Gujju Property
How Do I Begin My Home Search?
The most important step of buying a home, is choosing a property that’s right for you. This involves several steps of research and due diligence. It's advisable to use a mix of resources for finding a home to stay informed.
Location
Your quality of life will depend on the location you choose for your home. Choose a location based on:
  • Connectivity with your workplace
  • Ease of commute
  • Presence of basic amenities/markets
  • Future appreciation prospects
  • Social infrastructure
Property Types
Under Construction Properties
Ready-to-move Properties
Resale Properties
Property price - Discount over market rate
Fund security- Risky
Possession delivery - Delays possible
Construction quality check - Verifiable at possession time
Social infrastructure - Not present
Physical infrastructure - May not be present
Return on investment - High
Loan facility - Depends on project
Overall risk- High
Suitable for – Investor
Under Construction properties appreciate faster, but ready-to-move flats can earn 1.5% to 2% (of the property value) per annum if you lease it.
Property price - Higher than market rate
Fund security - Very secure
Possession delivery - Immediate
Construction quality check - Verifiable before purchase
Social infrastructure - Present in most cases
Physical infrastructure - Present in most cases
Return on investment - Low
Loan facility - Available
Overall risk - Low
Suitable for - End-user
Under Construction properties appreciate faster, but ready-to-move flats can earn 1.5% to 2% (of the property value) per annum if you lease it.
Property price - Market rate
Fund security - Secure
Possession delivery - Immediate
Construction quality check - Verifiable before purchase
Social infrastructure - May not be present
Physical infrastructure - May not be present
Return on investment - Normal
Loan facility - Available
Overall risk - Medium
Suitable for - End-user/investor
Pre-Launch properties are found to be attractive for investing despite risks such as project cancellations, regulatory/clearance delays, layout changes and, even illegal offers.
Areas Explained
Built up area is approximately 110% of carpet area. Built up area is used to calculate taxes.Loading Factor - The Loading Factor is a percentage added to the carpet area to come up with the Super Built up area: ‘Carpet area x (1 + Loading factor) = Super built-up area’.
The Loan Process
Step 1: Apply for a home loan and get the initial evaluation done.
  • Submit application documents with a processing fee
  • Bank evaluation based on credit history and documents.
  • If eligible for a loan, bring your documents to meet a bank official
  • If not eligible, you will lose your processing fee
  • Bank will verify all submitted documents
  • A representative will visit your workplace and residence to cross-check details
  • The purchase property will be evaluated
  • The property to be purchased will be evaluated
  • The bank will evaluate your repayment abilities
  • If approved, Bank will prepare an offer letter with conditions you should review
Step 3: Bank Approvals
  • Re-read the document, and get a legal opinion too, if you are unsure. There may be points that you can change or negotiate
  • Once you are sure, sign the loan agreement
Step 4: After Signing
  • Submit post-dated cheques
  • The bank will disburse the loan as a lump sum payment (usually for a ready-to- move property) or in installments (for an under-construction flat)
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You have to pay for the loan application to be reviewed, even if you don’t get approved for the loan in the end
Loan Document Checklist
There is a lot of paperwork for loans.
Loan application – obtained from bank or financial institution
Processing Fee (non-refundable between 0.25% and 0.50% of the loan amount)
Photographs – make sure you have at least three
Identity proof – PAN card, driver’s licence, Aadhar card or passport
Address proof – driver’s licence, passport, recent telephone or electricity bills or Aadhar card
Proof of Salaried Income – copy of income tax returns (last three years) and original salary slips
Proof of business existence if Self-Employed
3 years Income Tax Returns with computation of Income if Self-Employed
3 years CA Certified Balance Sheet and Profit & Loss Account if Self-Employed
Photocopies of challans showing payment of Advance Income Tax if Self-Employed
Bank statements or passbooks (of the last six months)
CIBIL (credit) score will be checked by the bank
After submitting the original documents - Take Acknowledgement letter from Bank
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Loan Pre-Approval
There are advantages and disadvantages of getting a loan pre-approval:
Advantages
  • Better negotiation with the builder as you have a surety of your buying capacity
  • The process of actual disbursement becomes very fast once you finalize a property
  • The bank person helps you decide the right property( in terms of legal paperwork and the kind of approval a particular project has). However, you shouldn’t rely on the bank’s due diligence alone – do your own checks as well.
