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Special Report: Panama Prices Dropping

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Written by Matt   
Monday, 01 June 2009 15:41
Special Report PanamaExclusive statistics to The Panama Report show real estate listing prices in Panama decreasing for first time since boom. Panama City prices mingle with those in Miami, ambulance beaches and mountains not immune to drop. Cause for concern to developers and investors or natural correction healthy for Panama in long run? All-star Panama experts sound off as to what this means for Central America's most hyped real estate market.

No MLS - How about the next best thing?

One of the real estate market's greatest discussion points in Panama is the multiple listing service, or perhaps more accurately its lack thereof; a deficiency that antiquates even the most modern of projects.

The two primary functions of a multiple listing service (MLS) are (1) to encourage broker cooperation in which a unilateral commission fee is shared and (2) to give buyers the greatest and most varied access possible to available listings. These functions play off each other in markets where the MLS succeeds: buyers make the ideal purchase and successful brokers share a piece of the pie. As one might imagine, in a market like Panama void of an MLS or any such tool, the opposite is very much true: buyers are hindered in their search for real estate and brokers are inherently greedy bastards.

Casey Halloran, a veteran in Costa Rica and Panama, was able to shed some light on why an MLS system hasn't worked in Central America. "Beyond poor organization and cooperation," Halloran told us, "they like it this way. There is power in hoarding information and if it were free to everyone, some would stand to lose power." Halloran believes that Panama's lack of transparency starts at the Public Registry where properties are never accurately valued because everyone wants to avoid taxes. "It's hard to imagine having a giant database of real estate transactions and property values if it all starts with a lie."

With the feasibility of an MLS in Panama so slim, and the accuracy of Panama real estate sales so marred, The Panama Report went with the next best thing: comprehensive, unbiased and independently collected data that represents the widest swath of real estate for sale in Panama today. We enlisted the help of Reveal Real Estate , a market research company specializing in real estate data for Central America, who spent months collecting all kinds of Panama statistics - some easy to obtain, others more difficult - in an effort to shed light on an otherwise dark and capricious information market.

"When doing some research into real estate investing Central America, we found it hard to get hold of objective market data," says Claudia Gonella, co-Founder of Reveal Real Estate. "It takes time and effort to pull together this kind of information and no one had done it before. We launched Reveal Real Estate to fill this gap." From consultations with experts to good old-fashioned legwork, Reveal Real Estate provided The Panama Report with exclusive and telltale trends in the Panama real estate market in 2009.

Part of the allure of the data below is that it's inarguable: a collection of scientific data, not manipulated or laden with any kind of predictions or intangible trends. It's also been collected by a third-party, which avoids any bias or conflict of interest. A third, and perhaps more valuable aspect of this work, is its ability to finally put a broader (albeit precise) finger on where Panama's real estate market stands in the bigger scheme. A chance to clear up an otherwise severe lack of transparency.


The Findings

While it's been projected now for over a year that Panama's market is due to bust, there still exists, as of May of 2009, a dimension of incongruity between buyers and sellers: sellers want to sell high, buyers want to buy low, and no one really knows an appropriate price. Unlike more developed markets where a sense of reality and facts preside, we believe Panama's disparity between buyers and sellers to be attributed to one main liability and that is the inability to obtain real comparative selling data. In other words, buyers and sellers aren't on the same page because...well, there's no same page to be on.

The data below should act as nothing more than a resource to buyers, sellers, and brokers: a way of structuring choices so that investors have the right to make a more educated decision. It's important to note that the data quoted in the following charts reflect listing prices not sales prices. The data does also not include re-sales (which we can only assume are being sold for less). The results are not earth shattering or rocket science, but they do give us an idea of where the market was (2008 data was collected over the period July to September), where it is right now (2009 data was collected April to mid-May), and where it may be going in the future: something no resource focusing solely on foreigner-interest real estate has offered yet in Panama to date. It was featured in our last Panama Investor Circle newsletter.

