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Price falls loom in wake of bailout

In the wake of the island’s financial bailout, property prices in Cyprus are anticipated to fall according to the chairman of the Property Valuers Association which has temporarily suspended work.

PROPERTY valuers in Cyprus have suspended work as they come to terms with a financial bailout that is likely to deepen price falls of recent years, the chairman of the country’s Property Valuers Association told Reuters.

The association, which represents about 90 percent of valuers in the country, advised its members last week not to carry out valuations for banks or individuals until the terms of a financial bailout become clear, Charalambos Petrides said.

A 10-billion euro rescue deal was agreed between Cyprus and the European Union on Monday after the country’s outsized financial sector ran into trouble with soured investments in neighbouring Greece.

Valuers are likely to resume work once the banks re-open on Thursday after a closure of almost two weeks designed to prevent a run on deposits.

Prices have already fallen by half for residential property in some parts of Cyprus and 35 percent for some commercial real estate since the last peak at the start of 2009, Charalambos said.

Any further falls will magnify the pain felt by the Cypriot economy as a whole, which has relied heavily on the second-home market among British and Russian buyers.

“This is a very big shock for Cyprus that could lead to double-digit price drops in some areas,” said Eri Mitsostergiou, a director of European research at property consultant Savills who has advised on development deals in Cyprus.

Charalambos said it was too early to predict how large falls would be.

In addition to Russian and British buyers who have dominated the Cyprus residential market, the island has seen emerging interest from the Chinese in the western coastal town of Paphos.

Many Britons sold their holiday homes in the wake of the financial crisis in 2009 and 2010 and Russians may head for the door after suffering losses on their bank deposits and as scrutiny on Cyprus as an offshore base grows, Mitsostergiou said.

“This is the end of an era for Cyprus. It is another real estate-driven economy that faces falling demand,” she said.

While some Cypriots may now choose to invest in London or Athens real estate over banks, bargain hunters are lining up for Cyprus property.

“There will be some great deals,” said Kostas Kazolides, a London-based investor who has been buying property and advising on deals in Cyprus since the 1970s, before the bailout deal.

“People that are stuck may need to sell up their land very quickly.”

Reuters – reporting by Tom Bill; editing by Peter Graff

Readers' comments

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  • Robert M says:

    Thanks again Nigel. Yes flip it was a poor phrase. Great advice. Will let you know what transpires. ATB.

  • @Robert M – I would strongly advise against buying and flipping!

    Many people were mislead into believing they could buy off-plan and then flip when the property was completed and make a huge profit. They are now in the deep do-do and are lumbered with properties that are both unsaleable and unrentable.

    I feel that the high-end market will not be affected as greatly as the middle and bottom end – this seems to be the way markets have worked elsewhere.

    A high-end property in a good location should sell relatively easily – but by buying on an estate that is dominated by foreigners, you may be closing the door on local buyers who may be interested.

  • Robert M says:

    @Nigel – many thanks. Thats really helpful.

    I am curious as to what your opinion is as to where prices will head at Aphrodite Hills and also around Peyia in 2013 and 2014.

    AH, while a little sterile IMO is great for families with kids who want to play sport (us at the moment), whereas when we rent villas in real Cyprus one gets the true experience.

    I think if the AH prices became more in line with the economic reality we would buy there for just now then flip it and move to Sea Caves in 10 years when things are back on track and the kids have grown up.

    Concern is that AH prices remain overly inflated, possibly due to the narrow range of selling agents in operation there.

    Thanks again.

  • @Robert M – I expect that Lanitis and many other companies will be hit by the bailout. It’s going to be some time before we know.

    The mortgages of anyone (including Lanitis) are not a problem, providing the mortgages are being serviced. It’s only if they have become non-performing loans (i.e. they have not been serviced for 90 days) they become a problem.

    BTW some added consumer protection was included in the revised ‘Specific Performance’ law introduced in 2011. If a buyer discovers that land/property is mortgaged, they can pay an amount of that mortgage off that relates to the property they are buying in exchange for a waiver from the bank – and then pay the vendor the balance.

    E.g. If the land is priced at €100,000 and the purchaser finds it is mortgaged for (say) €40,000 – they can pay €40,000 to the bank that loaned the money and the balance of €60,000 to the vendor. This protects the buyer from any risk should the developer fail or the bank forecloses.

