Sinking fund
A sinking fund is the reserve a building's owners pay into each year to meet large, infrequent costs such as replacing lifts, chillers or the roof.
What Sinking fund means for a buyer
Day-to-day running costs are covered by the general part of the service charges. The sinking fund, called the reserve fund in Dubai's rules, is a separate pot built up over years to pay for major repairs and replacements: lifts, cooling plant, pumps, fire systems, facade work, waterproofing and repainting.
In Dubai the contribution is set as part of the annual budget that RERA approves, and it is collected with the service charge through Mollak. The money belongs to the building, not to the developer or the management company, and it stays with the building when a unit is sold; a seller cannot take their share out.
Why it matters to a buyer:
- New buildings. A low headline service charge can reflect a thin reserve contribution. That flatters the early net yield and stores up larger bills later.
- Older buildings. If the fund is short when a big item fails, owners can face a special levy on top of the normal charge. Ask the seller or the management company for the reserve balance and any planned capital works.
- Towers with heavy plant. High-rise buildings with many lifts and central cooling have the largest long-term replacement costs.
A healthy reserve is a sign of a well-run building. Treat it as part of your due diligence on a resale, alongside the service charge index rate.
Questions about the buying process?
An adviser can explain how this applies to the property you're considering.
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