Note: The vast majority of the developments in this database target the international buyer seeking a second home investment or lifestyle buy. Some of the projects are in a pre-construction phase while others are well advanced in the roll out of their master plan. Most of the developments in the sample have a dedicated website. The sample size is 107 developments and this covers Panama's four main real estate hotspots: Panama City, Bocas del Toro, Boquete/Volcan, and Coronado/San Carlos.


Panama Top 10Panama's Top 10 Most Expensive Projects


Panama's real estate market, when it began to grow a number of years ago, was alluring because it was cheap. This brought in a wide array of buyers, primarily for investment purposes, who didn't mind picking up a condo in a good location or cheap piece of farmland destined for development. But with the swing in hype and buzz, Panama real estate prices shot upward to first-world levels.

Perhaps Panama's most famous project, Trump Ocean Club, tops the list at a price of almost $5200/m2 (that's $482.56/ft2). Six of the ten most expensive projects in Panama reside on Avenida Balboa, with one on the Amador Causeway and the number two spot allocated to the Los Faros project, in serious financial trouble: while no longer working with Panama City brokers, the Los Faros developers still have not officially cancelled the project (perhaps because that'd mean giving buyer deposits back?)

The only project outside of Panama City that made the list was Azueros, a beach project in the isolated hills of Los Santos. As say their reps, prices have risen justifiably as things like location, quality, and ground-up infrastructure are paramount. "Since the inception of the project, prices have increased approximately 20%. This has not been due to speculation but to a revision of the costs of materials, some imported, as well as the specialized artisanal craftsmanship." As validation to their pricing, Azueros cited hand-made furniture, attention to detail, and customization as differences between them and the other nine projects on the list.


Panama City PricesPanama City: More expensive than Miami?

To highlight the backwardness of the Panama City condo market, data shows that listing prices have actually increased from 2008 despite a serious dearth of sales. As a note, the price/m2 of condos in the capital was one of only two increases documented in our entire data collection (the other being lots in Boquete/Volcan). Some experts wager that these numbers represent the maximum peak in a curve that will soon begin its downward slope (as supply continues to increase and demand appears to be tapering off): if true, these would represent the most expensive prices Panama has ever and will ever (at least for a long time) experience. Others believe that prices have increased due to the draw from Latin Americans who have difficulty entering more northern markets.

It can be useful to note that today, a large percentage of condos in Miami, Florida are priced equally (if not less expensive) than those in Panama City. Take for example a project of average price and quality in Miami, Opera Tower (located on Bayshore Drive). Prices for condos in this building range from $120-$187/m2. In a list of various other Florida condos (as the one here), you can see prices all rest below Panama's mark. One has to question why, when an American has the option to buy (what many would call) a better product in the States, would they opt for Panama where the legal system, construction quality, and infrastructure are less impressive?

Boris Métraux, CEO of the Encuentra24 , one of Panama's top classified websites, sees prices in Panama City real estate listings about to drop and efforts from desperate sellers increasing. "We are getting a lot more paid listings as well as more individual users (as opposed to developers or agencies) from abroad," Métraux said, signifying a distressed bunch of foreigners who once bought in Panama (for second home use or investment purposes) and are now looking to get out.

One such seller from Canada who preferred to remain anonymous, admitted he'd been too greedy over the past year in passing up several decent offers on his Avenida Balboa unit. He's lowered his asking price by about one third (down to the amount he originally purchased his condo for two years ago). Still, no one's taken the bait.


Bocas del Toro Prices/m2Bocas del Toro: Biggest drop per square meter

The Bocas del Toro archipelago has had one of Panama's more active real estate markets (outside of Panama City) over the past years, though a number of imperfections have seen it in the news for the less-savory reasons (drugs, crime, land disputes...etc). Don King of Bocas del Toro Realty Services Inc gave us some inside dirt.

"Few people are aware that the titling law was recently signed into law. Some of the foreign landowners with ROP land are hoping it will increase buyers for their properties and possibly allow them to increase their asking price. Those who are aware of the law and have (ROP), are very happy to see it finally come into existence. They see it as a way of finally removing any doubt as to land ownership." As a side note, King sees it as a new revenue source that could be used for public works, education, etc. and as an avenue for Panamanians to acquire loans with their property as collateral.

