Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
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  • In his dreams...:bab (59):

    Originally Posted by rembrants
    Repo rate cut 3-4 times since Dec 11!!!!!

    Can you please tell when exactly did this happen?
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  • Want to invest in property? Now is the right time

    Want to invest in property? Now is the right time


    A number of factors have recently eased the hardships faced by homebuyers earlier. Any delay on the part of end-users in acquiring a home will only be at a higher cost now. However, times are changing and there are several factors that will reduce the issues faced earlier while investing in a home.

    The Reserve Bank of India (RBI) has cut the repo rate by 50 basis percentage points paving the way to making home loans cheaper. Housing finance companies and banks are expected to reduce the lending rates shortly.

    One bank has already offered to re-price its existing home loan at a lower interest rate. Under this option, borrowers can switch to the prevailing floating rate that is at a discount to the prime lending rate. The borrower has to pay a one-time 'switchover fee' of one percent of the outstanding loan. Some banks have slashed their lending rates by 75-175 basis percentage points. The rate cuts will be applicable to new borrowers.

    With the land, input and labour costs soaring, home prices are inching upwards across all micro-markets. According to industry sources, taking into account price increases of the four key construction components, steel, cement, labour and bricks, there is an 18 percent gross rise in construction costs over the last two years. :bab (59):

    Moreover, new projects, improved connectivity levels and infrastructure development will only up the soaring land costs every year. And the State government too revised guideline values for registration, which will only add on to the housing costs. :)

    All this implies that any delay on the part of end-users to enter the market would only be at a higher cost later. Also, the increase in the service tax rate from 10.3 percent to 12.36 percent will increase the costs of production for developers.

    Complete Story at ->

    Want to invest in property? Now is the right time - The Economic Times
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  • Another crap article from ET, do not believe in such articles. Builders pay these newspapers for such articles.
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  • Originally Posted by JumboHulk
    Want to invest in property? Now is the right time


    A number of factors have recently eased the hardships faced by homebuyers earlier. Any delay on the part of end-users in acquiring a home will only be at a higher cost now. However, times are changing and there are several factors that will reduce the issues faced earlier while investing in a home.



    I don’t understand the article on what basis they have written it. I think market has huge liquidity crunch and on this scenario if banks reduce the borrowing rate, it will increase borrowing, but for this where the liquidity come from.
    Last quarter liquidity deficit is highest in 3 or 4 years, it means people are depositing less and borrowing more. Also RBI has to find out the solution for import deficit which is $114 billion. While all this is happening cement companies have reduced prices because of low sell, and today shares fall for all big cement companies due to loss in there profit.
    Whole world is thinking about economic recovery and this article says this is right time to invest when property prices are sky rocketing….
    Need to think twice before investing in property
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  • Builders & Govt come together to sc**w poor buyers

    Originally Posted by p_vinay
    I don’t understand the article on what basis they have written it. I think market has huge liquidity crunch and on this scenario if banks reduce the borrowing rate, it will increase borrowing, but for this where the liquidity come from.
    Last quarter liquidity deficit is highest in 3 or 4 years, it means people are depositing less and borrowing more. Also RBI has to find out the solution for import deficit which is $114 billion. While all this is happening cement companies have reduced prices because of low sell, and today shares fall for all big cement companies due to loss in there profit.
    Whole world is thinking about economic recovery and this article says this is right time to invest when property prices are sky rocketing….
    Need to think twice before investing in property



    The article should have read "Buyers, want to be suckered. No better time than this.

    Govt increasing reserve price is not on any sound basis. Its to raise more taxes to try to bridge rapidly rising deficit gap.

    The markets are starting to slow down and grind to a halt in terms of price rise. But prices will not fall right away. This is how it goes in RE ...

    First volumes will crash for at least 1 - 1.5 years.

    When people holding inventory realise that there is no hope of volumes rising and they are going underwater, only then prices will start declining.

    Even then, real bargains of 20% + may come only a year or more after that.

    This time around there will be no QE x from US to bailout markets and bring them up again. Therefore a longish wait is required before you get brokers and builders really begging you to buy at your price.

