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The fund will help more than 1,600 stalled housing projects comprising 4.58 lakh housing units across the country, the Finance Minister said.
"The special window would provide funds to stalled housing projects enabling them to complete unfinished projects and consequently ensure delivery of homes to a large number of home-buyers," the minister said.
The size of the fund would increase further with participation from sovereign funds which have expressed their interest, the Finance Minister added.
The development comes amid property developers finding it difficult to raise funds after the default by the IL&FS group last year highlighted a liquidity crisis in the economy.
The fund will provide priority debt financing for the completion of stalled housing projects in the affordable and middle-income housing segments, Ms Sitharaman said.
The fund would provide relief to developers that require funding to complete a set of unfinished projects and consequently ensure delivery of homes to the home-buyers, an official statement said.
The fund will also lead to higher demand for cement, iron and steel industries, it added.
The minister said this could include housing projects that had turned to non-performing assets for banks, as well as ones that were in bankruptcy court. The fund would, however, steer clear of projects that have already been ordered to be liquidated, she added.
The country's real estate sector has been hit by a severe liquidity crunch this year after a series of debt defaults by non-banking finance companies, also known as shadow lenders.
The cash-flow squeeze has in turn halted building projects that have left numerous homebuyers stranded even after paying their monthly instalments.