    (Unfortunately, the Land Registry is very secretive and you cannot find out which properties/land are mortgaged – or even who owns them – unless you are an ‘interested party’)

  • Robert M says:

    Does anyone have any thoughts on purchasing at Aphrodite Hills? We almost bought there last year but were put off by the lack of transparency and over confidence of the lawyer. Glad we didn’t allow ourselves to get steamrollered – we bought in the US instead and that worked well.

    That said we still want to buy there, if the price was acceptable, as I think in 7-10 years things will come back and we really like Cyprus as a holiday destination – such great people overall.

    Questions are –

    1 Is Aphrodite Hills insulated from the Lanitis family’s woes and losses from Laiki Bank that they partly owned? The Lanitis family also own Aphrodite Hills I believe.

    2 the plots at Aphrodite Hills with no title deeds available – have they been re-mortgaged by the Lanitis family (particularly Thesues Village and Alexander Heights). Does that in effect mean they are worthless?

    3 plots where there are title deeds available – is the only risk to these plots the failure of Aphrodite Hills?

    When we questioned things in detail last year we were told that the financial strength of Aphrodite Hills was very solid due to the Lanitis family and underwriting by Deutsche Bank I believe.

    Any advice appreciated.

  • @james – Only the Bank of Cyprus and the Laiki (Cyprus [un]Popular Bank) have been affected by the bailout conditions.

    I don’t know the state of the other banks – or what other skulduggery the EU has in store for us.

    It is worth noting that only the Cypriot banks can be affected by any measures imposed by the EU on Cyprus. So banks like the Piraeus Bank, wbich is Greek, will not be affected.

  • james rooney says:

    In your opinion are there are problems with the other Banks in Cyprus.Basically are they solvent to the extent they not require a bail out/in?

    Thanks,

    James Rooney

  • Alan Waring says:

    @Janner. I think we (and the new government) should keep in focus that fact the Troika has already, in its bailout memorandum to the government, included a requirement that they clear the backlog of 130,000 non-issued title deeds by end Q4 2014 to a residue not exceeding 2,000 thereafter at any one time. That is a huge recognition by the EU that this issue was/is significant to the financial crisis, its resolution and the on-going debt sustainability.

    However, as I believe Nigel and others have noted, there is a big difference between ‘issue’ and ‘transfer’. The iniquity perpetrated against innocent buyers will remain if the title deeds are issued to the developer but not transferred to the true owner, the buyer who has already paid in full. The most likely reason for non-transfer is the existence of developer mortgages on the land/property possibly aggravated by the developer’s non-payment of taxes and lack of a tax certificate. Without a specific regulation imposed on the developer, how can the latter be forced to make the transfer? The banks will be unenthusiastic about calling in loans and enforcing NPL recovery against developers – yet, under the new bailout regime where ECB officials will be in Cyprus for maybe 5 years supervising and monitoring the banks and others, the banks will almost certainly be forced to do so. A 90-day NPL will be forced into recovery mode. Thus, it is inevitable that a wave of developers who up to now have gotten away with monstrously extended debts will be liquidated. How then will the government ensure that all those innocent buyers are properly protected ans, if necessary, fully compensated?

    The moribund property market in Cyprus cannot recover unless and until the above conundrum is resolved. Only government can do that and it has to be double quick, otherwise foreigners will rebuff the property market here for perhaps up to two generations or 20-40 years. The new government has to distance itself immediately from the corrupt practices and attitudes of its predecessors – fF it really does want to develop a new respectable reputation for Cyprus in the world.

  • Janner says:

    @Alan. Sounds like a great opportunity. I think there is a general opinion (outside of those directly involved) who think that its just a few Brits whinging about the fact the value of their property has gone down. We need to ensure that people know about the encumbrances and that purchasers were not told about this. This ‘minor’ detail changes everything. Would others be happy if they bought some shares in a company to find out that they didn’t really own the shares because they had already been used as collateral by their broker (often several times over) for their own investments! It really, really infuriates me and I just want the Cypriot authorities to acknowledge the scale of the problem!

    Nuff said.

