Many condominium buildings in Bangkok had their common area management fees set over ten years ago when the buildings were first completed.
Not only has the cost of providing standard services risen dramatically but, as buildings age, the cost of repairs and the need for improvements have also risen significantly.
Ms. Chanpen Thavorncharoenpon, Director of Asset Services as the CB Richard Eills, looks at the challenges facing condominium management committees and condominium co-owners.
Most condominium buildings have two sources of funds: firstly, common area management fees paid by co-owners normally on a monthly or quarterly basis; and secondly replacement “sinking fund”.
The sinking fund should be made up of the contributions made by co-owners when owner ship title was transferred by the developer. The fund should be deposited in an interest bearing account and technically should be used for replacement of capital equipment in the building.
Common area management fees were, in many buildings, set when the building was completed and, since that date, costs have risen considerably.
CB Richard Eills estimates that electricity costs for a condominium, which are one of the largest single expenses, have risen significantly.
It is not only the daily operating costs that have risen but, as buildings age, the cost of repairs increases as it also becomes necessary to undertake improvements; for example, the renovation of the main lobby and common areas.
Some repairs are critical and can not be delayed. Lift ropes, for example, have a life span of 10-15 years, after which they need to be replaced. Smoke detectors and lift safety devices also start to fail about ten years after installation. CB Richard Eills has recently completed the full replacement of the smoke detection and fire alarm systems at several condominium buildings that now are more than ten years old.
“We believe that condominium owners can not compromise on safety issues and need to ensure the safety of all the occupants of the building,” said Ms. Chanpen.
In contrast, hotels undergo a major refurbishment of their public areas at least every seven years.
There are many condominiums in Bangkok which are now more than ten years old and have not had significant improvements to the common areas.
This is an issue which is increasingly affecting property values. The value of a condominium is determined by its location, design and specification. Many older condominiums are 50% of the cost of new condominiums in a similar area.
Somkid Gardens, which was completed in 1991, is one of the few older developments where resale prices have kept pace with new developments in the area. CB Richard Eills believes this is due to the condominium management committee spending considerable money on upgrades to the common area and co-owners renovating their own units.
Ms. Chanpen added: “We believe that, even to maintain minimum necessary standards, condominium owners will have to pay higher common area management fees. If co-owners want to maintain the value and attractiveness of their property they will have spend additional sums on improvements to the common areas.”
“Condominium management committees have two choices of raising funds; they can either raise the common area management fee or ask co-owners to make a capital contribution to finance the repairs and improvements.”
The Condominium Act requires agree to an increase in common area fees. This is difficult in many cases where less than 75% of the co-owners attend the annual general meeting. There is a proposal to amend this to a simple majority vote of all co-owners but it remains unclear when this amendment will become law.
Despite the difficulty in getting a 75% vote, co-owners need to take action because, in many cases, expenses will now exceed income, resulting in funds from the sinking fund being drawn down to pay for ordinary operating expenses.
Property, whether owner-occupied or held for investment purposes, needs to be actively managed to preserve value. Improvements, repairs and renovations need to be undertaken in order to maintain or enhance value. The challenge of multi-ownership condominium property is to persuade co-owners that the common area fees need to be increased to cover expenses, and those additional funds may need to be raised, to improve the property.