Considering the data collected pertains mostly to real estate targeting the international buyer, King also offered a good explanation as to why Bocas del Toro prices may be decreasing. He said that most of the sellers in Bocas are Panamanians and because they don't have stock or retirement funds, they're not feeling the pain like everyone else. "Nor do they yet understand the connection between the financial crisis and the lack of current buyers," King told us. "That realization will come in time. The ones reducing their prices for quick-sale in Bocas are 99% foreigners, who were affected by the market and need their money now. There have been isolated incidents where people have cut their asking price (which was in the hundreds of thousands) by half in one day. Other foreigners are slowly lowering (or re-adjusting) their prices as the months pass and probably will continue to do so until either the financial situation becomes better or their prices reach a level where buyers are willing to purchase again."


Boquete/Volcan Prices/m2Boquete and Volcan: Lot prices up, condo and home prices down

The Boquete/Volcan market has been, in many ways, a microcosm of the Panama real estate market as a whole. Sales have come to a halt because of the vast gulf between buyer expectations and seller flexibility. In this chart, notice how lot prices have actually increased since July of 2008 (one of only two increases the statistics showed).

Paul McBride, Sales Manager at Valle Escondido and fellow blogger, believes speculation in mountain regions such as Boquete and Volcan was limited mostly to property developers and, to some extent, land speculators. "End users drove the market and the booming real estate market in the US, Canada, Europe and Great Britain provided liquidity to purchase land and property here in cash," McBride said. "Now that the real estate market has crashed overseas, the affects are being felt here. I tell my sellers, if they want to sell their home, they better be prepared to aggressively price it."

McBride, along with several sales agents we spoke with, believes that prices in Boquete/Volcan will need to drop to 2001-2002 prices before any kind of buying strength emerges again.


Coronado/San Carlos Prices/m2Coronado and San Carlos: Beach not immune to the drop

Condos and houses in the beach areas outside of Panama City (spanning from Coronado to San Carlos) dropped by almost 9% and average sale prices dropped by almost 12%. Realtors like Kaye Ashbridge of Concept Panama, reported "the drop in pricing may be due to large pre-sale condos halting current activity, canceling scheduled 'second phases' and generally the public holding their breath to see if things sink lower." Ashbridge, whose company focuses on North American listings, distinguishes them from listings owned by locals who, like King in Bocas del Toro said, may be less pressed to sell. She thinks this less-urgent demographic may create a false impression that there is a large amount of people selling, hypothetically to move out of Coronado. When in reality, such is not the case.

Lately, developers in the Coronado/San Carlos region have been offering discounts of up to 10% as incentive. They've also been throwing in little bonuses (such as electric appliances, air conditioning units) in an effort to close. "A lot of developers in this area are now more welcoming to brokers too," says Jianella Torres, Sales Manager at New World Real Estate who has an office in Santa Clara. "Events, barbeques, tours of the project. These things never happened three years ago and now we're being treated like kings!"

The amount of interest in the beach areas still appears to be high with most agencies reporting a large amount of leads as well as a high "visit rate" of clients who come from abroad and physically visit the area for inspection. The opposite end of this spectrum, said Torres, is a place like Boquete where clients realize its distance and often times decide not to go. Jim Hawley, Founder of Panama Sol Realty, who has worked the Coronado/San Carlos region for almost five years, reaffirmed clients are still arriving on a regular basis, but with firm and unyielding budgets of $200,000-$250,000.

As a testament to our findings, Hawley gave the example of one 5-story project on the ocean. "They were marketing units from $475,000-$800,000. As you can expect the market did not jump at this building, but after discussions, they redesigned the building and offered smaller units starting at $220,000. They were listening to what the market was asking for (as opposed to what they wanted). In the end they will have sold more units on the same land and increased their profit line somewhat because they listened to the market."

One main limitation to the Coronado/San Carlos area is a lack of good schools for foreigner children. With good education facilities, all of our experts agreed that people would begin to migrate even faster. And with such decreasing prices, more sales may be on the horizon.


