The Pavilia Farm, Hong Kong’s bestselling new residential property of 2020, will tear down and rebuild two of the seven tower blocks under construction in Tai Wai because of defects, in an unprecedented setback in the world’s most expensive real estate market.
The concrete walls in the podium of blocks 1 and 8 of The Pavilia Farm III “did not meet the requirements of the approved design” found during concrete strength tests, according to a statement by the subway operator MTR Corporation, which is developing the project with New World Development.
More than 10 of the 57 floors in the two towers were built before the defects were found on June 18, by which time 846 of the total 892 apartments in the third phase had already been sold, the developer said. The defects could have been caused by a subcontractor who used M40 grade concrete on the walls instead of M80, which turned the structure into potential hazards because of the weakened walls, according to an engineering expert, who asked to remain anonymous.
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“This was due to human error, and the entire team had been sacked,” said a New World spokeswoman, adding that the construction quality and structural safety of Phases I and II of the project meet all legal and statutory requirements. “We decided that it is our responsibility to tell the public what is going on.”
New World’s shares fell 3.9 per cent amid a declining market to HK$38.40, the lowest daily close since March 26, after it announced the demolition. MTR shares rose 0.3 per cent to HK$44.10, the highest since May 18. “A demolition of such a scale is unheard of,” said Tony Tse, who represents the architectural, surveying, planning and landscape constituencies in Hong Kong’s legislature. Cases of minor structural weakness due to bad workmanship is possible, but the current case is unprecedented, he said.
The incident would set back the delivery schedule of Phase III by nine months to March 2024, a blot on a project that symbolises the resurgent housing market in a city where real estate plays an outsize economic role. A record 27,000 registered online to bid for 331 apartments on June 5, or an average of 82 buyers vying for every available flat.
“Through [an] open tendering process and the agreements entered into with MTR, the developer has been entrusted with the obligation to carry out the design,construction, co-ordination, quality supervision of the works and to complete the development in accordance with the relevant ordinances and statutory requirements,” MTR said in a press release. “The developer needs to fully investigate the issue and to formulate appropriate remedial measures as soon as possible, ensuring that the requirements of government regulatory departments are met and approvals are obtained.”
The Pavilia Farm is being built in three phases, comprising 3,090 apartments in seven tower blocks. The entire project is scheduled for completion in 2023.
More than 2,100 units in phases I and II had been sold since October 2020. Phase III, due for completion in June 2023, comprises 892 flats. The smallest flats measure 310 square feet, going up to 1,022 sq ft (95 square metres) for the bigger units. Prices start from HK$6.76 million, going up to as much as HK$24 million.
New World sold 3,028 units, or 98 per cent of the entire project, as of June 30, according to sales agents. Over six weekends late last year, the developer sold 2,100 flats in Tai Wai for a total haul of HK$23.8 billion (US$3.1 billion), making The Pavilia Farm the city’s top selling new launch last year.
The project sold so well that the developer raised the average prices between the projects three phases, pricing Phase III 24.3 per cent more than Phase I.
The brisk transactions at The Pavilia Farm put Hong Kong’s residential property prices on track to set a record and race ahead of the tentative recovery in the city’s economic growth pace. Hong Kong could see more than 2,500 new homes sold and up to 6,000 lived-in homes changing hands in June, agents said.
The developer will offer two compensation options to the 846 buyers in the two affected blocks, New World said.
Customers who have begun to pay the mortgages on their apartments will receive compensation of up to 7.6 per cent of their purchase price, so the buyer of a HK$15 million unit will be eligible for HK$1.15 million, New World said. Committed buyers who choose to pay their mortgages after they move in will receive HK$380,000 in interest compensation.
Those who cancel their purchases will each receive HK$310,000, inclusive of rental subsidy and interest compensation, New World said.
The compensation will be prorated if the handover extends beyond the estimated nine months, the developer said.
The Buildings Department acknowledged that it was notified by the project’s structural engineers that samples taken from the seventh and eighth floors of block 8 were inferior to the designated standards, adding that similar defects were found in block 1 on July 6. The department said it stopped construction on the two blocks, and would follow up with further investigations.
New World said it appointed independent parties to evaluate the structural safety of the remaining five tower blocks in Phases I and II of The Pavilia Farm. A hotline has been established for customers, starting on July 9 .
“The assessment has not been completed but the results are positive,” the spokeswoman said.
Additional reporting by Lam Ka-sing