    Want to be patient till then?

    cheers
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  • Originally Posted by p_vinay
    I don’t understand the article on what basis they have written it. I think market has huge liquidity crunch and on this scenario if banks reduce the borrowing rate, it will increase borrowing, but for this where the liquidity come from.
    Last quarter liquidity deficit is highest in 3 or 4 years, it means people are depositing less and borrowing more. Also RBI has to find out the solution for import deficit which is $114 billion. While all this is happening cement companies have reduced prices because of low sell, and today shares fall for all big cement companies due to loss in there profit.
    Whole world is thinking about economic recovery and this article says this is right time to invest when property prices are sky rocketing….
    Need to think twice before investing in property

    +1. And in addition to this, the biggest detrimental factor for RE is lack of confidence. I know atleast 3 person with cash in hand but still are wary of buying a house right now. As RE is big ticket purchase with huge taxes in case of sell & loss of stamp duty & other taxes, it is best to buy when one is confident not just of themselves but even the builder & general situation around.

    The 'Food Guarantee Scheme' has been scrapped & the funds towards NREGA are also going to be cut down drastically so as to reduce fiscal deficit.
    The current budget is one of the most dullest budget ever seen in past 5+ years with policies showing clearly that Govt is more on back-foot rather than being pro-active.

    More you wait, more cash you will have in hand, which would mean lesser EMI & more down-payment & in coming months, cash will be the king.
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  • Retail inflation rises to 9.47%

    The increase in retail inflation was sharper in March as against February and January (7.65 per cent).

    On Wednesday, Finance Minister Pranab Mukherjee said high level of inflation would persist and there was no escape from it.:bab (43):

    Retail inflation rises to 9.47% - Indian Express
    CommentQuote
  • Budget 2012-13: Illusory fiscal consolidation?

    Came across very good article from IE. Nicely shown how the budget 2012 is full of illusions & non-existent money.

    Budget 2012-13: Illusory fiscal consolidation? - Indian Express
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  • Use the Gold price correction as Opportunity

    As huge money printing activity is going on, gold is the better investment to protect your wealth. If one will check the USD-INR rate it’s also telling the same story. By imposing tax on gold, govt. is trying to curb the gold trading but in long run gold will win, which has always happen in history if govt created hindrance in free market economy.

    The Indian government had outstanding loans worth 48.04 billion rupees ($922.07 million) from the central bank as on April 13, the Reserve Bank of India said in its weekly statistical supplement. State governments borrowed 11.78 billion rupees from the central bank in the week ended April 13, it said. The federal government did not have any outstanding loans from the central bank in the week ended April 6, while state governments had outstanding loans of 13.58 billion rupees in the same period.

    http://articles.economictimes.indiatimes.com/2012-04-20/news/31373903_1_central-bank-loans-weekly-statistical-supplement
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  • Originally Posted by realacres
    October 12, 2011

    The level of foreign direct investment (FDI) in the real estate sector, which was at a low in 2010-11, is unlikely to show a quantum jump this year, courtesy a slow GDP growth rate, high debt levels of the real estate developers, labour shortage, economic crisis in the US and Europe — according to experts. A recent industry report shows that FDI in 2010-11 was the lowest in the last four years. .


    Did this had any effect in last 6 months in Pune RE ?
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  • Scooter, bike companies offer freebies to drive sales

    Scooter, bike companies offer freebies to drive sales

    If scooter companies give such benefits/freebies why real estate companies can't? Read article below and you will definitely get clear picture about the economy and what will happen with real estate sector as well.

    NEW DELHI: Prospective two-wheeler customers have never had it so good.

    A test ride of scooter leaves them with handsome Rs 500 cash without any compulsion to buy the two-wheeler, hoping that the customer will stick with the first impression and not look around for other models. This bold offer comes from Mahindra & Mahindra that leads the utility vehicle zone, which is trying to make inroads into a market dominated by Hero MotoCorp, Honda Motorcycles & Scooters and Bajaj Auto.

    Slowing demand due to high interest rates coupled with rising fuel prices have brought discounts and freebies back for those vying for scooters or its faster siblings, bikes. Two-wheeler makers in their bid to reduce inventories have also lined up various options to attract customers after almost a gap of more than four years, doling out cash benefits and lower rate of interest.

    "This is for the first time that scooters, basically an urban-centric product, attract discounts. The market conditions are increasingly getting tougher amid adverse economic sentiments simmering in the past few months. The low consumer sentiment is tapering off demand for bikes and scooters unlike 2011, when we saw highest ever sales growth in a single year," said Atul Gupta, vice-president (marketing) of Suzuki Motor India.

