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The New Zealand Property thread - Cyclical Position


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(This thread kicks off with a discussion from the HK property thread):

 

DrBubb,

The only housing market I've been watching in very great detail is the NZ one.

I think the very first sign of the bull market ending was when the number of properties for sale increased. I think that occurred well before the media reports changed, and well before prices changed.

I can't think of another sign that marked the change better.

 

A rising stock of properties for sale indicates either more coming on to the market for sale, or fewer sales, or a combination.

If I saw that happen after taking seasonal variations into account, I would be worried the market was about to turn down.

 

I haven't been following this thread, and am unbiased. I don't know what the factors are for HK. But whatever they are, I think the above is a warning signal if it occurs.

It took from about July 2007 (when the housing stock started rising) to say Feb 2008 for prices to start reflecting the change in sentiment.

 

Yes. Buying has dried up in HK Property.

But at the same time, there are very few NEW properties for sale, and the speculative excess is being

worked off in recent weeks. Important to me, is the fact that the banks that got burned in the 1997-2003 meltdown,

have been prudent and conservative in their lending. These are hugely important differences with the US and UK,

I dont know about NZ.

 

I am hanging my hat on those differences, because they help confirm that we are at the wrong

point in the cycle, to have an 18 year cyclical peak- that was 11 years ago- in 1997. I reckon we are now seeing

the mid-cycle correction.

 

Finally, the Chinese stock market (presented by FXI) seems to have checked in to a GIP ... update

aa0iy3.gif

 

... and China stocks could be set to move higher from here- maybe even back to last October's record levels.

No guarantees, of course.

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Yes. Buying has dried up in HK Property.

But at the same time, there are very few NEW properties for sale...

 

NZ is very similar to the US & UK. In some ways potentially worse than the US !!!

You may find this interesting:

 

---------------

 

A very interesting comparison between the US and here in NZ.

 

NZ vs US house prices

 

Panel 1

NZ vs US house prices

Are we more indebted?

Are we more expensive?

Will our prices fall as much?

 

Panel 2

NZ households more indebted

Debt 162% of disposable income

Vs 130% in United States

Interest in NZ 14.4% of income

Vs 14.1% in America

 

Panel 3

NZ affordability worse

6.3 times income

Vs 3.6% in US

US prices down 20.3% since mid 06

NZ prices down 3.4% since Nov 07

We have much further to fall

 

---------------

 

It does sound different. Here there is still a large number of 'just built places' sitting empty waiting for someone to love them :D

And plenty of empty sections (plots/land), also dropping in price.

 

---------------

 

Maybe I should explain that Bernard Hickey is one of the few in the media here in NZ who has been talking about house prices going down for a while.

And he continues to analyse and write articles on it.

He's got a LOT of stick for this.

 

He has had, and continues to get my full support.

 

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Hey, Steve, that's great stuff.

 

Can you copy it over on the new thread I have just started on NZ property?:

http://www.greenenergyinvestors.com/index.php?showtopic=4111

 

 

I'm glad you liked it :D

 

Maybe you can see why the website he manages is one of the first places I look for news.

(And I continue to promote this forum on there)

 

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I've just created these.

 

Sales numbers from REINZ from 1992 to 2008.

Notice how low this year is !!!

 

REINZ_Monthly_Sales_1992to2008_0809.gif

 

REINZ_Monthly_Sales3D_1992to2008_08.gif

 

 

Some people seem to be clutching at any sign of an upturn as a sign of recovery.

Considering we're just coming out of winter, and small rise in sales numbers wouldn't be surprising.

 

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  • 1 month later...

Just out. Guess what, prices are down.

 

 

Pessimism drags down house sales, prices

By TOM FITZSIMONS - The Dominion Post | Monday, 13 October 2008

http://www.stuff.co.nz/4724843a13.html

 

House prices are falling further and faster as recession beckons and the global financial crisis hits home.

 

The average Wellington house sold in September for about $23,000 less than a year before, while nationally the drop was even greater.

