Mumbai/Bangalore: State-owned fertilizer maker Rashtriya Chemicals and Fertilisers Ltd (RCF) is working on a plan to convert a portion of 277 acres of prime land it uses for employee residences into a commercial development of residential properties, two senior executives at the company said.

The residential buildings in Mumbai’s Chembur area are due for redevelopment, which is estimated to cost between Rs390 crore and Rs400 crore.

“A draft proposal to find a best alternative to this investment is ready with the company now," a senior RCF official said on condition of anonymity. The land currently under residential use will be shrunk to 50 acres by converting about 100 two and three-storeyed buildings into high-rise apartment complexes.

“The rest of the land can be offered for commercial development," he said.

RCF’s chief financial officer Gautam Sen confirmed the plan.

“There will not be any finance induction by RCF for the redevelopment of its residential buildings as alternative options are being worked out, which includes a commercial development plan," he said.

RCF proposes to take up the project on the basis of a three-way agreement in which the Maharashtra government and a pre-qualified construction group will be involved, besides RCF, the senior official quoted earlier said.

The construction group that leases the land for commercial development will be required to redevelop the company’s residential areas at no charge.

According to real estate analysts, land costs in the area are between Rs10-15 crore an acre, going as high as Rs20 crore an acre depending on location.

“At an average cost of Rs15 crore an acre, RCF’s land alone can be valued at Rs12,000 crore," said Prakrut Mehta, national director (office and industrial agency) at property consultant Knight Frank India Pvt. Ltd, adding that the location of the land, stretching right up to the sea, could substantially increase its commercial value.

RCF has been exploring options to capitalize a large part of the surplus land, but a land utilization agreement that the company signed with the Maharashtra government at the time of the original allotment of the land for industrial use does not permit it to use it for any other purpose.

Stretching along the Arabian Sea, in a north-south direction up to the Chembur suburb, is a huge tract of land that belongs primarily to the Mumbai Port Trust. Besides RCF, the Chembur stretch also has large refineries built by public sector oil firms such as Hindustan Petroleum Corp. Ltd (HPCL) and Bharat Petroleum Corp. Ltd (BPCL) because of its proximity to the port and availability of large parcels of uninhabited land.

Between them, HPCL and BPCL are estimated to have at least of 800 acres of land, said another analyst. “At least a few large companies have been planning to move industrial activity to cheaper locations, leaving this high-worth land for commercial development," said this analyst, declining to be identified as he advises one of the companies on such a project.

HPCL, for instance, has plans to relocate to Ratnagiri, a border district of Maharashtra, and will put up its Mumbai land for commercial development at a later date.

However, real estate analysts cautioned against changes in land use for such industrial properties for residential purposes.

“These industrial lands are difficult to develop for commercial purpose because of the nature of (industrial) activity," said Ashutosh Limaye, associate director (strategic consulting) at Jones Lang La Salle Meghraj, a property advisory.

Kight Frank’s Mehta also said that the entire stretch, including RCF and other firms’ properties, was a “high-risk zone with contamination of air, water and soil". “The soil has to be treated before being put up for any development."