    Cheers

  • Alan Waring says:

    @Janner. I’m not an investigative journalist but tomorrow I am being video interviewed on corporate risk and governance by the editor of Financial Mirror for their on-line service. I shall be ‘mentioning’ the very issue you raise, even if I don’t get asked the ‘right’ questions.

  • Janner says:

    Is there a decent investigative journalist in Cyprus who can ask the awkward, but very relevant, questions regarding NPL’s and the title deed issue to someone very senior. I would like to hear an official state how the government is going to tackle the problem. What is the strategy? They must have one for all the bad debt.

    Just because the bad debt is boxed up and put into the bad bank doesn’t mean its gone away. What is going to be done to assess the origin of the debt and what can be done to recover it. C’mon President. Deal with the NPL’s attached to land and property!

  • Graham Young says:

    Many thanks Odd JoB Bob for your comments.

    VERY VERY interesting comments. patience is a virtue. before even doing anything , your right I think, getting absolute confirmation that the deeds or free of memos etc. is essential, and waiting a few months to see where everything stands. My first intention was to try and help the economy in small way.

    But in reality, would they give a Cypriot sausage about me.

    Although I don’t live my life like this type of thinking. its what contributed to the problem in the first place, (trusting lawyers etc).

    I know I’m see-sawing, but like everyone must be thinking, what do I do for the best. One thing is certain. that there are hell of lot more people in a worst position than me. but it helps coming on sites like this to get other peoples thoughts and comments. thank you.

  • Spirit of Odd Job Bob says:

    Just back from a trip to a certain Bunker in Brussels (more on that later) but just saw this post from Graham Young that I felt compelled to give my tuppence ha’ppeny worth to.

    How can I put this Graham?: DO NOT DO IT!!!

    I repeat, DO. NOT. DO. IT!

    Back in the day (when I was alive), just to screw up FNGs (i.e. New Guys in the investment banking company I worked for. No-one knows what the “F” stood for…), there were various funds we told them to invest their clients’ money into. There was the Swiss Navy fund, the Royal Saudi Brewery fund and the Grobelaar Fund (a former Liverpool goalkeeper accused of match fixing – look it up! – where the less you saved, the more you earned…). Putting money into Cyprus when everyone is trying to get it out is either a masterstroke of counter-intuitive financial genius or the financial equivalent of the above funds (if they existed, which of course, they didn’t. What fun we had seeing the FNG running around the office looking for the relevant paperwork…)

    I suppose I’d better give some reasons…

    1) People are desperate to get money OUT of the country, this is because they do not trust the banking system. The banks remain closed and restrict access to money ‘cos they know that that is exactly what people will do. I mean, if even the UK government is saying they won’t send UK pensioners money into Cyprus banks as they don’t know what will happen to it, then surely this is rather a strong message, don’t you think?

    2) Developer debt. The Troika were crawling around the island for aeons and should by now know the full extent of the “withheld title deeds so the developer can borrow more against property already sold” scandal. Right when they have Cyprus over the proverbial barrel, they could have insisted on anything and got away with it. With or without gel. Yet, there is no mention of any initiatives, new directives, laws, nada on this subject. To my tiny mind, this is either cos they simply cannot be ar#ed with this issue, or they think it cannot be unravelled or, which is what I think, both. This thus means that it’s up to the banks to undo and, as the theory goes, if they were the ones creating the mess in the first place, are they really the people you think will come up with an equitable solution?

    You’ve even mentioned that your developer has been taking out loans on the property since 2000 until 2008, despite selling you the thing in 2004. Unless you have absolute cast iron proof that he’s paid off all his mortgages and is debt-free, then the deeds may be ready but they will be encumbered. You also have to consider any memos he may have which may NOT feature on any searches you perform.

    3) And this is a point that cannot be over-stressed. YOU DO NOT STEAL BILLIONS FROM THE RUSSIAN MOB AND EXPECT TO GET AWAY SCOT-FREE. There is already a deteriorating crime situation in Cyprus (3 dead in a Limassol supermarket a few days ago, a bomb at a Bank of Cyprus branch, a dramatic increase in burglaries etc), this is absolutely NOTHING compared to potential retaliation against those who Moscow considers responsible for the state-sanctioned grand larceny. I honestly believed that the bombs (and shootings and be-headings: remember that Limassol-based Russian property dealer about 3 years ago? And the mysterious Beresovsky death last weekend in the UK, plus many others over the last few years) would start as a result of the Russians realising they’d been stitched up by Cyprus property first. I hadn’t foreseen the bank meltdown would happen before that… end result the same though

    4) In the present, and soon-to-be-expected climate, your property is worth nothing. Actually, if encumbered, less than nothing. OK, only my opinion, but if the Cyprus PVA are basically saying “We haven’t a clue how to value anything now that the Russians and Brits are heading for the exits”, I think it prudent to at least pay heed to their uncertainty (for once…).