 

Despite hopes for a spring resurgence in the market, Quotable Value statistics issued today show a 5.8 per cent drop in national property values during the past year, with Wellington region values down 5.4 per cent.

 

The average national sale price for September was $379,854, compared with $404,089 at the same time last year.

 

 

East Christchurch house prices fall furthest

Liz McDonald Property editor - The Press | Monday, 13 October 2008

http://www.stuff.co.nz/stuff/thepress/4724934a6530.html

 

Homes in east Christchurch have lost more of their value than in other parts of the city, with a surplus of budget-priced units on the market driving prices down. New data from Quotable Value shows that values in the eastern suburbs dropped 8 per cent between the three months to September 2007 and the same period this year.

 

Close behind were the north and central parts of the city with a 7.6% drop, followed by the south-west at 5.3%.

 

Homes on the city's Port Hills held their value the best, with an annual average decline in values of 4.8%.

 

The figures also showed the average price for a home in the city in July to September was $356,357, down about 7% on a year ago.

 

 

 

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Farm sales fall over

Oct 13, 2008 9:48 AM

http://tvnz.co.nz/view/page/536641/2196838

 

Fifteen farm sales throughout the country fell over last week because funding that had previously been arranged could not be secured on time, a real estate company says.

 

Some of those contracts were unconditional when funding became unavailable, forcing the buyers to walk away from deposits worth several hundred thousand dollars or pay penalty interest, a rural real estate agent told the Otago Daily Times.

 

For each sale that failed to settle, up to four other land and property deals were affected, the rural real estate agent, who asked not to be named, said.

 

"You have to be in a really strong position to settle a rural real estate deal at the moment."

 

He says the uncertainty has placed many farmers under enormous stress and strain.

 

Yikes !!!

 

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  • 2 weeks later...

This is one of the funniest articles I've ever read.

Lets go through it line by line :D

 

House sales fail to pick up despite cheap prices

4:00AM Wednesday Oct 22, 2008

By Anne Gibson

http://www.nzherald.co.nz/business/news/ar...jectid=10538731

 

Harcourts, the country's largest real estate agency, said last month's house sales were extremely disappointing and the lack of deals confounds logic.

 

Maybe Bryan's "logic" isn't very good :lol:

 

"In lots of ways, the current situation confounds good logic especially when it comes to buyers in the residential property sector," he said.

 

Most New Zealanders buy a house as a place to live and those places are getting cheaper, he said, as interest rates fall, taxes are cut and house prices ease.

 

"Logic suggests house buyers should be active. Those sellers who are looking to trade up too would be expected to seize the day," he said.

 

MwahamwhaMwahamwhaMwahamwha ha ha ha

 

One minute prices aren't dropping, then they are still selling, now prices have dropped but the damn buyers won't buy, what's up with them LOL

 

Harcourt's figures told a grim story.

 

Written sales in the northern region, which includes Auckland, fell 35 per cent from 402 deals last September to 262 deals last month. The amount of unsold real estate in the region ballooned 93 per cent from 1750 properties last September to 3376 properties last month.

 

The number of people choosing to sell only via Harcourts fell 16 per cent from 505 exclusive listings last September to 423 last month. Average prices are up 4 per cent from $487,000 last September to $505,000 last month.

 

So really poor sales numbers and a large number for sale.

Oh wait, prices have gone up, so people should buy, and take advantage of the....ahhhh, lower and higher prices. Huh !

 

"This September was much anticipated by our industry

 

Yep, I think we were all expecting it to follow August ;)

 

and for the first three weeks results were closely aligned with expectations, but the flareup in global financial markets appears to have reactivated the fear factor with activity slowing again. So, overall the month finished off ahead of August but well below September last year," he said.

 

Oh right, it was going to be great, but somehow fell away at the last minute.

 

Well there we go, the usual quality output from the real estate industry :D

 

Thanks for the laughs.

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  • 3 weeks later...
Has the Christchurch housing market started to tank yet?

