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Run by the Urban Development Authority, the Fund is to be set up with seed capital from the Treasury and partly through internal funds.
"We will raise about 200 million rupees a year for the fund through collections from a fee on mega-projects," D S Jayawardena, Chairman of the Urban Development Authority, told LBO.
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Currently developers of mega-projects above 10,000 square feet are charged a 1-5 percent fee on the project cost by the UDA.
The UDA is hoping to pad up collections to the tune of one billion rupees a year with additional funding from the Treasury, with Cabinet approval already obtained.
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The funds will be used to develop low income housing projects for Colombo city over five years.
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About half of Colombo's 800,000 odd population live in under-served areas.
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An estimated 65,000 housing units in Colombo are thought to be under-served, with limited or no proper access to basic facilities like water or sewerage systems.