    According to industry players, demand has been slowing particularly in smaller towns and rural areas. This follows a splendid 11.39% growth to 13.43 million units sold in April to March 2012. A stagnating passenger car segment forced companies to dole out huge discounts for most part of 2011, and they had raised it even further this year to bring customers back to their dealerships. Two-wheeler industry is now mirroring the same strategy.

    For the first time companies are doling out rebates, such as free insurance on scooters, despite a record growth of this segment in the two-wheeler market. Scooter sales had jumped by a quarter to record 25.62 lakh in the last fiscal. The segment leader, Honda Motorcycle and Scooter India (HMSI) flagship model Activa comes with free insurance and easier down payment of Rs 7,999 for instant delivery any many markets.

    Dealers said that they were offering these benefits to reduce stocks as the demand has been slowing with retail sales getting being low and the cautious customers are postponing their purchase decisions. However, the company refused to acknowledge any offer. "There are no schemes or discounts offered by HMSI in the market," the company spokesperson said. However, analysts tracking the sector say that cash discounts and gifts options are being offered in selective markets.

    "We have noticed many companies coming up with cash options as well as finance options coming in many markets as interest subvention offered by different companies," said Mahantesh Sabarad, senior vice-president, research, Fortune Securities.

    Bikes and scooters are small-ticket purchases and banks and financial institutions take high interest rates on their loan schemes. Currently the interest rates are hovering in the range of 23-26% for financing two-wheelers. Companies like TVS Motors and Bajaj Auto are offering interest discounting in the range of 6-9% to attract customers. "It attractive packaging being done in some market but we are not offering any direct discounts," Bajaj Auto's two-wheeler unit president K Srinivas said.

    These benefits to customers are mainly coming from dealers as attractive marketing initiatives to improve retail sales. Analysts tracking the market said that discounts from dealers are precursor to what the company may offer in next few months. "As the ticket size of two-wheeler purchases is less they are not immediately impacted by the macro economic sentiment. But if dealers are giving benefits to consumer, companies may not be far behind," said analyst with a Mumbai-based brokerage firm.

    Scooter, bike companies offer freebies to drive sales - The Economic Times
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  • Originally Posted by realacres
    Ashutosh Kumar New Delhi
    Dec 17, 2010,Fri

    Real estate developers are unlikely to get funds easily from banks, even for refinancing debt.:)
    "Banks will insist on repayment of loans. Nobody will go for rollovers because of what has happened," said a banker who did not wish to be named, alluding to high property prices and shady accounting and financing practices in the sector.
    At State Bank of India, project viability is being scrutinised more stringently than before. "Now people are examining projects very carefully. That said, if someone is fulfilling, say 70-75% of our requirement, we could show some flexibility," said a senior SBI official.
    S Sridhar, chairman and managing director of Central Bank of India, said project monitoring will be the key to funding future real estate projects.
    "At present we have a 7% exposure to real estate and we are doing away with corporate loans. We are providing only project-specific loans that too we are monitoring them tightly. Such vigilance is necessary because diversion of funds has taken place," said Sridhar.

    "The Reserve Bank of India is watching the banks. So if a developer has to repay, he will have to go to other sources, such as private equity, which charge much higher rates, or alternatively he has to reduce the prices of property to generate money. We will see the impact of liquidity crunch from April when prices will go down," the unnamed banker said.
    Renu Sud, managing director, HDFC said the basic concern is right-pricing in the sector. Right-pricing of the real estate projects is also likely to emerge as the key deciding factor in the funding of projects, said another banker. “So developers need to take a call on that.”
    "That is what the developers must understand," she said.

    Source:- 3dsyndication

    From this post of Dec 2010, may be good time to look back and reflect after 5 quarters have passed since then. We will again some to this post in June 2013 :) . Somehow developers are not understanding .
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  • Thats their problem. And our opportunity!

    Originally Posted by compuwalah
    From this post of Dec 2010, may be good time to look back and reflect after 5 quarters have passed since then. We will again some to this post in June 2013 :) . Somehow developers are not understanding .


    Understanding is probably not the issue here. They understand very well and know how to manipulate it.

    Its greed and pushing the envelope to see how far it will stretch before breaking.

    Correcting themselves may see an orderly correction in prices.

