Pavilia Farm setback to cost New World Development up to US$154.4 million in rebuilding, compensation to affected buyers

Cost of tearing down the affected towers, rebuilding them and compensating buyers could amount to HK$1.2 billion, analysts estimate

UOB analysts expect affected buyers to complete the transaction given the overwhelming demand and adequate compensation

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An aerial view of New World Development’s The Pavilia Farm residential project above Tai Wai MTR station, where construction defects have been uncovered at two of the seven towers. Photo: May Tse

Published: 6:33pm, 9 Jul 2021Updated: 12:23pm, 10 Jul 2021

New World Development could end up spending up to HK$1.2 billion (US$154.5 million), or about 15 per cent of its expected profit for coming year, to fix the problems at The Pavilia Farm, Hong Kong’s bestselling new residential property last year.

Analysts from CGS-CIMB Securities and Singapore’s UOB estimated the cost of tearing down the two towers, rebuilding them and compensating the affected buyers at between HK$1 billion and HK$1.2 billion, according to reports to clients.

While CGS-CIMB anticipates the reconstruction expense at around HK$500 million, UOB expects the compensation for the 846 buyers to set back the developer by HK$600 million. Analysts from Bocom International, Goldman Sachs and Morgan Stanley forecast the hit to the company in the same range.

New World, which reported a core profit of HK$6.6 billion last year, was likely to post a core profit of HK$7.5 billion for the current financial year, according to forecasts by UOB.

“Frankly speaking, it is a negative factor for the company’s financial position as The Pavilia Farm was a core product,” said Raymond Cheng, property analyst at CGS-CIMB Securities.