New World Development Co. will demolish two towers at Hong Kong’s most popular housing development in decades and compensate buyers after finding unexpected defects, in a major setback for the real estate company.

The developer will pull down and rebuild the existing floors of Towers 1 and 8 at its Pavilia Farm III project near Tai Wai station after it found the concrete strength in some areas did not meet design requirements, the Hong Kong-based company said in a statement.

Shares of New World fell as much as 4.8% Thursday in Hong Kong, the most in more than seven months, before recovering to close 3.9% lower.