The cash, from Dundee City Council, backed by the Scottish Government's National Housing Trust (NHT) scheme will allow local developer Keiller Estates to build at the former William Halley & Sons premises in Broughty Ferry Road.
Jimmy Black, convener of Dundee City Council's housing committee said: "These new flats will fill a gap for mid-market rented housing in the city.
"They will provide another option for people looking for rented property which within five to ten years could be available for them to buy.
"Under the rules of the NHT scheme when the flats are sold, either to their tenants, a registered social landlord or on the open market the money generated will be used to repay the council, with surpluses going first to the developer to give them a return on their investment, and then to the council and the Scottish Government.
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"This creates a winning situation for everyone involved."
A report to be considered by the housing committee on Monday (April 23) reveals there is no financial risk to Dundee City Council as the Scottish Government provides guarantees to underwrite the repayment of any borrowing in the event that rental or sales income is not sufficient to repay the loan.
The council will borrow £7.175m to back the building of 75 flats at the former factory.
Keiller Estates already has pre-planning approval for the development, which is officially know as Wallace Craigie Works, and discussions are going on with the council over full planning permission.
William Halley was a flax manufacturer who became part owner of the Wallace Craigie Works spinning mill, built in 1836. A cotton shortage during the American Civil War resulted in a huge boom in the jute industry and by 1865 the Broughty Ferry Road works had doubled in size. The company retained an interest at the works until the early part of this century.
(GK)
