service Charge and Sinking Fund

Previously, we explained the two costs of living in an apartment, namely the service charge or IPL and the sinking fund. Even though they seem similar, in fact there are differences between these two types of costs. In short, a sinking fund is a source of funds for repairing damage that arises as a result of tenant use, and cannot be taken when the tenant moves out.

On the other hand, a service charge is a fee that is calculated based on the total operational and maintenance costs for objects, areas and land each month. Service fees are used to pay for the salaries of security, cleaning, maintenance and maintenance of apartments, as well as operational costs such as electricity in the hallways and elevators. Service charges are usually paid monthly, quarterly or once a year.

Apartment service charge fees also rarely increase, unless there are new apartment facilities offered by the developer. Meanwhile, sinking funds can increase at any time.

Profit and Loss Sinking Fund

For those who don't know, sinking funds have benefits that can help ease your burden in the future. But of course, behind the advantages of sinking funds also have some disadvantages. For consideration, here are the pros and cons of an apartment sinking fund:

  • Provides convenience for tenants in managing expenses for unit repairs. Tenants also no longer need to worry about the cost of major repairs to the apartment.
  • Sinking funds generally experience an increase every year. Different from deposit money, sinking funds are also permanent, meaning they cannot be taken back.
  • This fee must be prepared and paid in advance when renting an apartment. Therefore, you have to prepare an extra budget when you want to buy or rent an apartment.

How to Calculate the Nominal Sinking Fund

Usually, the costs required for sinking funds have been arranged when the apartment was built for the first time. In this case, the management has made projections of the costs that will be needed for future repairs.

For example, there is a 40 m² two bedroom apartment with an average maintenance cost of IDR 10,000 to IDR 15,000 per square meter. That way, the apartment has an estimated maintenance cost of around IDR 400,000 to IDR 600,000 per month.

Well, the sinking fund that tenants have to pay is around 10–15% of the cost, which means around IDR 40,000 to IDR 90,000 per month. That was an explanation of the apartment sinking fund, the difference from a service charge, along with how to calculate it.