 

You're kidding, right ? :D

 

I think they'll be doing buy 1 get 1 free soon :lol:

 

I fail to understand why people go to auction. It's not free !

And the success rate at the moment is dire.

 

In summary:

Prices are falling. I've just seen two houses for sale with prices I'm trying to understand. They are very low !

Sales numbers are very low.

It's taking forever to sell.

Oh, and the great "green shoots of recovery". They must have been killed by the buyer draught :lol: :lol: :lol:

Still it's Xmas soon. A great time to sell right. :lol: :lol:

 

I've just had a little 'discussion' with Bryan Thomson CEO of Harcourts.

I am very tempted (and if I have time) to post on his blog :D

 

See what he says on it:

 

I am happy to admit I do have a vested interest, I believe in owning property, firstly as a home for families and then as a solid secure and proven long term wealth creation strategy. I back this belief with action and our industry is filled with people just like me who also back their own judgment and opinions and do the same so I think we qualify to have opinions, vested interest or not!

 

My advice is that if you are a property owner then be happy with this move by the Reserve Bank, I know I am, our mortgage has just became more affordable, or will do once fixed rates expire. If you are a buyer I’d be looking to take action before the rest of the population cottons on and decide to do so and takes the property you’ve always wanted right from under your nose!

http://blog.harcourts.co.nz/2008/10/23/interesting-times/

 

Amazingly it had not occurred to me before that real estate agents would be just as active in the property bubble as everyone else.

 

This means that they are doubly involved, having a job and investment involved in the same sector.

A recipe for disaster when things turn down.

 

 

Our little 'discussion' starts here :D

 

Harcourts figures show house prices already down 30%

http://www.interest.co.nz/ratesblog/index..../#comment-10676

 

 

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Barfoot sees slowest October home sales in at least 10 years

http://www.interest.co.nz/ratesblog/index....least-10-years/

 

"Barfoot and Thompson Managing Director Peter Thompson." - not to be confused with Bryan Thomson of Harcourts.

 

 

Uridashi rollovers still happening, but new issues rare

http://www.interest.co.nz/ratesblog/index....ew-issues-rare/

 

 

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  • 2 weeks later...

My latest NZ property market data now in chart form.

 

This one shows the number of properties & just houses for sale in NZ on realestate.co.nz, and also the percentage of "motivated" adverts for each:

 

TrackingHousesForSale081119.gif

 

It is interesting to see a steady increase in the % of "motivated".

 

 

This one shows the number of rentals available on RealEstate for NZ & just Canterbury and on TradeMe just for Canterbury:

 

TrackingRentals081119.gif

 

A pretty clear rising trend.

 

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  • 2 weeks later...

Is now a good time to buy a home?

http://www.realestate.co.nz/blog/is-now-a-...buy-a-home.html

 

What points does Alistair make ?

 

1. Most property purchases are for a home to live in.

2. Sales numbers show that in the last year some people have decided not to buy.

3. Sales numbers are seasonal.

4. Factors affecting the market are: SUPPLY, DEMAND and THE CAPACITY TO PAY

5. Buyers market

6. Demand by web traffic

7. Mortgage rates down making buying more attractive

8. "If you want to move, you have the capacity to pay and you find what you are looking for and can negotiate a deal which you are happy with - why not - spring is in the air!"

 

Points not covered:

 

1. Buying a home is usually the biggest financial investment in your life, and often done with little or no consideration to economic conditions. Decisions usually come down to area, whether you like the house, and whether you can afford it.

 

2. Factors affecting the market are:

 

a. The cost of renting versus buying.

 

b. How rentals compare with houses for sale in the area you want to live.

 

b. Expectations of house prices.

 

c. The ability to pay now, and in the future. Factors for this are:

i. Current salary versus size of mortgage.

ii. How secure your job is in the current/expected economic climate.

iii. Whether you can cope with higher mortgage rates.

