Impact Of Inflation And Higher Interest Rates

The article discusses the impact of inflation and higher interest rates on condominium communities. The actual rate of inflation is not indicative of rising costs for these communities, which have many expenses not reflected in the consumer rate of inflation, such as building equipment purchases, repairs and maintenance, management and employee salaries, security, and cleaning services. Replacement and major repair costs from reserve accounts have been rising at a rate of 35 percent between Q1 2020 and Q4 2021. Condominium corporations have large amounts of money in reserve fund accounts, which can benefit from higher interest income as rates increase. However, condominium corporations are dependent on monthly condo fee payments, which reduce the benefit from higher interest income compared to higher costs for daily operations and the reserve fund. Older buildings with an inadequate reserve fund balance are at greater risk of requiring more funds on short notice. Boards of directors are responsible for the financial oversight of the condominium corporation and need to balance honest and realistic annual budgets for operations, a realistic reserve fund study, and a proper level of condo fees to support both.