Finnish pension insurance company Varma has welcomed the government’s new bill that has eased restrictions on the use of construction finance in residential investments.

The proposed new legislation, which has been handed to parliament but has yet to be passed, allows pension insurers to use up to 50% leverage when investing in residential construction projects via a subsidiary.

As things stand, Finland’s pension insurance companies are not permitted to borrow except in certain specific circumstances.

The Ministry of Social Affairs and Health said the proposal was part of the government’s structural programmes and its goal was to increase the supply of rental housing.

Ilkka Tomperi, Varma’s real estate investment director, told IP Real Estate: “The suggested leverage allowance is good but the bottleneck remains the zoning process.”

In many cases, land in the Helsinki area was slow to become available for residential housing developers because of the local government’s change-of-use administrative process, or zoning process, he said.

“The government is giving incentives for us to build more residential housing, but now it is up to the city level to make sure that the change-of-use process moves smoothly in some old office areas, creating areas of land which can be used for residential,” Tomperi said.

Varma, which has around a fifth of its €3.7bn direct real estate portfolio invested in the residential sector, will be making use of the new opportunity to leverage investment projects, he said.

“This new legislation is positively affecting us staying active in the residential sector going forward, so it is working as the government.

If the new bill is passed, pension insurers will still face the challenge of getting projects signed off within a short timeframe, Tomperi said. According to the draft law, the opportunity will be open for pension insurers between 2015 and the end of 2017.

The Finnish Pension Alliance (TELA), which represents the providers of the country’s earnings-related pension system, said it particularly welcomed the fact the bill allowed long-term investment.

Loans financing of residential investment under the new legislation can now run until 2032, the government has said.

Ilkka Geitlin, legal counsel at TELA, said: “We think it is good that the change in the final version of the law takes into account long-term investment by allowing longer loan periods.”

However, having just three years in which to establish a housing company could lead to inadequate planning in some cases, he said.

“City planning processes are in many cases to long that the project is not ready to take place within three years,” said Geitlin.