Investor Newsletter #4 - December 2009

Welcome to our December 2009 General Finance quarterly newsletter. We appreciate your support. The purpose of this newsletter is to keep you informed about the company and various financial matters that may interest you.

Our Current Lending

As discussed in our September newsletter we are continuing to see an increasing number of mortgage applications.  With a tight lending market and fewer sources of secondary finance (other finance companies and mortgage trusts) we are continuing to write quality mortgages.  Our new mortgages are nearly all firsts and do not exceed 70% of valuations.  All our mortgages are for shorter term durations and are largely used for bridging purposes.  As at 31 March 2009, 64% of our mortgages were firsts, this increased to 79% by 31 August 2009 and by 30 November the figure was 88%. Our lending resembles that of a building society rather than a traditional finance company. All our mortgages are residential and located in this country.  We feel this is positive for our investors.

2010 Crystal Ball

It is always difficult to predict the next twelve months but some trends are starting to emerge. We believe house prices, in the main centres, will continue to appreciate. This is both demand and supply driven. There are fewer new dwellings becoming available as there are fewer being built, and demand is increasing due to higher immigration figures, more Kiwis returning home and a natural population increase. Interest rates will go up, but in the second part of the year only.  The amount they go up depends on the recovery happening, how strong it is and unemployment starting to fall.  Finance will be difficult to obtain for business and construction projects due to the demise of virtually all second tier lenders. This is a serious issue for the country and will hinder our future growth. Each month the international credit crisis moves further into the background and hopefully next year it can be consigned to part of global economic history.

A Capital Gains Tax is Wrong

There is considerable talk in the press about implementing a capital gains tax on residential property. The problem with this is that it is hard to target a single asset class. For example an individual has four investment choices, to buy a residential rental property, a commercial property, a business or a portfolio of shares. Let’s say they are all purchased in a loss attributing company (LAQC) and the investments are geared (i.e. borrowed funds are used). All investment classes perform well, provide taxable income and happen to be sold at the end of five years. Why should a residential property investor pay a capital gains tax and none of the others have to? Buying a rental property is a business venture and it should just be treated like any other business venture and be free from a capital gains tax.

Interest Rates

Interest rates have been edging up slowly this year. Just to remind our investors, if you are looking at a rate above 9.0%, our three year rate is 9.25%. If you deposit more than $10,000 with us you can have your interest paid monthly. This is a great advantage for those wanting a regular monthly income.

Next Interest Payment 

Our next quarterly interest payment will be made on the evening of Thursday 31 December 2009. Direct credits will go in that evening, with cheques (if applicable) and paperwork being forwarded during the week.

If you have any questions about your investment please do not hesitate to contact me on 09 526 7801 or by email to wcairns@general.co.nz  Our website is a www.general.co.nz.      

If you want to invest more funds, you can obtain an investment statement and application form from our securities registrar.  Their number is 0800 500 602.

Your continued support is appreciated.

May we take this opportunity to wish you and your families a very Merry Christmas and all the best for the New Year.