Did you know that Hong Kong’s property rates system has been operating continuously for over 175 years? While many tax systems come and go, this enduring framework has evolved from funding the colonial police force in 1845 to becoming a sophisticated revenue mechanism that affects every property owner in Hong Kong today. Understanding this system isn’t just about paying your quarterly bills—it’s about navigating one of the world’s most dynamic property markets with confidence.

From Colonial Police Funding to Modern Revenue System

Hong Kong’s property rates system represents a remarkable story of continuity and adaptation. Established in 1845 with Ordinance No. 2—just four years after British occupation began—this system was originally designed to fund the colony’s police force. Over time, it expanded to cover street lighting (1856), water supply (1860), and fire brigade services (1875), reflecting Hong Kong’s transformation from a remote trading post to a thriving commercial center.

The 1888 Foundation That Still Stands Today

The Rating Ordinance of 1888 was a pivotal moment that established terminology and concepts still in use today. Terms like “tenement” (the property being rated), “rateable value” (estimated annual rental value), and “interim valuation” became standardized, creating a framework that has endured for over 135 years. This legal continuity is one of the system’s most remarkable features, surviving through wars, economic crises, and the 1997 handover.

Understanding Rateable Value: The Core Concept

Rateable value is the estimated annual rental value of a property in the open market, assuming it’s vacant and available for letting. This “hypothetical tenancy” concept provides a consistent basis for valuation across all property types. The Rating and Valuation Department (RVD) determines this value based on market rental conditions as of October 1 each year, with the new valuation list taking effect on April 1.

How Rateable Value is Calculated

The RVD primarily uses the rental comparison method, analyzing open market rents for similar properties and making adjustments for differences in size, location, facilities, and condition. For specialized properties like hotels or public utilities, alternative methods like the receipts and expenditure method or contractor’s method are employed.

The 2025 Progressive Rates Revolution

In a historic departure from Hong Kong’s traditional flat-rate approach, the 2025-2026 budget introduced progressive rates for domestic properties. This marks the first time in modern history that high-value residential properties face higher rates, while maintaining the existing structure for the vast majority of properties.

Real-World Example: Progressive Rates in Action

Let’s examine how the progressive system affects different property owners:

1. Standard Apartment (Rateable Value: HK$360,000): Annual rates = HK$360,000 × 5% = HK$18,000 (no change from previous system)
2. Mid-Range Property (Rateable Value: HK$700,000): First HK$550,000 × 5% = HK$27,500 + Next HK$150,000 × 8% = HK$12,000 = Total HK$39,500 annually
3. Luxury Property (Rateable Value: HK$1,200,000): First HK$550,000 × 5% = HK$27,500 + Next HK$250,000 × 8% = HK$20,000 + Remaining HK$400,000 × 12% = HK$48,000 = Total HK$95,500 annually

Government Rent: The Parallel Property Charge

While property rates have existed since 1845, Government rent emerged from Hong Kong’s territorial expansion. Following the 1898 lease of the New Territories, the New Territories Leases (Extension) Ordinance (Cap. 150) extended over 30,000 leases to June 30, 2047, imposing an annual Government rent equal to 3% of the rateable value.

Who Pays Government Rent?

• Properties with leases extended under Cap. 150 (primarily New Territories properties)
• Properties with leases extended under the Extension of Government Leases Ordinance (Cap. 648)
• Properties with express obligations to pay 3% annual rent in their lease terms

Annual Revaluations: Ensuring Fairness Since 1999

Since 1999, Hong Kong has conducted annual property revaluations—a significant improvement over the previous system of infrequent revaluations that caused sudden large increases. The purpose is to redistribute the rates burden fairly among property owners based on current market rental conditions, not to increase total government revenue.

Property Tax vs. Property Rates: Understanding the Difference

Many property owners confuse property rates with property tax, but they’re distinct charges:

Practical Implications for Property Owners

Budgeting and Financial Planning

• Quarterly Payments: Rates and Government rent are payable quarterly in advance—plan your cash flow accordingly
• Annual Review: Check your rateable value each April when new valuation lists take effect
• Progressive Impact: High-value residential properties now face substantially higher rates—factor this into investment decisions
• Combined Charges: Properties subject to Government rent face combined charges of up to 15% of rateable value

Objection and Appeal Rights

If you believe your rateable value assessment is incorrect, you have formal rights to object:

1. Submit Proposal: File an objection during the designated proposal period after new valuation lists are published
2. RVD Review: The Rating and Valuation Department reviews your submission and evidence
3. Lands Tribunal: Unresolved objections can be appealed to the Lands Tribunal
4. Higher Courts: Further appeals on points of law may proceed to higher courts

Looking Ahead: The 2047 Question

As Hong Kong approaches 2047—the expiration date for extended New Territories leases—questions about the future of property ownership and Government rent obligations are gaining prominence. Article 123 of the Basic Law provides that post-1997 lease expirations will be handled according to laws and policies formulated by the Hong Kong Special Administrative Region.

Hong Kong’s property rates system represents a remarkable blend of historical continuity and modern innovation. From its 1845 origins to the 2025 progressive rates reform, this system has adapted to changing economic realities while maintaining core principles of fairness and transparency. Whether you’re a first-time homeowner, seasoned investor, or commercial property owner, understanding this framework is essential for navigating Hong Kong’s dynamic property market. Stay informed about annual revaluations, know your rights to object, and factor these charges into your financial planning—your property’s value depends on it.