Panama PricesPanama Property Prices Fall Between 3%-16%

This chart shows the decrease in average property prices (as opposed to price/m2) across all four Panama hotspots. It is an interesting group of numbers considering the financial crisis and investors' general tendency towards less expensive overall purchases. In the comparative scheme of things, the range of decreases Panama has seen is not terrible considering the downfall of other real estate markets (such as the USA where prices dropped more than 20%). According to the Florida Association of Realtors, the median condo sales price last month was $108,700; in March 2008 it was $172,300 for a 37% decrease. In Panama City, the median condo list price last month was $450,200; in July 2008 it was $466,400 for a decrease of 3.5%.

With a new administration on the horizon, Panama's leaders will be faced with cleaning up the mess a previous administration has left behind (sound like a familiar story?): one of hyper-supply, decreasing demand, and a ton of projects in limbo. According to Eric Sabo, Bloomberg correspondent in Panama City, the sweeping price decreases in luxury Panama real estate reflect a dependence on foreigner spending and a soon-to-be sticky situation for developers.

"What people within the government and banks are telling me is that the projects who will receive funding are going to be low-income housing and public works projects," Sabo told our Private Investor Circle. "So unless Panama suddenly becomes the world's largest refugee camp for wealthy people, builders of luxury real estate are going to have a lot of trouble finding money."

While our data does not reflect the amount or activity of actual sales in Panama, we spoke with several businesses in the industry and got a pretty straightforward answer. No one is closing.

Torres of New World Real Estate stated that while yes, market is very slow, some developers were dealing with it in innovative ways. "One particularly creative effort is by Grupo Shahani who is offering fractional ownership (lifetime shares in a particular condo) for people who cannot afford the entire price tag."

Some of this panic-mode was echoed by Chad Smalley who's not in the real estate game per say, but rather alongside it. As CEO of GMG360, a real estate internet marketing provider in Panama, Smalley says "both developers and brokers alike throughout Panama just seem desperate for new clients right now (especially compared to this time two years ago)." Smalley reports a boom over the past few months of agencies and developers looking for his assistance in customer relationship management. "Whether it's dropping sales prices or increasing advertising budgets, most companies we are helping just want to see some sales again."

Amidst a widespread drop in sales and price points, hype about Panama still continues to circulate. Live and Invest Overseas, a lifestyle and investment resource lists Panama as one of their five Top Markets. In the world.

Prices/m2 TrendAs a reference, here is the same chart as above but in meters2 (as opposed to total price).









Conclusion


An across the board decline in Panama real estate listing prices is no real surprise to people living here or working in the industry. As pointed out by Halloran, the only thing that could increase the demand again is to lower prices: "That's econ 101," he says, "and anybody who disagrees is in denial." Other markets that have experienced the boom and bust cycle reflect this: according to the Florida Association of Realtors, Florida's existing home sales increased 30% in March (compared to the same time last year), making it the seventh month in a row that sales activity demonstrated gains.

The numbers in Panama are not as severe as other countries where large-scale crashes have already taken place. Home prices in the USA, for example, dropped 18% in March of this year alone. Comparatively speaking, the decreases we're seeing in Panama run parallel (albeit on a less drastic curve) to those elsewhere in the world.

The general theme remains: Panama was promoted as a place to buy cheap real estate and, as our stats show, with a number of stars aligned, the trend may have been reversed. Paul McBride in Boquete concludes that Panama became popular for foreign investment because it represented such a large discount compared to property in the USA and elsewhere. "This is no longer the case," he says. "Property in Panama (city, beach, mountains) has become more expensive than property in the US, Canada, and Europe."

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Stating Listing Prices and Not Including Re Sales
written by The Great Panama Hoax , June 03, 2009
Mateo, great job at trying to put together some hard numbers with the Panama real estate market - that should be applauded. I haven't seen anybody else try and tackle this yet - so, an Atlas raised in your honor.

But, ...

I see you say that "It's important to note that the data quoted in the following charts reflect listing prices not sales prices. The data does also not include re-sales (which we can only assume are being sold for less).

First off - getting listing prices instead of sales prices is (almost) a waste of time in real estate.

A listing price is a seller - and by seller in this article means developer since you didn't include re sales - stating that they would like "x" price.

