"We are going to sign a preliminary MOU (memorandum of understanding) with them", Urban Development Authority Chairman, Nimal Perera, said.
"The negotiation part is mostly over and now we have to convince the shanty dwellers."
UDA says TATA has offered five billion rupees to build better housing units with recreational facilities for some 587 slum families in Slave Island.
The UDA will not invest in the project but will only be facilitators.
"We have to do the acquisition part, infrastructure leading to the site and convincing dwellers on what types houses they are going to get," Perera said.
In return TATA is looking at doing some mixed development on the remaining land.
UDA said TATA has not revealed plans of what they plan to do but they are likely to build middle class houses or another housing complex.
"TATA is going to do some commercial development by utilizing these lands and make some money for what they have already spent for the relocation of shanty dwellers," Perera said.
"That is the agreement.
"Shanty dwellers neither have to pay the UDA nor the Investor. This is a novel investment system."
Each housing unit built for the shanty dwellers at a cost of Rs 10 mn will have two bed rooms, pantry, toilet, and an open area.The Urban Development Authority says slum dwellers are living in appalling conditions without proper ventilation and basic infrastructure.
"They can’t even open their windows because it touches the next door wall and ventilation is a problem," Perera said.
"What TATA is going to do is to give them a nice looking place to live comfortably
"Their whole lifestyle is going to change after moving into this housing unit."
The UDA says there are over 68,000 slums in Colombo mostly scattered across lands of commercial value.
The government is on a drive to develop commercial property and beautify Colombo and has already begun moving security forces establishments and government departments away from Colombo.
The Urban Development Authority is aiming to build 70,000 houses to relocate slum dwellers within the next 5 years.