Tip the scales in favour of your scheme’s assets
We have talked a lot about what happens when community schemes run into trouble because of arrear levy debt or urgent unexpected expenses. However, on the flip side, well-managed and financially sound community schemes can often hold significant amounts of excess cash.
Since the Sectional Titles Schemes Management Act of 2011 (the STSMA) came into effect on 7 October 2016, there has been increased emphasis on the effective management and stability of community schemes.
Section 3(1)(b) of the STSMA states that a body corporate is required to:
“…establish and maintain a reserve fund in such amounts as are reasonably sufficient to cover the cost of future maintenance and repair of the common property but not less than such amounts as may be prescribed by the Minister.”
The reserve fund is distinct from the administration fund. Where the administration fund is meant to take care of the day-to-day expenses of a community scheme, the reserve fund is meant to provide for the long-term maintenance requirements of a scheme. (Read more on how the contributions to the reserve fund are calculated.)
This surplus cash body corporates hold can sometimes amount to millions of rands and often these reserves are held in savings or trust accounts with one of the major banks.
Get that money working!
As our very own Chief Financial Officer, Mark Booysen remarks, “in some ways, the financial management of community schemes should be treated like those of companies. It is important to effectively manage assets, as well as liabilities to tip the scales in the scheme’s favour.” This requires effective and active management of the scheme’s resources to the benefit of the scheme and all unit owners.
“Investing puts money to work. The only reason to save money is to invest it.” — Grant Cardone
Does your community scheme hold significant cash reserves?
One of our goals at STS, is to not only help community schemes reduce costs, but also to generate revenue and increase bottom lines through sound and sustainable financial management. Our Treasury Solution was born out of the realisation that some community schemes with substantial amounts in their reserve accounts are looking for a way to improve the return on their investment. We decided to address this opportunity for the community scheme industry with an innovative solution to help maximise their interest yield.
In partnership with Anchor Capital, we provide community schemes with the opportunity to invest surplus funds into alternatives to traditional cash and call accounts. Instead, funds are invested into selected money market and income funds. These are bespoke, low volatility investment products that attract higher interest rates than savings and call accounts, or even typical investment funds. Your capital is preserved while earning higher interest returns.
As with all our solutions, we carefully assess each scheme’s unique situation to design a tailor-made solution. Anchor’s financial advisors will analyse your community scheme’s financial requirements and provide a customised strategy to ensure the maximum growth of your reserve funds and surplus cash.
What does the law say?
Trustees and/or scheme executives are often uncertain about the legislative and financial considerations involved when deciding how to deal with surplus cash. You can rest assured that community scheme legislation makes provision for the investment of cash reserves.
Prescribed Management Rule 21(3)(d) of the STSMA Regulations, states that a body corporate may, on the authority of a trustee resolution, invest any reserve fund money in a “secure investment” with any institution referred to in the definition of “financial institution” in section 1 of the Financial Sector Regulation Act (“the FSR Act”).
4 reasons to choose our treasury solution
1) Flexibility
Even notice (call) accounts require notice of typically seven to 60 days to be given before the funds can be accessed and do not produce optimal interest returns.
Our Treasury Solution has been designed to give you access to funds on short notice.
2) Freedom
Although fixed deposit accounts attract slightly higher interest than the typical savings account, the money cannot be withdrawn before the agreed fixed period has passed, leaving the community scheme in a pickle should an unforeseen expense pop up.
With this solution, there are no long-term lock-up periods or exit penalties.
3) Low risk
Investment into low volatility funds is actively managed to ensure attractive interest returns, whilst preserving capital.
4) Smart investment
Funds are invested in a diversified portfolio of complementary assets. The variance of performance of deposits and bonds is leveraged to ensure optimum yield.
If, like us, you think choosing to invest your community scheme’s surplus cash is a no brainer, get in touch.