    In summary then, any announcement that you can now pick up your deeds without DEFINITE proof that the property is unencumbered is a trap enticing you to fork out money for something which may not exist. Even if it does, there may be no point in having it as you may very well be purchasing €20,000 of prime cabin space on the Titanic (we tried to con the FNGs into that one as well but even they weren’t that stupid. Pity that).

    At the very least, delay paying off any money from your mortgage (apart from the regular payments, as if you miss ONE, I think it will be used as a hook to snare you on) until the legal and financial situations have been ABSOLUTELY clarified. Alternatively, if you insist on throwing away €20,000, I have a bridge to sell…

  • Graham Young says:

    Thanks, Nigel, I welcome your comments,

    I did a search myself in July 2012 and the land was mortgaged by the developer, various amounts. (approx 1 million CYP/ euros) a time since 2000 the last one being 2008 a 12 month loan, since then , nothing. And the developer also, hasas just announced that the deeds are available from the land registry. So paying off the loan for me. Thanks again.

  • @Graham Young – I suggest that you check at the Land Registry to see whether the developer mortgaged the land on which the property is built before your Contract of Sale was deposited.

    If the developer has mortgaged the land, I suggest you continue making your regular mortgage repayments.

    If the developer has not mortgaged the land, then you should consider repaying your mortgage.

  • Graham Young says:

    I have a small amount of mortgage (€20,000) left to pay with the Bank of Cyprus, @ 5.0% with 60 months remaining. On my property purchased in 2004.

    Would it help the banking situation if I paid the mortgage off. I have spare money in the UK. So this would be new money coming into Cyprus, be it be now, rather than over the next 5 years. I sure there are many other people in this situation, who have spare money but have loans with the bank. Combined this could work out to be a few million, (Every little bit helps). And also with uncertainty of future interest rates. I think it would benefit the mortgagee, HAS ANYONE ANY THOUGHTS ON THIS, please comment.

  • Denton Mackrell says:

    I was with Odd Job’s (the original, real one, not the current virtual spirit thereof) view and began to move non-essential money out of Cyprus 2-3 years ago to protect the capital. I felt that it was better to get, say, 3% on deposit in a safer country than, say, 5% from the local buccaneer bankers and risk the lot. Then about a year ago I let the residues in Cyprus banks wither month by month e.g. paid transfer tax for title deeds, made other useful significant purchases ‘just in case’. Also made sure I had a decent amount of sterling and Euros cash in my hand rather than in the bank here.

    Nigel is right. The message was clearly writ for all to see at least a year ago and certainly when the bailout was applied for. Other more optimistic souls appear to have taken the view that things would never degenerate as they have done. While they have my sympathy if they are now in a jam, they really must take a big share of personal responsibility for their own predicament.

  • @Adrian – everyone knew that Cyprus was in difficulties when it applied to the EU for a bailout last June. I expect that money started to move out of Cyprus then.

    A draft Memorandum of Understanding was was put to the Government last November. But President Catastrofias and his AKELites prevaricated and left it to the incoming government under Nicos Anastasiades to sort out the mess.

    Had Catastrofias agreed to original bailout terms, there would have been some adjustments to the economy and the banking sector which would have been far, far less severe than the problems we are all facing today.

    So to answer your question, there were suggestions to avert the collapse and a solution, but the government at the time refused to accept them. We are all now paying the consequences.

  • Adrian says:

    Is it possible to get expert fatigue?. How is it that all these “experts” can come with all these predictions but can never predict a solution or even hint at a suggestion to avert a collapse such as happened. We can all be wise after the event!