 

d. The size of mortgage you would need versus the potential fall in house prices, and whether you would suffer from negative equity.

 

e. Whether you expect buying to be financially better or worse than renting.

 

3. IMO measuring demand by web traffic is wrong. You cannot distinguish between "rubber neckers" and real buyers.

In fact comparing this chart:

 

RealEstate_Traffic_2006to2008_08112.gif

 

with the sales numbers for 1992 to 2008:

 

REINZ_Monthly_Sales_1992to2008_0811.gif

 

shows that although traffic has increased actual sales are at an all time low.

If demand has increased, it certainly isn't being translated into sales.

The "massive peak" at the beginning of 2008 did not translate into massive sales.

 

4. Mortgage rates have come down, but Loan To Value (LTV) requirements have risen. Changing from a 0% deposit to 10% is a significant effect on affordability.

 

5. People who last year would have been able to move, will now find they cannot afford to, because their house is worth less, and they need a larger deposit to buy the new house.

 

 

IMO one of the main factors that people thinking of buying should be considering is whether buying or renting is financially better. They can then include that information in their decision which will include how they feel about owning versus renting.

 

The negative equity trap

 

Suppose you start with $15k and buy a $150k house (ie with a 10% deposit).

You start with $15k in wealth and $135k in debt.

Now suppose house prices go down 10%.

You now have a house worth $135k.

You now have $0k wealth and a $135k debt.

You have lost ALL your money, and are on the brink of losing your house.

 

IMO this factor should override all others.

 

 

Here is a little example to show how that calculation can be made to compare renting and buying:

 

House prices = 5% down/year

Deposit interest = 4%

Renting = 5% of house value, and rent a $150k house, so $7.5k/year.

Mortgage rate = 6% on $135k, so $8100/year.

$15k deposit.

 

Renting:

Start: $15k

After 1 year: $15k + $600 interest - $7.5k rent = $8100. Total wealth =$8100

 

Owning:

Start: $150k house, $135k mortgage.

After 1 year: $0 + $0 interest - $8100 mortgage. House is worth $142.5k. Total wealth = $142.5k - $135k mortgage - $8100, so Total Wealth = -$600

 

You would have more expenses owning than renting, but ignoring that, you are $8700 better of renting.

 

Of course the more people who make that calculation, the fewer will decide to buy, and the greater the imbalance in supply/demand, and the lower house prices will go, making the fall self-sustaining.

This is of course the exact opposite of what happens when everyone is desperate to get on the "housing ladder" so they don't get left behind.

 

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Is now a good time to buy a home?

... snipped ...

Of course the more people who make that calculation, the fewer will decide to buy, and the greater the imbalance in supply/demand, and the lower house prices will go, making the fall self-sustaining.

This is of course the exact opposite of what happens when everyone is desperate to get on the "housing ladder" so they don't get left behind.

 

Steve,

I've been wondering about the impact of the interest rate drops on the NZD and overseas investors appetite for NZD investments

 

For example, the RBNZ looks like it is providing liquidity..

 

The Reserve Bank lent banks, including ANZ National, NZ$1.45 billion through its Term Auction Facility this week for terms of 3 months to 1 year and interest rates of 5.78% and 5.13% respectivity.

 

The central bank then issued NZ$1.5 billion worth of 4 month and 6 month Reserve Bank bills at interest rates of 5.42% and 5.19% respectively to ’soak up’ cash in the monetary system

 

My gut tells me this is important. But I am unable to articulate why... Any thoughts?

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Architects say building industry on 'knife-edge'

4:00AM Monday Dec 01, 2008

By Jacqueline Smith

http://www.nzherald.co.nz/business/news/ar...jectid=10545830

 

New Zealand architects believe the building industry is on "a knife-edge" and just 10 per cent have secured 12 months or more of work, according to a survey by online architect's library eBoss.

 

The survey was conducted last month and polled 113 industry professionals from Auckland to Northland to assess the local effects of the global credit crunch. Two-thirds reported their day-to-day work had been impacted and a quarter said their jobs were insecure or uncertain.

