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China housing demand driven by upgrade buyers of large units: Fitch

This segment may become the key driver for contracted sales and higher margins for the developers in medium term.

August 11, 2014 8:55 IST | India Infoline News Service
Fitch Ratings says that upgrade home buyers are likely to be the key driver for China's housing demand in the next 12 to 18 months. This comes as the recent relaxation of home purchase restrictions (HPRs) provides more opportunities for upgraders to purchase large-sized units - a product line that was suppressed under the restrictions.

Homebuilders with diversified product lines and operational flexibilities would be able to take advantage of this likely demand growth in large-sized unit products for the upgrade home buyers. This segment may become the key driver for contracted sales and higher margins for the developers in medium term.

Since the implementation of the HPRs in 2010, the mass market segment has been the key growth driver for China's residential property market. This segment focuses on unit size of below 90sqm and up to 140sqm, targetting first-time and upgrade buyers. The segment accounted for 75% to 90% of the leading homebuilders' contracted sales in 2012 and 2013.

As more homebuilders focused on the mass market segment, the supply of small-unit products increased and competition intensified. This resulted in an increase of asset turnover but a declining trend in profitability for mass market-orientated developers in the past two to three years.

The recent relaxation of the HPRs is likely to unleash the previously restrained demand for larger unit size products from 140sqm to 220sqm. There was strong growth in the first-time buyers segment for the past two years, but subsequently large numbers of these homeowners have become upgraders, fuelling a demand for larger properties.

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