  • Steve says:

    Can the property market get any worse? Of course it can! The banks are not out of the woods yet. If BOC goes down how many developers will go down with it? One of them still has the title deeds to my property and I would just be a creditor alongside many others. Perhaps the EU will put a freeze on property transfers in Cyprus to stop thousands of “owners” who have paid in full but have no title deeds from losing their homes. I know it sounds far-fetched, but so did a banking crew cut (nice one, Nigel) a few weeks ago.

  • Richard Parker says:

    Great Article,

    I think Cyprus could go the other way, as it could be hard to mortgages in Cyprus, which means less people will want to sell their properties and will keep them or just rent them out. Depending on the full terms of the bailout, are clients going to want to sell their properties as they could get taxed on the funds as soon as they hit the Cyprus Banks and no one has said how long the levy is on the taxes on savings in Cyprus. I can see less properties on the market and less bargains as they could be very little choice.

    The only thing that we can guarantee is that clients are going to take their funds out of the banks and invest them else where – which means property investment will become higher as its could be the best investment left on the mortgage and prime location properties will be a must around the world.

  • MarkD says:

    Just bringing more misery and heart ache to those in an already impossible position.

    I managed to sell 2 properties I brought without title deeds to cash buyers at a much reduced price!! I consider myself lucky even though the whole experience cost me an absolute fortune and took me to the brink of bankruptcy!!

    I really do feel for all those caught up in this mess that the EU seem to have conveniently ignored!!!

  • Martyn says:

    Hardly surprising they can’t make valuations. I have been predicting Cyprus ‘hitting the (economic, financial) buffers’ for well over a year. The previous Governments ongoing Denial (that there were serious and growing problems inherent in the country’s economic, financial, property/legal, banking sectors) has, as predicted, led to a severe Bang, an economic and property crash of likely epic proportions,the almost total collapse of the once highly successful (but unsustainable) ‘business model’.

    Now the chickens have really ‘come home to roost’ – and on a much bigger wider scale than, perhaps, might have been expected (news, press reports worldwide, banks closed for almost 2 weeks, severe capital controls imposed). Yes, the country may well have been ‘shafted’, made an example of, but the massive global publicity will affect its image , status and ‘trustworthiness’ for at least a decade to come.

    Cyprus and its flawed Economic and Business Models are now in tatters and it follows that it’s already fragile property base will fall – both in attractiveness and value – and will continue to ‘unravel’. Yes there will be bargains again, sometime, but it will take 5-10 years, even with strong government!, and positive harnessing of the potential benefits of MedGas, to build a new Business Model.

    I doubt there will be anything other than a Desperados property market in Cyprus for at least 5 years now but for sure the country will re-emerge sometime with ‘bargain basement’ properties, supported by a reorganised – i.e. fair ‘open’ and effective property development, legal banking and financial, and ‘buyer protected’, models – and the country will pull eventually out of its largely self-inflicted chasm it has now found itself in.

    Pity though those who are now going to have to try and sell – anything! – from holiday homes to village houses, business and “investment’ properties”, executive apartments next to beautiful marinas etc etc. there will be virtually NO markets, simply ‘opportunistic ‘ buying – bank repos, ‘distress’ sales’ etc such as was seen, years ago, now, in Spain and Ireland. And meantime Valuers will have virtually no compass, no tool-kit with which to TRY and present ‘realistic’ valuations. Cyprus property will become simply an opportunistic, virtually ‘cash only’ market.

    I could go on and say that whilst most of all this could have been, was!, predicted, these events have really only been what are often called ‘white swans’, my fear is that with the Eurozone steadily crumbling there are one or two Black Swans not too far off. Don’t ask me to predict what they might be, Black Swans are themselves ‘unpredictable’ but capable of unsettling not just Cyprus but much of the rest of Europe, including the UK, maybe even further afield, who knows. Then the Cyprus situation may not look quite so ‘bad’. Safety belts may not be of much use, parachutes ditto, Survival Kits may well be required!

  • Denton Mackrell says:

    @Mike. Greed is the downfall of many a society, yes – including this one. Also, the saying ‘pride goeth before destruction and a haughty spirit before a fall’ comes to mind. Let’s hope we will experience less haughtiness and less arrogance from individuals in a much chastened society.

    Living beyond one’s means, on excessive credit and an indestructible belief that Cypriots are VIPs at the centre of the universe, far smarter than other people: all of the fantasy about Cyprus, and its easy salvation, has now been shattered.

