The National Asset Management Agency (Nama) is set to spend billions buying up loans on hundreds of acres of land that are effectively mothballed because an EU directive means the country's waste water infrastructure needs to be upgraded significantly before any development can proceed.

The news will lead to calls for the haircut on loans for development land to be even greater than currently envisaged.

It will also mean Nama will not be able to develop many sites seized from developers in liquidation for many years.

The regulations means local authorities, which control water services, must comply with emission limits for the discharge of treated wastewater such as sewage to water bodies. The infrastructure here lags significantly behind, with the current National Development Plan suggesting a requirement to invest €4.7bn in water services.

Crucially however, with tax receipts collapsing, the Department of the Environment says "these figures are obviously subject to recent and future budget constraints" which means it could take years before much of the land is suitable for development. About €500m is being spent this year on water-services infrastructure.

A spokesman for the department said it "will be endeavouring to ensure that the appropriate investment responses are in place in areas of greatest need… to facilitate overall national and regional development and economic recovery".

This included investing in improved infrastructure in "developing areas" in line "with the prevailing budgetary and fiscal situation".

A spokeswoman for Fingal County Council said that "the scale and pace of future development in Fingal under the new county development plan will be dependent on the successful management of our water resources and wastewater treatment in accordance with the Water Framework Directive".

She described the requirements of the directive as "onerous".

"Dublin City Council is endeavouring to ensure that no limitations occur in relation to development and that the wastewater treatment facilities will not infringe on any future development," a spokeswoman for Dublin City Council said.

Many other local authorities will be similarly affected by the new legislation.

The Department of the Environment "stressed" that "in dealing with applications to them for planning permission, local authorities should include in their evaluation of all relevant planning applications… an assessment of the adequacy of wastewater collection and disposal facilities".

Development-land values have fallen sharply from the height of the boom because there is an oversupply of both residential and commercial accommodation at present.