  • Only the property papers need to be submitted and if it’ s all okay, the loan gets disbursed
Disadvantages
  • The pre-approval is valid for 3 to 6 months for different banks, after which it collapses and the user need to pay processing fee again
  • Sometimes you finalize a project that is not approved by the bank where you have a pre-sanction, then it takes time for the bank to approve the project. If the project is rejected, you might need to search for a new project or loan
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Credit History
  • You can get your credit score fixed by paying down any existing debt you may have and paying EMIs and credit card dues on time
  • You can also build up your credit score by getting a secured credit card (against security of your fixed deposits)
  • Even making too many inquiries for loans, can make you seem credit hungry and reduce your credit-worthiness
  • Your credit history can affect whether or not a bank or non-banking financial institution will give you a loan
Choosing a Loan
Points to consider before deciding on a loan offer.
  • Check for the loan requirement and the type of approvals your property has – HFCs (Housing finance companies) offer higher eligibility and also tend to do properties with lesser approvals in place.
  • Look past interest rates - An institution offering low rates may have a clause in which rates increase every six months or year. Find out everything about the loan agreement before you decide.
  • Know the terms of repayment - Apart from the standard EMI agreement, you should also know what will happen in case you want to pay off the loan at one go, speed up the payments, or transfer it into someone else’s name (if you sell the house)
  • Check the hidden charges - Account for processing fee, valuation fee, Pre-payment charges, and other miscellaneous charges/fees before signing.
  • Look for discounts and concessions/ in which bank is your saving account - Some financial institutions offer concessions (to senior citizens and women, for example) while others might waive processing fees and offer other discounts. Don’t just look at rates, but offers and discounts too.
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Before you apply for a loan, read the ‘fine print, all related agreements,’ and talk to bank officials about what you can do to change how much you will be paying as a down payment and what it will mean with regards to your loan.
Loan Offer Letter
When the bank draws up an offer letter, consider these terms before signing the document.
  • Loan amount sanctioned
  • Interest rate
  • Whether floating or fixed or mixed interest rate
  • If the rate will change over time
  • In how many installments the bank will disburse the loan
  • EMI amount
  • Loan tenure - in how long the loan must be repaid
  • Mode of repayment
  • Schemes or offers applicable
  • Terms and conditions of the loan
About EMI
You repay a loan in monthly installments.
Each month you repay the loan by paying an Equated Monthly Instalment - EMI. The EMI consists of both, the principal (the amount you borrowed) and interest (the fee the bank charges to loan the cash). Initially, your EMI will mostly be to repay the interest. As time passes, the principal repayment component increases until your loan is paid off. Your repayment plan affects your tax benefits since there are different tax benefits you can claim for interest and principal repayments. Banks consider the maximum EMI one can pay by using a factor called FOIR (fixed obligation to income ratio). It’s usually between 50-60% of the net take- home salary. E.g. If Priya has Rs 1 lakh monthly take-home salary, she can pay Rs. 60K of EMIs (combined for home, automobile, PL etc.)
Banks consider the maximum EMI one can pay by using a factor called FOIR (fixed obligation to income ratio).It’s usually between 50%to 60% of the net take home salary. For e.g. If Priya has Rs. 1L monthly take home salary, she can pay Rs. 60K of EMIs (combined for home, automobile, PL etc.)
Pre-EMI vs EMI
For under construction properties, you can get an EMI or Pre-EMI loan:
EMIs
  • Pay larger amounts over a shorter period of time, less money in absolute terms in the end compared to a pre-EMI.
Pre-EMI
  • You pay smaller amounts over a longer period of time, more money in absolute terms in the end compared to an EMI. You don’t have to pay the full EMI until the entire loan amount has been disbursed or until you take possession of the property. Where you have availed only a part of the loan, you pay only the interest on the amount disbursed. This interest is called pre-EMI interest (PEMI) and is payable monthly until the final.
  • Disbursement is made and then the EMIs would commence.
