Counting the opportunity cost of a mistimed property purchase

February 26, 2009 by admin   
Filed under Daily Musings

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By Jeremy Koh, Guest Columnist

I bought a two room unit in a centrally located condomnium in the mid 2007 at the peak of the property market which appears to be on a bull run.

Almost everyone was upbeat on the rosy future of the property sector. Prices were going up like crazy. A 5 room HDB flat at Marine Parade was sold for $730,000.

Like many others, I jumped into the bandwagon thinking that the price would continue to move up. I thought I could flip my purchase a few months later and make a killing.

Actually, the price did go up a little and I was offered a reasonable price for my unit, but being greedy, I declined and stay put in the vain hope that I can sell for a higher price later on.

It didn’t. The subprime crisis erupted in the states and the market stagnated. Then came bankruptcy of Lehman Brothers which trigger the financial crisis. The expats left Singapore in droves. The market dived.

I was stuck with my property which will TOP only in 2010. Rentals are expected to be lower then and I may have to top up with cash to finance the mortage.

More importantly, I have over $200K stuck when I could have used it to invest in another property now when the prices are dropping.

Last week, a mid-floor unit at The Sail was sold at $1,250 psf. My eyes were literally red with envy when the agent told me how she closed the sale. I will definitely give it a go if there is still spare cash in my pocket.

Yes, the property purchase I made was for a long-term investment. I didn’t borrow money to buy it and there is a possibility I may sell it for a profit 10 years down the road when the economy recover.

However, if I didn’t make the hasty decision then, I will surely have the means to buy a unit of The Sail at ridiculously low prices which will fetch a higher price later on.

Alas, I am having sleepless nights daily counting the cost of a mistimed property purchase. I wondered if Mr Lee and his daughter-in-law are able to sleep well at night too given the billions of losses our SWFs have incurred.

When I last checked, the shares of Citi Bank and Bank of America have dropped more than 75%:

Yes, I know our investments are for the “long-term” and are made from a “long-term” perspective and therefore it is okay for us to wait a few “long-terms” for the graph to pick up to where it first left off.

Still, I can’t help having nightmares when I think of it - BILLIONS of dollars gone in a flash !!! That will take generations to reaccumulate. How is the government going to count the “opportunity cost” ???