    Waiting for breaking point will see disruptive correction which could bankrupt some of them and make the others weak for a long time to come.

    Its their call really. Either way, ultimately patient buyers should benefit.

    On another count, FDI slowdown will not immediately lead to price correction. The existing liquidity needs to dry up before the crunch is felt.

    cheers
    CommentQuote
  • Originally Posted by realacres
    Man, several builders in Pune are offering freebies with the flat, like car, furnished flat, trip to Europe etc. while some are giving free stamp duty + reg (means 5+% discount), as well as cash discounts.

    Note that this is the time when max sales take place & if this time is gone, builders will have to wait another year to come up with a new strategy. Builders like Runwal are already in NPA list of the banks, Kumar (KUL) has deferred its IPO as no one is interested in their stocks:D....what does this indicate?? Kumar is also offering discounts at Kumar Shantiniketan (a crap project) as well. Solitaire is offering cash discounts on all its projects, but builder is big crook, as usual.

    As said before, even builder like Lodha has negative cash flows.

    Man, understand one thing in terms of valuation:-

    When a project is announced, the valuation of the land goes up, hence the slew of new launches despite old stocks not getting sold. This helps builders in restructuring of loans, which too has now stopped from banks.

    *PS:- Banks have made heavy investments in RE & doesn't want to make this sour. Hence, banks give attractive offers to home loan seekers so that these buyers can be a bakra to help bank exit RE investments with profit.:bab (34):

    Uh oh . looks like I missed teh bus to Europe trip :(
    CommentQuote
  • Originally Posted by realacres
    Guys, see what happens when builders hike the rates exhorbitantly. Man, don't these builders know the basic ABCD of biz that a product sells only at particular price??

    Wed Jul 07, 2010

    The demand for residential property has taken a big beating thanks to the sharp rise in prices across the country, resulting in a massive stock of unsold residential inventory in cities like Delhi and Mumbai.

    According to Pankaj Kapoor, managing director of real estate research firm Liases Foras, the reason for the drop in demand is the high rates at which residential properties are priced by developers. " All the new residential projects launched today are in the range of Rs 1.5- 2 crore and above, which is not affordable for most of the people living in the city. Even investors are wary of investing in such projects as they are unsure whether these flats would be sold at a later date," he said.
    Kapoor said cities like Mumbai have been the worst- hit due to the drop in demand. " In the last two quarters, there has been a 15 to 20 per cent drop every quarter as the rates have even surpassed the 2008 levels. It has come to a level where a correction of around 25 to 30 per cent could be expected," he said.
    Kapoor said the situation is similar in other cities as well, including Delhi- NCR. " The difference between big metros and other cities like Chennai and Hyderabad is that those cities have yet to recover from the last correction while cities like Mumbai and Delhi recovered much faster," he said. " In Delhi- NCR, the inventory has virtually doubled in the last quarter ( March- June). Sales in the region are mostly investordriven and not consumer- driven.

    There are huge advertisements by developers that nearly 50 to 80 per cent of the flats were sold in 30 to 40 days. This is all due to By Amit Shanbaug in Mumbai ` There are barely any flats in Mumbai priced below Rs 50 lakh' Drop in demand has mostly hit developers in Delhi & Mumbai investments done by investors.

    If you discount the inventory factor, the situation in both the metros is just the same," he said.
    According to Yashwant , president, Estate Agents Association of India ( EAAI), there are barely any flats in Mumbai which are priced below Rs 50 lakh.
    " According to a report, nearly 95 per cent flats in the city are above Rs 50 lakh and 50 per cent of the flats carry the price tag of Rs 1 crore and above. If a common man thinks of buying a flat he would get a flat below that rate only in very far off suburbs where commuting is a major problem," he said, adding that nearly 50 to 60 per cent of the flats are lying unsold due to a steep drop in demand in all the new projects.
    Of the 70 million square feet of residential inventory available in markets like Mumbai, hardly three to four lakh square feet would be priced below the Rs 50- lakh price bracket, he added.

    said these prices are unrealistic and cannot sustain at these levels. " A correction is certainly imminent but it is just a matter of time. I believe that in another three to four months time property prices should start correcting in the big cities. Actual buyers could wait for some more time before looking to buy a property," he said.

    Source:- mailtoday.

    From this post of July 2010, where does things stand now , well apart from the perpetual fall predictions :)
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