  • The borrower is not subject to the tax exemption on the pre-EMIs paid until the completion of the property.
Example to explain the above
  • Let’s assume a loan has been sanctioned for Rs 80 lakhs but since it’s an under- construction project, demand from the builder will depend on the level of construction. Assuming the bank disbursed Rs 10 lakhs initially, then, the applicant has the option to pay the pre-EMI - the interest payable on Rs 10 lakhs as a loan amount - every month till the next disbursement happens and the interest gets added. So, the principal outstanding is not getting reduced till the time of possession. In such cases, the user is not burdened with a heavy EMI right away and since with time, his income will also increase, hence this is preferred by many customers who are exhausting their maximum eligibility. In the second method, the consumer will start paying the EMI considering a loan amount of Rs 80 lakhs even if the disbursement has happened for only Rs 10 lakhs (regular EMI). This way, the loan will close early and hence, the total cost of the loan will be less as compared to the pre-EMI method. This is preferred mainly by people who have sufficient monthly income to pay complete EMIs. Switching from Pre-EMI to EMI in the mid-term prior to possession- It is recommended to not wait till possession to start the EMI. In a situation where say, you have drawn up to 95% of the loan and the final 5% is payable on possession, but the project is delayed by 6 months, which is a common phenomenon in India, you land up paying Pre-EMI on almost the entire loan amount for 6 months, which is actually close to the EMI amount itself. Your acquisition cost shoots up and no repayment of the principal or reduction in the tenure happens! So, switching to EMI mode after drawing upto 70-75% of the loan amount is recommended. However, not all lenders allow that. You will need your adviser to structure this for you.
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Interest Rates
ROI - Your interest on loan consists of two parts. One is the Base Rate and another part is Spread Base rate - the minimum lending rate, below which banks can’t give you the loan. Spread - This is your final rate of interest after adding some % to the Base Rate. It is calculated based on the tenure risk, credit loss, profit requirement of bank, operating cost of the bank and risk assigned with individual customer. So each bank’s Base rate may be fixed for all customers. But remember that you may end up with either paying high interest rates or low, based on the spread bank charges to each individual. There is no cap on how much should be spread on and above the Base Rate.
Even though the RBI says the spread must be constant over the tenure of the loan but remember to check it whenever the raise in your loan EMI. You need to verify whether the raise in EMI is due to hike in Base Rate or Spread.
Warning: Some banks change the interest rates in the middle of a loan. A bank may offer a fixed rate, then floating rate later , or offer a “teaser” rate then change the rate - so carefully read the loan agreement.
Fixed vs Floating Interest Rates
Floating Rate
Fixed Rate
Semi-Fixed Rate
Suitable for a long tenure (i.e. more than 20 years)
Ideal, when the interest rate is expected to fall
Opt for this scheme when income flow is adequate to service the rate fluctuation
Suited to loan borrowers who can take risks. (For example, borrowers aged 30-35 years)
Warning: Some banks change the interest rates in the middle of a loan. A bank may offer a fixed rate, then floating rate later , or offer a “teaser” rate then change the rate - so carefully read the loan agreement.
Suitable for short/medium-term
Ideal, when the interest rate is expected to rise
Opt for this scheme when income flow is not expected to grow
Suited to loan borrowers who do want to take risks. (For example,borrowers aged 50 years)
Warning: Some banks change the interest rates in the middle of a loan. A bank may offer a fixed rate, then floating rate later , or offer a “teaser” rate then change the rate - so carefully read the loan agreement.
Suitable for medium-term
Ideal, when the interest rate is expected to rise in the short-term and then fall
Opt for this scheme when income flow is not expected to grow
Suited to loan borrowers who do not want to take risks
Warning: Some banks change the interest rates in the middle of a loan. A bank may offer a fixed rate, then floating rate later , or offer a “teaser” rate then change the rate - so carefully read the loan agreement.