 

Most of the respondents were architects and architectural designers.

.

.

.

"One of our respondents summed it up by saying 'Anybody who thinks New Zealand is immune from the effects of this crash is sucking dream tablets'."

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  • 2 weeks later...

This is really interesting. This is written by an agent:

 

 

Opinion: A real estate agent says prices are falling fast

By Peter Ryan of Ryan Realty

http://www.interest.co.nz/ratesblog/index....re-falling-fast

 

As the licensee and manager of a Real Estate Company with the experience of the past 19 years in South Auckland, I noticed in August 2007 an abnormal fall in the number of sales, accompanied by a reduction in sale price.

 

By November 2007 the anecdotal evidence communicated by my salespeople was that in South Auckland there had been a decrease of price of family homes in the order of 12 – 15% and a decrease in rental/investment property prices of up to 20%.

 

At the same time the Real Estate Institute was declaring that prices were actually rising over 5% from the previous year. Anecdotal evidence from other Real Estate agencies in South Auckland and beyond that I had spoken to convinced me that there was a strange anomaly between what the Real Estate Institute was communicating and what I could actually see on the ground.

 

In November 2007 I contacted the Real Estate Institute and asked to speak to the person in charge of collecting the data and putting out the figures for sale prices. I suggested to the Institute Officer concerned that the price indicators, at that stage indicating a 5% increase in prices, was wrong and it was not what we were experiencing in South Auckland and that the median price method was faulty. He replied that this could not be possible, as the number of properties sold was too large for them to show an inaccurate result.

.....

My salespeople on the other hand are estimating a 20% decrease for family homes and up to 30% decrease for investment/rental properties. A conversation with a Real Estate salesperson in East Auckland of 20 years plus experience indicated a 20% drop in the last year in the Howick area.

 

The unfortunate result of this confusion is that there are vendors who are being forced by circumstances to make hard choices on whether to sell their property or not, based on the information they receive from the Real Estate Institute and Quotable Value. Probably the information vendors are being given by their local Real estate agent is different again. Who are they to believe? This confusion may lead home owners to turn down good offers or even drive them to a forced sale.

 

If the market is still dropping, which I believe it still is, home owners may lose thousands through relying on faulty statistics. I believe they deserve better.

 

The Real Estate Institute has indicated recently that “the housing market shows signs of picking up” Herald 14 March 2008. I would venture that instead the credit crunch and 20% deposits has further depressed the bottom end market, causing the median price to rise, while actually prices are still falling. It will be interesting to see who is right!

 

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  • 2 weeks later...

Sorry, I don't know. There is a growing list of failed building companies though, and consents are very low.

 

============

 

1 in 5 owes bank more than house is worth

By ADRIAN CHANG - Sunday Star Times | Sunday, 21 December 2008

http://www.stuff.co.nz/4799888a13.html

 

A Lincoln University study has for the first time revealed the extent of the "negative equity" situation when a house is worth less than the mortgage on it. Property studies professor Chris Eves found rapidly declining house prices in the past year meant that 100,000-130,000 households are now in the negative equity zone one in five of the estimated 500,000 New Zealand households with mortgages.

 

Eves says people who bought homes during the 2006-07 property boom, and have 75%-plus mortgages, fall within the zone of negative equity risk. House prices have fallen 10% in the past year and many commentators are picking a further 30% drop.

 

To reach his conclusions, Eves tracked houses sold in Christchurch in 2006-07, and their resale values in 2008. Using his findings and data from mortgage lenders he extrapolated to conclude that of the 220,000 houses sold nationwide in the same period, 130,000 had mortgages of 75% or higher big enough to be at risk of negative equity.

 

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Nasty. Are you over it now?

