Every building has a defined lifespan—typically around 40 years from its construction date. Once it nears or reaches the end of this period, undertaking civil repairs becomes highly impractical. At that stage, the only viable option is to demolish the existing structure and build a new one. To finance this reconstruction, a sinking fund is established and maintained for this very purpose.
Estimating the cost of reconstructing a building 40 years into the future poses a significant challenge, primarily due to the impact of inflation over time.
According to Bye-law 13, societies are permitted to collect 0.25% of the construction cost annually as a sinking fund. For instance, if the construction cost is ₹2,000 per square foot and your flat measures 800 square feet, your yearly contribution would be ₹2,000 × 800 × 0.0025 = ₹4,000.
However, when inflation is factored in, this amount becomes quite minimal and insufficient to cover future reconstruction expenses. Despite this limitation, it remains mandatory to collect the sinking fund. Moreover, the collected amount must be placed in a separate fixed deposit account to ensure proper financial planning.