Buyers at one of Hong Kong’s hottest residential projects got some unsettling news late last week, as New World Development said construction defects would force the demolition and rebuilding of some parts of the company’s Pavilia Farm complex atop Tai Wai MTR station.
Two unfinished apartment towers in the third phase of Pavilia Farm, a joint venture of New World and transit operator MTR Corporation, were found to have walls that “did not meet the requirements of the approved design”, according to a press statement issued by MTRC on Thursday.
In the face of what it termed “the handover delay”, New World apologised and promised compensation for 846 affected buyers at Pavilia Farm III. The construction blunder has led to a HK$6.6 billion ($850 million) slide in the developer’s market value since it was revealed, with analysts predicting that the disaster could end up costing New World around HK$1.2 billion from the expense of rebuilding the flawed towers and compensating buyers.
New World released its own statement saying that an inspection of the central New Territories site by the project’s contractor on 3 July had detected concrete of insufficient strength in sections of the wall base beneath Tower 1 and Tower 8. Within three days the company reported the matter to MTRC and the Buildings Department, New World said.
The setback mars a project that had been one of the city’s strongest-selling residential offerings over the past year. In late June, New World announced that it had received 30,592 registrations of intent from potential buyers in Pavilia Farm III, the highest number of registrations received in Hong Kong history.
As of 20 June, the company had sold a total of 833 units in Pavilia Farm III, generating HK$12.2 billion in receipts. On 26 June, the company sold a further 79 of the 85 homes that it made available.
In its statement last week, New World noted: “The Company was informed by the project contractor in mid-June that the concrete test data from sections of the wall structure in Tower 8 of The Pavilia Farm III did not meet the requirements.” However, it cautioned that at the time it did not fully understand the extent of the construction defect.
On Thursday, the South China Morning Post quoted a New World representative as saying that the debacle “was due to human error, and the entire team has been sacked”.
Buyers at Tower 1 and Tower 8 have options, New World said in its statement. They can choose to complete the agreement for sale and purchase or cancel the transaction immediately. Whichever they choose, they will receive mortgage interest compensation and an extra subsidy.
Interest compensation is calculated from 30 June 2023 until the date of transaction, at the prime rate plus 2 percent (essentially 7 percent). The maximum interest compensation will cover the full period of the handover delay.
A buyer on a cash payment mortgage plan would receive an extra subsidy (plus interest compensation) totalling HK$1.15 million, based on a property price of HK$15 million.
New World has completed the structural inspection of Pavilia Farm’s first two phases, with the results showing that the five towers (2, 3, 5, 6 and 7) meet all relevant legal and statutory standards for structural safety, the company said.
To provide peace of mind to buyers, New World recently commissioned an independent third party to conduct additional testing at Pavilia Farm I and II. All test results met the required standards, the developer said.
One buyer at Pavilia Farm III told Chinese-language news site HK01 that he worried about the project becoming labelled as “problematic”.
The man, identified as Mr Zeng, voiced concern about whether the developers would rush to complete the project, potentially affecting its quality.
Another buyer, property agent James Mak, said he had bought several units at Pavilia Farm III for both his own use and for investment purposes. Mak said he planned to continue the transaction because he was not worried about the quality of the delivery.
Meanwhile, the SCMP reported Thursday that Tony Tse, a pro-establishment lawmaker representing the architectural, surveying, planning and landscape sector, was calling on the government to launch an investigation into the project.
Tse said the government should step up supervision of construction projects because it tends to “rely on independent professionals”.