Choosing A Location
Metropolitan cities’ real estate markets are no longer considered a safe haven for property investment. With a growing demand for a reduction in property rates, the chances of investing in metros are getting slim. It is becoming increasingly pertinent to explore destinations away from major cities, and invest in upcoming areas. Property prices in the metros are beyond the reach of the common man. However, areas beyond the cities offer larger homes with more affordable rates. Investors should think beyond metros because of lower prices, rapidly developing infrastructure, improved connectivity and the high potential for appreciation. If you are looking at selecting a home in the affordable price bandwidth, you will have to keep the pros and cons in mind. Details
Site Visit Checklist
Use this checklist so you don't miss anything out on a site visit.
Take photos. Try to visit a site during the worst time for a location, like monsoons so you know what is the worst to expect
Construction Quality: Check the ceiling and walls for cracks or moisture
Interior Quality: Check quality of fittings such as flooring, cabinets
Foundation: Cracks on the outer walls point to poor construction
Official Inspection: Try to get the results of the last building inspection
Structural Engineer: Hire one to assess the structural integrity of the building
Lifts: Get a sense of how long you will wait for a lift during busy times
Power: Ensure there’s emergency power backup for outage
Water Supply: Is the water supply 24/7?
Wiring: Turn on each switch to see whether everything works
Phone signal: Check whether your signal is clear in all zones
Plumbing: Flush the toilets and run the taps to see pressure and plumbing quality
Leaks: Check for leaks from the walls, ceilings, under sinks, and on pipes
Flood risk: Assess possibility of damage due to moisture. How badly is transit affected?
Safety: Does the building have a guard or cameras? Have there been any break ins?
Timing: See how light, noise etc. may vary throughout the day
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Negotiating
Never accept a deal without negotiating. Here are some negotiation skills.
Here are a few bargaining tips that come in handy when negotiating on property price.
  • Don’t divulge too many details or personal thoughts about the property.
  • Ask the right questions - Is the seller in a hurry to sell? How many people are interested in buying the same house?
  • Dig up property drawbacks the agent might try to neglect.
  • Get a professional or a knowledgeable friend to help you vet properties.
  • Don’t assume the agent is being fully transparent, do your research.
  • Begin negotiations with a figure lower than your actual budget and be prepared with what you are willing to compromise.
  • Talk to residents of the area to get a sense of the prices in the location.
  • This is a good set of resources on general negotiating tips: http://www.slate.com/articles/podcasts/negotiation.html
  • Housing.com has a property valuation tool that lets you check the neighbourhood demand and current market value of home and compare it with nearby homes nearby /property-valuation
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Construction/Possession Delays
Projects can stall for a variety of reasons
  • Financial constraints
  • Intent to cheat customers
  • A failure to obtain necessary approvals
  • A violation of environmental rules
  • Diverting money, into other projects.
  • Do a thorough check on a developer’s credentials and reputation. Seek opinions from discussion forums such as IREF. Find out whether leading financial institutions have approved the project and are willing to finance buyers'>Seek opinions from discussion forums such as IREF. Find out whether leading financial institutions have approved the project and are willing to finance buyers
What If Delays
What should I do if there is a construction delay?
In the case of an extended delay on the part of the developer, the buyer can take legal recourse.
  • Under the Consumer Protection Act, a buyer can file a case against the developer.The court can direct an order against the developer, asking him to complete the project in a given timeframe, failure of which will result in further legal proceedings under the criminal procedure code.
  • Once a project stalls and is in limbo or the developer delays possession, the buyer can file a civil lawsuit for a refund of the money invested.
Developer Reputation
Ask the right questions, search previous news articles and ask pointed questions.
