Strong fundamentals for the Mexican and Brazilian homebuilding markets will support solid operating performance in 2011, according to Fitch Ratings.

Fitch expects stability in ratings for the main homebuilding issuers. Less robust companies that were negatively affected by the global crisis, with higher leverage and weaker operating results and liquidity, should continue to face operating and financial challenges to recover their credit metrics to levels observed before the crisis. The Stable Outlook incorporates the sector's adequate liquidity, growing working capital requirements, and a high dependence upon government-related mortgage funding.

'Homebuilders have improved their cash positions and debt maturity schedules, as they took advantage of access to the capital markets during 2009 and 2010,' said Director Fernanda Rezende.

'Liquidity positions will be a differentiating factor as the main players seek opportunities for acquisitions or joint ventures with smaller companies,' added Director Jose Vertiz.

Overall credit metrics should improve moderately in 2011 for issuers in both markets, although some ratings will likely remain constrained by the negative free cash flow and continued high levels of cash burn.

The positive macroeconomic environment in Brazil, coupled with large availability of long-term credit to homebuyers, demographic changes, family income growth, higher formal employment rates and still elevated housing deficit contributes to strong demand for new houses. Fitch expects Brazilian GDP to grow 7% in 2010 and 4.5% in 2011.

In Mexico, the business environment for the sector improved during 2010, and it is expected to continue in the same path during 2011 as the Mexican economy should reach GDP growth rates of 4.4% and 3.5% during 2010 and 2011, after contracting 6.5% during 2009.