RCF land sale

Amid spiralling realty prices, it’s difficult to resist a deal when you are sitting on large tracts of unused land. But it can be a tough call when the landowner is a state-owned firm sensitive to controversies that a land deal could spark. So, what do you do? Take the first baby steps to cash in on a booming property market.

The government-controlled Rashtriya Chemicals and Fertilisers (RCF) is doing just that. The fertiliser major, which owns about 800 acres in and around Mumbai, is initially planning to develop a commercial complex over about 200,000 sq ft that will be used partially for in-house purposes while the rest will be sold commercially.

The company board has already approved the decision to build the commercial complex — to be tentatively called Priyadarshini II — and has called for a panel of architects for designing the project. RCF would develop the complex on its own and would not tie up with any developer for the complex that would come up adjacent to the company’s existing office building at Chembur. It’s the latest of Mumbai-based companies planning to develop surplus, unutilised land available with them to gain from firm land prices.

Sources close to the development said response to this project would be used by the company to chalk out future development plans subsequently. Although the company owns about 800 acres of land, most of it houses RCF’s factory and residential areas.

Despite repeated efforts, senior officials at RCF declined comment. “The company doesn’t want to go all out with the move... It would prefer to sell small parcels over a long time period,” said a source. RCF owns large tracts of land as per norms for a chemical and fertiliser company. The company makes and markets a wide range of chemical fertilisers and a series of industrial chemicals through its plants at Trombay and Thal.

RCF’s move is in line with the trend seen among large corporate houses who initially sold land and subsequently tied up with developers to jointly build projects. According to a real estate company, recent difficulties in tying up finances for buying land have forced developers to team up with companies owning land. The developer contributes a small equity while the land ownership remains with the company. Once the project is developed by the developer, the proceeds from the commercial sale could be divided between the two.

In the case of government-owned firms like RCF, there are also options of leasing out portions of land to manufacturing companies who are pressed for space and can’t buy land due to high prices.

During the past two years, more than 25 companies, including Bata India, Indian Hume Pipe and Gulf Oil Corporation, have either sold or developed their real estate assets. “This trend is not peculiar to India. Globally, companies have done it from time-to-time. Even in India, several companies have done it in the past. The difference is, it is more visible now,” said an analyst with an European brokerage. “At best, such activities would constitute 5 to 10% of the total real estate development activity,” he added.

Sharp demand for houses and commercial spaces have led prices of land to double in the past two years, especially in cities such as Mumbai, where land availability is at a premium.

The market also seems to have got a whiff of RCF’s proposed plans as shares of the company have already hit the upper trading limit twice in the past week. On Tuesday, RCF shares again ended 4.9% up at Rs 88.65 on the BSE.