  • Ensure there are legal pre-qualifications and due diligence documents
  • Check the track record and visit previous projects
  • Ask how many projects have been constructed and how many are underway
  • Determine if the previous projects were completed on time
  • Research on real estate forums like https://www.indianrealestateforum.com
  • See builder affiliations to industry associations, like Confederation of Real Estate Developers Association of India (CREDAI), or the Builder’s Association of India (BAI)
  • Search for articles about the builder and about previous projects on the Internet
  • Check if the project is preapproved by reputable financial institutions
Hidden Costs and Taxes
Home buying requires a high level of financial preparedness. In places like Mumbai, Bengaluru, Delhi-NCR and other metro cities, the EMI on home loan is normally very high due to higher property prices. Therefore, if you are financially not ready, then, your whole plan of buying a home could go awry. Ensure you have the eligibility to get a loan, and are financially ready to not just pay the EMI but also raise the margin money
Here are the regular expenses you will encounter while buying a home: Each month, you will repay the loan by paying an Equated Monthly Installment, an EMI. The EMI consists of both the principal (the amount you borrowed) and interest (the fee the bank charges to loan the cash). Initially, your EMI will mostly be to repay the interest. As time passes, the principal repayment component increases until your loan is paid off. Your repayment plan affects your tax benefits since there are different tax benefits you can claim for interest and principal repayme
  • TAX - Stamp duty is usually 5% of the property value (and penalty of 2% every month if not paid) /news/obligation-of-stamp-duty-during-property-registration
  • TAX - Registration is about 1% of the property value, subject to a maximum of Rs. 30,000, done within four months from the date of implementation, after the stamp duty
  • Done within four months from the date of implementation, after the stamp duty. /news/laws-related-registration-property-transactions-india
  • Brokerage is usually between 1% and 2% of the transaction value. /news/buying-property-choose-licenced-broker
  • TAX - VAT / Cess is paid by the Buyer and can be levied retrospectively. Check with your lawyer. VAT is paid to cover materials used for construction (which are classified under not-immovable goods). As of April 1, 2015, service tax is charged at 14% on a portion of the sale value, depending on the size and cost of the house. For properties less than Rs.1Cr. it’s 3.5% of the price, and over Rs. 1Cr. it’s 4.2%, but differs from state to state. Facilities such as parking and maintenance of amenities will also draw service tax. However, single residential units like an independent villa or a bungalow are exempted from service tax. If the developer has completed a project and has obtained all required approvals and even an Occupancy Certificate (OC) before selling you an apartment, there isn’t any service involved so there is no service tax. Similarly, you don’t have to pay value added tax (VAT) in such a scenario.
  • TAX - TDS (Tax Deducted at Source) the Buyer must deduct a tax of 1% on the entire amount , for properties valued at Rs. 50 lakh or more; this can go up to 20% if the seller doesn’t share his PAN details. If payment is in installments, tax has to be deducted with each instalment. TDS is also applicable if you’ve bought an under-construction project on or before June 1, 2013 and where part payment is outstanding it must be deducted on the outstanding amount.
  • Transfer fees and other applicable fees to initiate the Society Share Certificate transfer for a resale property.
  • Society for a resale property, there is a one-time transfer fee of Rs. 500 and an entrance fee of Rs. 100.
  • Legal fees appear as a percentage of the total property value. A good lawyer may charge around Rs. 5,000 to Rs. 10,000.You can also try to verify the paperwork for a project without a lawyer
  • Home loan costs include principal and interest but can also include processing fee, valuation fee, Pre-payment charges, and miscellaneous fees.
  • Floor rise is a premium charged for topmost-floors, quoted in rate per sqft, because of better views, less noise, more sunlight, less dust, and no upstairs neighbors. But, it tends to be warmer and may increase electricity bills./news/preferential-location-charges-how-it-impacts-the-price-of-your-property-2
  • Parking space can’t be sold according to a Supreme Court ruling, beware!
  • Club membership (gym, pool etc) fees for a lifetime are added to your total cost.
  • Maintenance costs are quoted in terms of rate per sq ft. Developers usually charge a year’s worth of maintenance in advance. /news/maintenance-charges-that-buyers-need-to-be-aware-of
  • Interiors are really a matter of personal taste. A modular kitchen costs at least Rs. 1 lakh and there is practically no upper limit.
  • Second Home: Money you earn from renting out your second home is added to your taxable income.
  • Second Home: If your house isn’t let out, it is still deemed a let out property (DLOP). The notional value is calculated and the amount is added to your taxable income.
  • Second Home: If you sell the house, you will have to pay capital gains tax within 3 years it’ll be short term gains taxed at your income tax rate, and if you sell in over 3 years it’ll be 20% - long terms gains tax.
  • Second Home: The profit you make on a sale is added to your taxable income.
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Second Home Buyers
What should I consider before buying a Second Home?
Do a thorough check on a developer’s credentials and reputation.Seek opinions from discussion forums such as IREF.Find out whether leading financial institutions have approved the project and are willing to finance buyers.
