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About Strata Finance

What happens when your body corporate requires you to contribute thousands to fund a major repair to your apartment block? What are your options?

For the two million strata property owners in Australia, the choice in the past has either been a special levy or a sinking fund. With a special levy, each strata title owner had to contribute their required share, often borrowing sizeable sums of money. Alternatively, the body corporate would have a sinking fund in place that would be built up over time that’s used to finance major repairs, maintenance or upgrades.

More recently, Capital Finance has made funding available where the body corporate borrows the money on behalf of all the strata owners who then service the loan through their strata title obligations.

There are distinct disadvantages in sinking funds and special levies. Sinking funds are costly as you are subject to inflation, increased scope of works, increased interim maintenance, tax and lost opportunity, all of which rise while you are waiting to accumulate sufficient funds. Special levies have the disadvantage of lost opportunity cost which can be substantial.

As building costs rise by and estimated 10 to 15 percent a year there is a strong argument for the need for strata finance as it facilitates immediate action. Strata Finance is usually cheaper than a sinking fund and often cheaper than a special levy. The benefit of strata finance is that when you sell your property the loan passes on to the new owner.

Strata Finance is generally an unsecured loan. Terms for Strata Finance generally range between five years to ten years. Interest rates, although higher than mortgage rates, can vary depending on the size and length of the loan although strata finance can still end up being a cheaper alternative.