Residential Estate Industry Journal 4 - Page 50

RESOURCE MANAGEMENT A DELICATE BALANCING ACT… HOW SHOULD A HOMEOWNERS ASSOCIATION OPTIMALLY COMPOSE THE BALANCE SHEET POSITION TO MINIMISE LEVY INCREASES? HOAS ARE ON THE HORNS OF A DILEMMA: The HOA must demonstrate that they have risks in a much swifter manner, and to the ability to carry out a ‘fire drill’ for the deal with impending crises at an early recovery from severe shocks under a stress stage. There’s no doubt that eye-watering HOW TO MAKE SURE THAT THEY WILL BE ABLE TO LIVE UP TO ALL THE NEW, STRICTER REGULATIONS ON CAPITAL RESERVES WHILE STILL MINIMISING THE LONG- TERM LEVIES AND ANSWERING THE CALL FROM INVESTORS FOR NEW AMENITIES AND LIFESTYLE UPGRADES. test and provide robust analysis of risks legislation and new capital reserve reporting pertinent to potential barriers of survival. requirements have acted as a catalyst for Over the years I have observed that the action. Post-property market crash trust same pain points remain: needs to be rebuilt, so the residential “Which balance sheet (BS) positions do we have to expand, and which do we have to reduce?” “How much capital should we hold to be prepared for unforeseen events?” “Over a five-year period, how can we optimally compose our balance sheet in sector is facing more intensive and intrusive • • How to demonstrate that unprecedented remedial actions can be viable in extreme conditions and can be implemented even in a very short time frame. • • How to transform the risk appetite and management framework to include a sufficient range of material and credible options. • • How to address a wider range of crisis scenarios including both distinctive and industry-wide stresses. • • How to streamline the complexity of risk monitoring, indicators and triggers to enable targeted intervention even during re-regulation as legislators seek to protect those who have placed their trust in what is in essence a consolidated wealth survival model in a volatile economic environment. The regulatory environment has shifted toward dynamic and continuous monitoring of risk. The HOA must demonstrate that they have mitigation actions in the event of the parameters being recalibrated under stress, so they must have a dynamic view of capital reserves and liquidity. Regulators and property developers need to avoid another boom-and-bust cycle order to minimise the burden on residents rapid deterioration of industry conditions. in terms of their monthly cash flow while • • How to identify the effects on capital post-crash rules or laws are designed to meeting all obligations of the HOA and also reserves but ensure the investments made stop it before it happens on a micro scale providing for the unforeseen?” don’t solve short-term lifestyle goals in these business models we call HOAs. and cause problems down the line with The interface between these initiatives This is why HOA business models around the HOA cash flow or reserves for the is the need for a prudent and efficient the world are under pressure, now more ongoing upkeep of those investments. management model of the balance sheet. more quickly in order to deal with the HOAs are forced to prepare for their Post-residential crisis, the onus is on boards volatility and speed of developments in the unthinkable demise, so they need to create to challenge and ensure that they have global markets. agile structures that enable them to quantify robust answers to the following questions: and are now trying to ensure that new than ever, to evolve and be able to respond PAGE 48