Also, since most of the projects were selling pre construction 3 and 4 years ago, and are mostly close to pre sold, but not yet completed - the developers have to, and can, still ask high prices on their remaining few units. They don't HAVE to move these apartments now to build, so...they can still ask high prices and wait.

They HAVE to keep the prices high or higher than when started so everyone who bought will have the values needed when they get a mortgage loan at the bank. If the prices tanked...the bank wont have the collateral value needed in the apartment, and not grant the loan.

The other HUGE problem I see - is that it doesn't include re sales.

There are 2 markets in Panama. Pre construction and re sale.

99.99% of the people who have bought pre construction in Panama ARE NOT MOVING HERE - think other people are, prices will rise, they will sell, and they will make money.

The people who buy re sales are living/moving here or got a great deal from one of the pre construction sellers and will use it for a rental or have it for a part time residence (or buy it to hold long term and don't care or buy it for their investment Visa)

I am a small time real estate investor - the last 3 places I have sold, were sold to: Panama family for cash, Russian for cash to get their investment Visa and not moving to Panama, group of investors with so many numerous off shore corporations that no one had any idea "who" actually was buying it...but they paid cash...never stepping foot in Panama.

Since I bought my first place in 2004 - started trying to sell in 2005 - its been very evident to me that so very few people are moving here - as in itsy bitsy teey weeny - that it doesnt even compare to the amount of pre construction units. Or, what the Panama propaganda machine put out about numbers of people moving to Panama.

In fact, I would say that I see more people leaving Panama now - than are actually moving here.

Ask any person who has bought and sold a place or 2 - and they will tell you the HUGE differences in prices of pre construction units and re sale units.

Lets look at an example - Empresas Bern is still selling a few pre construction (but done) units in Vista del Mar for around $400,000 - people who have bought and are trying to re sell are trying to dump theirs for about half that. I see units for $206,000 - $250,000 just by checking some real estate sites and Craigs List.

I like the fact you asked local real estate companies. But the question should be, " what exactly are you guys selling today - and give me specific examples."
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I agree...sort of
written by Carb-bean , June 03, 2009
I agree with Hoax, sort of. The data definitely would be more useful with resales and sale prices. But I also understand the author's point saying the data is nearly impossible to find in Panama. As a compromise, I think it's useful to take the data featured and use it as a gauge (realizing that the resales, and actual property sale prices). By the way, thank goodness Bocas del Toro is decreasing. What a hell hole!
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Whatcha Talking 'Bout Willis?
written by The Great Panama Hoax , June 03, 2009
@ Carb-bean,

That is why I like my final question, "what exactly are you guys selling today - and give me specific examples."

With specific examples of selling prices - you can then see what things are actually selling for.

Granted, it would take real estate companies cooperation.

The joke about owners with R.O.P. land - and it being so easy to title now with the law being changed, and therefore once sold as R.O.P. land to the new owner who can legally change it from R.O.P. to title...., is - if its SO easy to change from R.O.P. to title - why aren't they doing it themselves and commanding higher selling prices and bigger profits?

Duh, because it's not.
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goostuff
written by Sagitar , June 04, 2009
goodstuff matt. would be curious to see the markets of the caribbean coast and other mountain regions (though i know that's obvisouly hard with little to no movement). also like hoax's idea of marking down sales - but then again, that takes a LOT of time and resources. and there's a relatively simple answer to hoax's question about what agents are selling: nothing.
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An M.L.S.? Maybe one day but not today, and probably not tomorrow
written by Gregorio , June 06, 2009
Matt,

Thank you. Very well thought-out.

Your comments and those of Casey that describe why no M.L.S. exist are 100% correct. Sadly, there are many real estate agents in Panama that would like to have an M.L.S. and understand the benefits that one would bring to their industry and the public as well.



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we put the real estate cart before the tourism horse
written by casey , June 07, 2009
Matt:

What a brilliant piece! I'm excited like a little girl to see what happens to the city condo market over the next few months. Strangely enough, after a pretty miserable "high season", we're seeing strong sales for high end vacations in Costa Rica and Panama over the last 90 days. This has me scratching my head, but certainly not complaining.

