Pune's factories may go the Mumbai mill-land way. The rise in real estate prices is tempting companies to convert their factory premises into real estate projects in the Pimpri-Chinchwad area, 20-odd km west of Pune, one of the country's largest automobile hubs and a big centre for the IT industry.

Driven by an eight- to ten-fold increase in land prices in the area in the last two to three years, companies like Raccold Appliances, Greaves Cotton, Elpro International, Garware Nylon and Formica India are converting their factory premises into commercial or residential projects.

Greaves Cotton [Get Quote], for instance, has converted half its holding into commercial real estate (a multiplex) while Elpro plans to follow suit by developing half its 37-acre land at Chinchwad.

Elpro has set up a real estate division and plans to develop 700,000 square feet of commercial space and 300,000 square feet of residential towers in nine high-rise buildings. There's nothing official about it, but sources say that Reliance [Get Quote] Retail could take up about half the commercial space and the rest will go to exhibitor Adlabs [Get Quote].

The project is likely to be completed in three years.

The 20-acre plot of Garware Nylon, which turned sick, is being developed by four players, who bought it through an auction, but Garware's workers have brought an injunction against construction till their dues are cleared.

Formica India, which shifted its unit to Uttarakhand, plans to develop its factory land. There are rumours in Pune that Bajaj Auto [Get Quote] could develop the 165-acre Akurdi complex.

Managing Director Rajiv Bajaj did not respond to an emailed questionnaire.

"As companies have grown, they have decided to set up manufacturing facilities in other locations. It's more profitable to shut down the plant and develop the land," said Rohit Gera, vice-president of the Pune Builders Association.

"When property gets valuable, it doesn't make sense to keep manufacturing," added Lalit Jain, CEO of Kumar Builders and president of the Pune Builders Association.

These projects could fuel the rise of the Pimpri-Chinchwad, which already enjoys better roads, is well laid-out, and a cheaper alternative to Pune.

"Thanks to the quality of infrastructure that exists in Pimpri-Chinchwad, the distinction between Pune and Pimpri-Chinchwad is getting blurred. It's looking like one Pune metropolitan region," said Gera.

The Pimpri-Chinchwad Municipal Corporation, which ran huge surpluses for many years earlier on the back of buoyant octroi levies (for 2007-08, octroi will account for 78 per cent its revenues), initially didn't need to spend on facilities you would need for a residential area -- roads, street-lights, drainage, sewage or primary schools.

But to attract investments and compete with other industrial clusters in Maharashtra and outside, the PCMC has spruced up its infrastructure in the past few years.

So, the area has better and wider roads, and the social infrastructure is catching up. Malls and multiplexes are coming up, and the 500-bed Aditya Birla Memorial Hospital is also located in Chinchwad. "IT workers at Hingewadi may consider buying apartments here, where prices can be 30-50 per cent lower than Pune," added a builder.

"Previously, there were no amenities in the PCMC area. But today, you have theatres, schools and colleges. It has become a residential destination," said Jain.

"There's a lot of greenery, water bodies, ground water. It has an existing economy; you are not reinventing. A second Pune could come up at Pimpri-Chinchwad," added Sunil Bajaj, a consultant who advises builders in Pune.

But there's a problem: most units in this industrial cluster stand on plots leased from the Maharashtra Industrial Development Corporation, which develops industrial clusters in the state.

One company could sell to another company as long as it is used for industrial activity.

But if a company wants to use the same land for some other purpose, it needs to get an approval from the state industry minister. There are very few, older units like Bajaj Auto or Finolex Industries who have their land as freehold and can sell or develop their land.

Migration (last year, 1 lakh came to Pune to work in manufacturing and services) and a demand-supply mismatch (50,000-55,000 flats a year against a supply of 30,000-35,000) have driven real estate prices in Pune.

Jain expects the IT sector to add 65,000 jobs in the next two years in Pune, where 350,000 people work in the IT industry.

Infosys [Get Quote] and Wipro [Get Quote] alone plan to add 50,000 seats each. This will ensure the demand for commercial space grows at 30 per cent, fuelling residential growth in areas like Pimpri-Chinchwad.