    Greece could not help, Russia refused to, China was not interested, the EU was not a soft touch – oh, and the offshore gas is not yet proven much less at production stage i.e. no tax revenues, so that is still vapourware as far as bailout offset is concerned.

  • Mike says:

    Roosting chickens and no such thing as a free lunch spring to mind. Sadly in amongst those who saw an opportunity to make a fast buck are those who have invested their savings and lives in Cypriot property all in good faith and are now paying the price for that through no fault of their own.

    So very sad for what was once a paradise of an Island and people. Greed is the downfall of many a society.

  • Spirit of Odd Job Bob says:

    In answer to Janner’s point: the mortgage lenders knew their security was tiny compared to the 3 to 4 loans that were secured against it to their mates. It was all just a question of borrowing (ultimately EU) money as fast and as much as they could, so when the whole thing came crashing down and the music stopped, their mates would be (was it 4.5bn euros departed Cyprus the week before the bank freeze?) richer.

    Re: property price falls: c’mon people, who are we kidding here? Would YOU bring money into the country to buy somewhere, even if you physically could (currency controls on movement of capital and all that)? The value of an asset is exactly the price someone is willing to pay for it. On that basis and as stated before, property in Cyprus is worth absolutely zero; the stuff without title deeds and debts attached potentially far LESS than that.

    The goal of destroying depositor confidence throughout the WHOLE eurozone has been achieved (don’t believe that was the goal? With figures available at time of writing, more money was on deposit in Cyprus in the +100k bracket than the below – 35bn against 26bn from what I’ve been told.

    If you want to go for the money, you don’t even mention stealing the below 100k stuff, +100k depositors would be miffed(?!!) but depositor insurance confidence is maintained. Mentioning the sub 100s immediately puts fear into everyone and panic ensues, queues outside of banks etc. Then, to only in the end go for the 100+ guys, where the actual money is means you get panic, plus dosh!).

    The -100 feel they’ve dodged a bullet, but they are traditionally the people who do not move money all over the world. The +100, fearing they could be completely wiped out, have already started withdrawing all their investment consultants can carry. Expect bank runs within next few days Europe-wide (apart from Germany, of course).

    Last point: the EU is NOT one creature ambling in one direction. So what Germany wants and what other EU heads want are VASTLY different. More on that later though, as typing on an iPhone with one ghostly thumb is taking ages…

  • Janner says:

    With all the knowledge out there now regarding properties that can never really be owned due to developer debts. And the fact that even if you think you have found a property without any other debt around its neck, your lawyer and agent may have lied to you. It leaves me wondering, who are those who need to sell going to sell to? Who in their right mind would buy a property in Cyprus and would you trust your lawyer. I thinks it’s something like 130,000 properties without title deeds. That’s a lot of crooked lawyers!

    Just what did the mortgage lenders really think they were securing their loan against when they had already provided a loan to the developer based on the same collateral.

  • @Andrew – People living in Cyprus may be forced to sell their home because they have lost or will lose their jobs and will no longer be able to afford their mortgage repayments.

    Some will have to sell in efforts to stop their business from collapsing following the ‘German crewcut’ on their bank deposits.

    Others, whose business have collapsed will be forced to resell and possibly downsize.

    I can’t see many of these unfortunate people wanting to move their money overseas – I’m sure that the vast majority want to use it to help rebuild the island’s economy.

    Regarding your second question, Cyprus is (was) a financial centre with many foreign companies setting up business here due to the low tax jurisdiction.

    My Rotary Club in Limassol has members from around the world – Brazil, Canada, Cyprus, Egypt, England, Germany, Ireland, Latvia, Lebanon, Montenegro, Netherlands, Poland, Russia, Scotland, Serbia, South Africa, Syria, Ukraine and the USA – most of whom are in business here.

    Also, over the last 50 years Cyprus developed into a major shipping centre. To enable this to happen it needed lawyers and accountants – hence the growth in these sectors.

    So the island become a hub for corporate and shipping legal services.

  • Andrew says:

    Why would anyone sell their home today when they will incur a 30% – 40% loss and then be unable to take the money away from Cyprus.

    News articles are saying that Cyprus has established itself as a hub for legal services. If that is so then why did so many lawyers fail to advise their clients about developer mortgages.

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