  • Banks may offer less financing on a second home, meaning higher upfront payment.
  • Since lenders see it as an investment, they may give you a higher interest rate
  • If you are already paying off loans, the loan amount you’ll get will be smaller
  • Plan for situations that may hamper your ability to pay your EMIs. A good rule to follow is that your property investments don’t account for more than 50% of the total value of your assets
  • Check the tax section for tax implications - these are different that on your first home
  • Consider what’s attractive to renters if you plan to rent it - neighbourhood lifestyle, connectivity, furnishing, and maintenance add to the costs
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Stamp Duty
Stamp duties vary from state to state, but the general process is the same.
Stamp duty is paid by the buyer on mortgage deeds, title deeds, sale certificates, conveyance deeds (sale deed), leave and licence deeds, surrender of lease, transfer of lease, property partition deeds, re-conveyance of mortgaged property and gift deeds, among others.
It can be paid on judicial stamp papers,franking, or e-stamping.
Documents on which stamp duty is paid should only be in the name of the buyer.
Stamp duty varies from state to state. It is calculated on the market value or the agreement value of the property (whichever is higher).
  • Stamp duties vary from state to state, but the general process is the same.
  • Stamp duty is paid by the buyer on mortgage deeds, title deeds, sale certificates, conveyance deeds (sale deed), leave and licence deeds, surrender of lease, transfer of lease, property partition deeds, re-conveyance of mortgaged property and gift deeds, among others. It can be paid on judicial stamp papers, franking, or e-stamping. Documents on which stamp duty is paid should only be in the name of the buyer.Stamp duty varies from state to state. It is calculated on the market value or the agreement value of the property (whichever is higher).
  • Under-Construction properties appreciate faster, but ready-to- move flats can earn 1.5% to 2% (of the property value) per annum if you lease it. Pre-Launch properties are found to be attractive for investing despite risks such as project cancellations, regulatory/clearance delays, layout changes and, even illegal offers.
Read more
Under Construction properties appreciate faster, but ready-to-move flats can earn 1.5% to 2% (of the property value) per annum if you lease it.Pre-Launch properties are found to be attractive for investing despite risks such as project cancellations, regulatory/clearance delays, layout changes and, even illegal offers.
Tax Benefits
Home buying, and especially loans, have some tax benefits. View the benefits associated with home-buying and loans.
  • Wealth tax has been abolished from the 2015-16 financial year onwards.
  • The principal amount repaid on the home loan taken can be deducted from your income up to Rs 1.5 lakhs under Section 80C. This deduction, however, comes with a couple of caveats. You can only avail of this deduction after construction of your house is complete and possession is received, and not while construction is underway.  If you have taken a home loan to buy a house that you intend to live in, the interest paid on this loan is eligible for a deduction up to Rs 2 lakhs under Section 24 of the Income Tax Act. This deduction is also available only after you have received possession of the house. Construction must be completed within three years from the end of the financial year in which the loan was taken. The interest paid while the house is under construction, will continue to accumulate. You can claim deduction on this amount for five years after possession. So, if you paid a total interest of Rs 6 lakhs while the house was under construction, you can avail of a deduction of Rs 1.2 lakhs for the next five years after possession.
  • If you own multiple houses, only one will be considered as self occupied and the others will be deemed to be let out. The interest paid on all the loans with respect to the let out properties can be used to show a loss from property owned, thereby reducing taxable income.
  • For under-construction property there is no limit to the deduction on the interest you can claim. However, you cannot claim a deduction on the interest paid while your house is still under construction; you can only add the deduction amount (paid before possession) once your house is constructed (even for Pre-EMI loans). After your house is ready and you’ve got possession, the interest paid towards your home loan (while the house was under construction) must be claimed in five equal installments spread over five successive financial years, beginning in the year in which your house was finished.
  • Tax deduction on stamp duty can be claimed with under-construction property. However, this falls under section 80C of the Income Tax Act and all deductions combined under this section are subject to a maximum of Rs. 1,50,000.
  • If you are staying in a rental while your purchased house is under construction, you can continue to claim the rent you are paying as a deduction under House Rent Allowance.
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