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Louise Martin
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Financial reserve planning for estates

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Financial reserve planning for estates

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4 min read

The world is changing faster than any of us can comprehend. So how can homeowners associations and estate managers plan for the future? And what is reserve funding, anyway?

It might seem obvious for any well-managed estate to hold financial reserves that’ll buffer it against future challenges in maintenance costs, replacement of assets, and even changes in social and climatic conditions, but the sad truth is that many don’t – or if they do, they rely on arbitrary figures like multiples of their monthly levies (typically, five times), which have no basis in the challenges they may face.

The reserve fund isn’t a legislative requirement for HOAs or estate managers in South Africa (as it is in countries like the USA), but having one makes sense in today’s climate of uncertainty.

This is why the management of St Francis Links, the Eastern Cape residential estate and Jack Nicklaus signature golf course, takes reserve planning far beyond mere financial projections.

In an exclusive interview, company CEO and director of golf, Jeff Clause, and financial officer and company secretary, Andrew Barton, emphasised that their financial reserve planning forms part of a holistic exercise that’s repeated every year, and that delivers projections (and investments) that look as far as 25 years into the future.

‘It’s about planning through continuous risk assessment,’ says Andrew. This includes a careful look at things like resources (water and electricity supplies, sewerage and grey water), asset maintenance (moveable as well as immovable property), the environment (the effects of climate change being the big challenges here, of course), and community (safety and security, real world and cyber crimes, etc.).

Water supply

According to Jeff, the developers weren’t aware – when they opened for sale to home owners in 2006 – that the estate would, for example, need to invest in a complete water treatment programme within a period of little more than a decade. Or that this would entail everything from installing a new water treatment plant to the purchase of a truck to deliver water to individual construction sites in order to ensure that builders didn’t waste precious potable water.

But, thanks to actions taken in the light of annual analyses designed to reveal ‘exactly where we are’, St Francis Links is mostly self-reliant as far as water is concerned. And, thanks to careful planning for this unforeseen situation, it’s achieved this (and all its other, originally unplanned, capital expenditures) without ever raising any special levies. ‘If you want to hear a dirty word, just mention a special levy,’ says Jeff.

Planning process

Both management and the board of directors involve themselves in the estate’s annual scenario planning process. ‘Things change, and this makes you re-evaluate your 25-year plan,’ says Jeff. One example: energy supply. The estate is currently studying various options for offsetting the rising costs of electricity. For its financial projections, though, the St Francis team works on a 10-year basis.

‘We start over every year: we kick a year out, put in the replacement costs for the 11th year, and modify our requirements accordingly,’ says Jeff.


Taking a holistic view of the estate’s requirements includes deciding the size of the contingency amount required to cover ad hoc expenses, or increases in the specifications of items like security technologies. ‘We used to work on a 25% contingency, but we’ve actually been able to reduce that to 10%,’ says Andrew. ‘Because there are so many risks involved, the size of the contingency depends on how often you evaluate it: if you monitor it closely, you can reduce it.’

Limited resources

St Francis Links makes provision in its operational budget for the costs of consultants required for studies into things like sustainable water and electricity supplies – even though these costs remain contained, since their water and electrical consultants have been involved with the estate since inception.

Both Jeff and Andrew made the point, though, that management’s tasks include keeping a continuous watch on trends in everything from tourism (‘When Cape Town went into drought, we saw a drop in tourism – and if the rand goes weaker, trips will turn domestic, and might even grow’) to fibre to the home (‘We watch what’s happening, ask around. It’s all about the backbone, and if the Eastern Cape’s not geared for it, it makes no sense for us to factor it in. Yet!’)

These trends will inform decisions that management will have to take in the future – and therefore inform its planning for its financial reserves.

‘It’s a continuous evaluation of where you are and what’s happening internationally, and whether there is a better way of doing things – because we have limited resources, and it’s up to us to make sure that we utilise those resources to the maximum,’ says Andrew.

Jeff makes the point that St Francis Links is ultimately in the business of community.

‘We have to make decisions based on the good of the entire estate – and fortunately everyone on our team, every one of our directors, is taking decisions for the good of all.’
Although the discussion with Jeff and Andrew ranged across topics as diverse as wildfires, the removal of invasive alien vegetation, and the estate’s relationship with the local municipality and communities on the borders of the estate, they both pointed out that all of these concerns are significant in its financial planning process.

‘These things are all part of it, because we assess every single aspect of the estate, and that’s where we’re coming from,’ says Andrew. ‘It’s about continuous training, continuous evaluation of our programmes, and continuous evaluation of where we are, and where we’re going.

‘It’s like maintaining an asset: if you don’t maintain it, it’s going to cost you so much more later – so what we do is we pre-empt that by doing the planning and the evaluation and the training before it becomes a problem.’

Bottom line

Clearly, as St Francis Links demonstrates, a well-conducted, well-maintained financial reserve study exercise will strengthen the standing of your estate, and having an appropriate, judiciously managed capital reserve fund will meet many of the legal, professional, and fiduciary responsibilities of your homeowners association, and also enhance the resale values of the individual properties on your estate.

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