 

 

 

 

 

 

 

 

 

 

(Sorry feeling a little irreverent) :lol:

 

:lol: :lol: :lol:

 

That's how I feel sometimes. I just post funny stuff. Often late at night :D

It turned out to be a bug going around...which is much like food poisoning, but comes back after a week or two :rolleyes:

I'm glad to say I am fully over that one :D

 

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NZ house prices (and elsewhere) have not been my main focus recently as I think it's a done deal.

 

This is a great article, and on one point in it I thought "that's a typo".

Then I got the calculator out, and..........massive revelation. It's actually spot on, and something I'd never spent a microsecond thinking about. And it's massively important, and shocking.

 

It's this bit:

 

First-home buyers and property investors are now unable to get the 80 per cent-plus home loans they once could. What appears to be a relatively small change in the equity requirement for home buyers actually has an enormous effect.

 

For example, a buyer with a $30,000 deposit could have bid up to $600,000 for a house when the lending criteria allowed a 95 per cent home loan. Now that same buyer can only bid up to $150,000 for a house with the criteria at 80 per cent. That is the power of de-leveraging.

 

from this one:

 

Bernard Hickey: Property pain only just begun

4:00AM Sunday Dec 21, 2008

Bernard Hickey

http://www.nzherald.co.nz/business/news/ar...jectid=10549103

 

Yes, here are the numbers:

 

$30k deposit, with 95% loan, means you can buy a house worth 100/5=20x your deposit = 20 x $30k = $600.

 

But, with the same deposit, and only being able to get an 80% loan:

 

100/20=5x your deposit = 5x $30k = $150k.

 

Changing the deposit requirement from 5% to 20% reduces the value of house you can afford by a factor of 20/5 = 4x !!!!!!

 

So the deposit requirement has a massive effect on demand.

 

Funny how I missed such an important and simple point !!!

 

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People should look at what they can afford on a cash flow basis, not just the deposit

 

But I fear you are right, and many focus too much on the deposit alone

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I have my eye on NZ property also. I will not be buying until a few years time. I have become so debt adverse, I wouldn't even contemplate buying property with anything less than a 50% deposit. And then only if I had the other 50% in cash with which I could pay the mortgage if I so wished. Main reason being that once I am back living in NZ, I can not imagine I will have much of a "cash flow". Thinking more of living the good life [remember Barbara Kendell in that 70s show?].

 

Those figures, outlining the difference a 20% deposit as opposed to a 5% deposit makes, are quite incredible. The credit binge was obviously the means by which house prices were bid so high. Now that the tap is turned off, prices will surely have to come crashing back down to earth.

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  • 1 month later...

My latest NZ charts.

 

First the chart of Median House Prices in NZ$:

 

NZ_Median_Sale_Prices_1992to2008_09.gif

 

This does not show much of a drop.

I think it's important to appreciate that the median price is based on actual sale prices prices in NZ$, and does not take general price changes into account, nor how the same currency invested in a bank deposit would compare.

 

This is the old prediction for comparison:

 

NZ_Median_Sale_Prices_1992to2008-1.gif

 

Notice that in NZ$ I have not predicted a huge price drop. This will change if monetary deflation results in general price declines.

 

 

From the perspective of someone in Japan, or someone holding Yen, this is what has happened to NZ house prices:

 

NZ_Median_House_Price_Yen_1992to200.gif

 

To put it mildly, this is a huge drop.

 

 

For anyone who sold a house and bought gold with the proceeds (I've heard that Olly N did this. I wonder):

 

NZ_Median_House_Price_In_ozGold_199.gif

 

The best time to have done it was 2005.

This also shows a huge drop. In fact you only need half the number of oz of gold to buy a median priced house now than in 2007 !

 

My nominal prediction of 115oz of gold is approaching rapidly !

 

This change has been mainly due to the rise in the gold price in NZ$:

 

GoldNZ_1992_to_2008_090126.gif

 

Obviously reflecting the relatively stable US$ price of gold and the decline of the NZ$.

 

 

And finally, the number of sales till last month. The lowest number this year in my records.

 

REINZ_Monthly_Sales_1992to2008_0901.gif

 

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