BEIJING - Home buyers who want to upgrade their small units to larger ones are likely to be the key driver for China's housing demand in the next year and a half, global rating agency Fitch Ratings said on Monday.

Fitch's projection came following announcements by more local governments that they will relax home purchase restrictions to spur the local economy.

The removal of purchase restrictions on multiple homes will allow upgraders more opportunities to purchase large housing units, which were suppressed under the restrictions, Fitch said.

Homebuilders with diverse offerings and operational flexibility could benefit from the demand growth for larger units, which are likely to become the key driver for contracted sales and higher margins for developers in the medium term.

The Chinese government imposed the restriction in 2010 and encouraged developers to focus on first-time buyers with units less than 90 square meters in size.

As the supply of smaller properties increased and competition intensified, Fitch said, the profitability of small-unit homebuilders has declined in the past two to three years.

Fitch estimated that the relaxed restriction is likely to unleash previously restrained demand for larger homes between 140 and 220 square meters, as many homeowners with smaller properties have started to upgrade.

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