Everyone knows how budgeting for the Body Corporate financial year works. Most managing agents do a very simple three column budget – What was spend, what was budgeted and what the proposed budget is going to be. Not very informative but the way that most Body Corporates are run. At Platinum Global we have previously discussed using month by month – item by item, proposed budgets to give far more accurate results and to take into account increases at specific times of the year.
Body Corporates tend to budget for the current years expenses and then thumb suck a figure for the reserve fund – frequently this figure is totally inadequate and not based on realistic expectations. The result is that special levies have to be put into place for almost every long term maintenance item (painting, waterproofing) rather than paying relatively small amounts every month. While some wealthier owners are able to pay out lump sums, many owners simply do not have cash reserves to do so. It is very likely that the sectional title act will change (with the new act) and will make it compulsory to accurately budget in the current financial for future long term maintenance. Platinum Global has been going in this direction for some time by adding into the current years financial budget amounts for future maintenance of such items as lifts, painting, waterproofing and especially the revarnishing of wooden window frames. All that is needed is an understanding of the likely future cost of doing the work with something allowed for inflation less interest that will be accumulated from investing the funds collected. Once you have done this once for each item it is fairly easy to update it each year. The reserve fund can effectively then fall away unless some items are not covered in the normal budget. What is actually happening is that future maintenance is budgeted for proportionally in each current budget and this is a far better way of looking at medium and long term maintenance than suddenly being faced with major bills that result in special levies. It should be remembered that the aim is to look at all long term maintenance so this would include projects that might take place every 50 years or so such as new lifts, replacement of water pipes, renewing driveway concrete slabs etc. So it may not be quite so easy to handle as it sounds but it will definitely be a step in the right direction. It is quite likely that one of the insurance companies that currently offer geyser replacement insurance (in reality a savings account for geyser replacement) will offer a similar policy to cover long term maintenance of the building.