I may be beating a dead horse, but I hope the new administration might listen to my belief that the easiest way out of this pending housing mess in Panama is to focus on tourism, rather than the current love affair for building high rises that nobody wants. If Panama could move another million tourists per year through the country and create a viable tourism infrastructure, it would achieve 2 things: 1. Create demand by introducing more potential investors to the region 2. By increasing the quality and quantity of places to visit and things to do (also known as quality of life) Panama will be a more attractive investment destination for regular vacationers, retirees and other misc. expats.

Until then, with asking prices that are just plain 'loco', the selling points for Panama just don't cut it. If the country does manage to figure out tourism, then we might be able to create sufficient demand to soak up all these stinkin' condos...but only AFTER prices come down to earth.

C

P.S. shameless plug for my B&B in Pedasi, Los Santos here: www.pedasihotel.com
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DAMN
written by DAMN , June 07, 2009
Finally - someone did this! I am greatful to the evidence shown above - but how do you make money off this? IT clearly took a lot of time and energy.
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...
written by Contrail , June 08, 2009
MLS is not always good for the purchaser and it makes negotiating commission discounts harder. I literally sold a pre-construction unit for $1,000 commission albeit at a very good sales price.
Some Panama agents are hungry to sell before their competitors and it is a matter of finding the right ones.

As a student of classified sales in The Prensa, it doesn't look like asking prices have decreased over the last year for pre- construction units, there are some genuine bargains on Craigslist but not many.

As for hard sales of Condos in Panama City here are some recent examples that took a few months to achieve:

1. Pre-con Ocean view in San Francisco, with imminent occupancy certificate $1358 M2. Developer re-sales (sold out) asking average $1589 M2

2. Destiny Tower high floor $2,133 M2 but out of !50M2, 30M2 is the balcony. Developer didn't want the unit back which tells you that he doesn't think that he could re-sell for more. Serious buyer eventually pulled out at last moment.

3. 16 year old building in excellent Cangrejo location, $1,000 M2 including all furnishings.

4. Coco del Mar two years into construction $1,186 M2.

Comparing Miami with Panama City doesn't reflect the possibility of no property taxes in Panama city.

Another one to factor in is the developer 'extras' and some include parking spaces in the M2.
Vitro Loft wants $3,000 for Lavenderia, $5,000 for Bano Visita, $$,1,000 for Balcon and $10,000 for one parking space.

My own research indicates very little is selling, buyers want bargains and sellers haven't yet made the mental adjustment of forgoing that paper profit. They will be lucky at the moment to get the money back that they paid three years ago for a pre-costruction unit.
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Great Job!
written by Emerging Market Insight , June 10, 2009
Great job Reveal Real Estate and The Panama Report!

I am an emerging markets senior investment advisor for Colliers International. We know exactly what to do with your market insight and completely understand the value behind it. You are one of the few who have the reign on market intelligence for Panama. Your really supporting responsible development by sharing this with people who may or may not have a clue to the value.

Having supported billions of dollars in resort development around the global it's too bad you have to listen to peoples posts like the first one who clearly have no experience with feasibility fundamentals. Here’s a recommendation for post 1: go buy Competitive Strategy written by Michael E. Porter before you lose any more credibility or google game theory or something but don’t knock what you don’t understand.
To Casey’s separate point above: Kudos for understanding the value of tourism growth. It is a leading indicator for future economic health of resort destinations.

Looking forward to seeing what's to come from you all in the future!

Emerging Market Insight
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Emerging Market Insight
written by Sumfin Furryvrone , June 18, 2009
Here's a recommendation for you: take Porter and put him so far up yer erse that you'll be spitting out brown paper for a month. Knobs like you are a leading indicator of just how fkd this market is.
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retired
written by colin hall , September 19, 2009
could you tell me if the new law has as yet gone into effect; this being when the developer gives one there money back that was paid to purchase a condo five years earlier at pre construction prices; when the money is returned is it based on the present day value or only the amount that was originally paid; appreciate if you could enlighten me on this; thanks colin hall
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