OREANDA-NEWS. Fitch Ratings says in a new report that it expects housing sales in China to continue increasing in 2016, driven by demand from upgraders seeking better homes. However, the improvement in rated homebuilders' financial performance will be limited by higher land premiums and construction expenditure, continued increases in land prices in Tier 1 and Tier 2 cities, and a prolonged process to destock in Tier 3 and Tier 4 cities.

Fitch's rating outlook for China's homebuilding sector in 2016 is stable. Fitch expects rated homebuilders' sales to increase in the next two years, driven by rising demand from home upgraders. This trend will be supported by the suspension of home purchase restrictions in all but the Tier 1 cities, lower downpayments for buying a second home, and the end of China's one-child policy.

Fitch also expects the industry to polarise faster, with large homebuilders continuing to capture more projects in higher-tier cities, and having diversified land banks and product lines that allow them to tap the strong demand growth from upgraders.