The UK's Property Purchasing Process is Broken

http://www.moneysavingexpert.com/mortgages/house-buying-guide

In Singapore, we go by the option to purchase system. Once the buyer and seller agrees to a price, the buyer pays 1% of the purchase price as an option fee, which allows the buyer to exercise the option after around 4 weeks. The seller cannot back out. After 4 weeks, the buyer must pay the balance 4 to 9% to exchange contracts. Otherwise the option will lapse and the seller is free to sell her house to someone else.

After the exchange of contracts, both sets of solicitors will race towards completion, usually after another 8 weeks. If the buyer requires a mortgage, the bank usually takes around 8 weeks to disburse on settlement day.

We've had rotten experiences buying resale properties of late. It happens when the market is hot. The law is skewed towards the seller because there is NO OPTION TO PURCHASE agreement in UK except in Scotland. It is merely a gentlemen's agreement to exchange contracts usually 4 to 6 weeks' time. Meanwhile, the seller can refuse to take the property off the market.

What happened to us was that we agreed to purchase a property in Hammersmith for GBP390k. But the seller requested a GBP5k of "earnest money" and refused to take the property off the market. Since the market was hot, we acceded to their request. While working towards the finishing line, which is the exchange, the seller took it off the market because they realised the sale price was 50k too low. We meanwhile incurred GBP1.5k of legal fees.

Such a system usually benefits no one, except the solicitors. Agents will have to chase the deal before exchange and pray that the seller doesn't change her mind. In a down market, the buyer could demand the price to be dropped if they discover some minor fault in the property.

Up to 60% of the deals fell through in the last six months because greedy sellers shift the goal posts after they have agreed on a sale price. Some unscrupulous sellers instruct their solicitor to accept 10 offers and up the selling price every week until finally one buyer is left.

We wrote to the UK Financial Conduct Authorities but to no avail. This archaic system has to change, because it damages the credibility of the UK financial and real estate industry.

If you need advice on how to navigate such tricky purchases, do email me. Resale properties any where in the world is still cheaper than off plan. So you should persist, but the corrupt UK system MUST CHANGE.

Stock Markets Update

It is now May and we have reached the "Sell In May And Go Away" period. Of the 26 sectors / indices that I measure, 7 are SELLS (Emerging Markets, Russia, Thailand, Indonesia, Singapore, Global Real Estate, European Real Estate). 4 STRONG BUYS (China, Mining, Tech and US Financials), and 3 ACCUMULATE (between 15 - 20% upside in one year) (US, Global Financials and European Financials).

Earning are still rising in many countries, especially in the US. Despite the record high levels, US stocks are in general still in ACCUMULATE territory.

Asia and EM stocks do not look ready to invest, because the monetary scores are horrendous. As the US continues to taper by USD10 billion every quarter, the QE from Japan and UK cannot cover the gap. The liquidity outflow from Russia, Indonesia and India has caused their yield curves to invert. This means that the three economies could face a slow down or even a contraction of their GDP in 2015. My thesis remains this: Asia and Emerging Markets are still in treacherous times because of the liquidity outflow. Real estate prices are also at record high in many cities, e.g. Bangkok, KL, Singapore, Jakarta, Beijing, Shanghai and Manila. Governments are struggling to contain cost of living increases and are unable to lower short term rates to boost the economies.

I particularly dislike Singapore equities. Singapore is a small and vulnerable nation. For the past 50 years, we have relied on population growth, cheap foreign labour and MNCs to boost the economy. But there is a limit to the population growth. There won't be room for more people soon and the adverse impact of over crowding (e.g. poor morale, overly stressed workers, creaking infrastructure, small homes, poor physical and mental health) will outweigh the economic benefits. MNCs cannot be relied on to provide good jobs for citizens as their preoccupation is to maximise profits and increase productivity via automation. There are very few home grown MNCs as the government failed to promote local leadership who can bring our SMEs to the next level.

Cyclicals continue to indicate outperformance. I particularly like tech (internet related stocks), mining and banking.

It is time to take some profits off global stocks. You can probably find better return to risk ratios by trading bonds which give around 5 - 7% for SGD. Stock markets this year is unlikely to give us more than double digits so bonds should be the preferred choice. EM / Asian bonds could be a better bet for now.

One Number That Will Help You Decide Whether to Buy or Rent

http://www.chicagobusiness.com/realestate/20140430/CRED03/140429718/one-number-that-will-help-you-decide-whether-to-buy-or-rent

Obviously, the higher the rental yield, the more you should buy and not rent. Hence, for example, you should buy a place that gives you a rental yield of 7%, which is usually an old house near good transport links off the centre of CBD, and rent a luxury house with a sea view yielding only 2%!

But more importantly is the direction of rent. If the yield is very low, but rent is growing rapidly, e.g. 8-10% pa, it indicates high demand and severe shortage and it is worth investing because yields could rise rapidly and after a few years, capital gains too.

But if rent is stagnant or falling, it indicates a lack of demand or over supply. You should rent not buy, because you can then ask for a lower rent with each passing year.

Remember: Capital Gains is what make you wealthy. Rental yield is a safety buffer that enables you to pay your mortgages in good and bad times.

Old and Cheap Houses in Central Locations That Nobody Wants to Live in. But If Prices Are Low, Demand for Cheap Rents is High, Then Capital Gains Usually Follow.

Investing in Luxury Holiday Homes are Often Hit and Miss Affairs because rental income is inconsistent. If you have a mortgage and fall in hard times, you may find it difficult to hold on to the property in bad times