Timing is proving the key factor in deciding who is suffering most in the housebuilding sector. Colm Keena, Public Affairs Correspondent

Over the past number of months an increased number of housebuilders have gone into examinership or liquidation because of the downturn in the market. The key issue is their level of exposure to the banks.

"There is a huge difference between people, depending on when they purchased land, the degree to which they are leveraged, and location," says Martin Whelan, public affairs officer with the Construction Industry Federation (CIF). "In 2005 and 2006 there was a sharp increase in land prices and people who purchased then and are highly leveraged are in trouble."

The sharp rise in house prices that occurred in 2005 and 2006 resulted in an even higher rate of increase in land prices, as buyers factored in what they believed would be the value of the houses they intended building on the land.

In today's changed environment, those calculations have proven to be mistaken, and the land banks have lost value.

"Builders who have been around for 10 years or more have acquired land banks at reasonable prices," an experienced liquidator said. "They have a good debt to equity ratio. They are suffering from lack of sales but the banks will not close in and they will survive.

"Others who started up and bought land in the last five years or so, can have up to 80 per cent borrowings. With land bank prices down, they get into negative equity territory and the banks won't lend them any more money. They're being told to sell.

"These are the guys who are really suffering."

According to this source, by forcing highly leveraged builders to sell their assets to more comfortable operators ("bottom feeders"), the banks are essentially moving their risk to better bets.

Some of the more experienced operators sold land in the past two years, and generally are in a strong position in terms of cash after the long boom.

"They stopped buying [ land] for a year or two. But they are now of the view that it is time to, or approaching time to, get back in the market. They think there may still be some room for prices to fall, but whereas last year they thought [ land] prices were crazy, now they are saying they are in deal territory."

Another source said some builders had reduced the price they are selling their houses for, at the insistence of their bankers.

However, the CIF's Whelan says the difficulties in the sector are not as bad as people perceive. The confederation meets members around the State on a regular basis and gets constant feedback. When the market contracted, there was a reduction in output by the builders, and there is not the same overhang of new homes as there is in the secondhand market, he says.

"Affordability is now 10 per cent better than it was last year. There are good deals to be had. And rents are up so there is an underlying demand. The issue is one of confidence."

The confederation believes output this year will be about 45,000 units for a market that, Whelan says, is estimated to require about 60,000 units per annum.

Because of the length and strength of the property boom, builders have deep pockets. Whelan says builders will not increase output again if the market remains as it is. "The feedback we are getting is that the guys feel they can weather the storm."

While houses in the commuter belt are being affected most significantly by the slowdown in sales, he believes demand will return when sentiment changes in the overall market.

"The reason the commuter belt housing market has developed in the way it has is the difficulty with the density issue in Dublin. Dublin needs 20,000 to 25,000 new houses each year but it is only supplying 10,000 to 11,000.

"What is needed is greater density, a lessening of height restrictions."

But, he says, this issue has not been dealt with and as long as it remains unaddressed, the demand for housing in the commuter belt will remain.

"If the density issue is not addressed, you get sprawl.

"The rental market situation shows the demand is still there. When confidence in the market returns, we will not be able to meet demand in Dublin, so the commuter belt housing will still be needed."