The fund will be managed by professionals, the minister added.
Sitharaman also said the interest rate on housing building advance will be lowered and linked to the 10-year G-sec yields.
"Government servants contribute to a major component of demand for houses. This will encourage more government servants to buy new houses," she said.
External commercial borrowing (ECB) guidelines will also be relaxed to help housing developers obtain overseas funds.
ECB guidelines will be relaxed to facilitate financing of homebuyers who are eligible under Pradhan Mantri Awas Yojna, in consultation with the central bank.