Property Rates for Mixed-Use Buildings in Hong Kong: Special Considerations

📋 Key Facts at a Glance

Individual Unit Assessment: Each unit in a mixed-use building is assessed separately by the Rating and Valuation Department (RVD), not as a single building
Different Rate Structures: Residential units follow progressive rates (5-12%), while commercial units pay a flat 5% rate regardless of value
Progressive Rates Threshold: Residential units with rateable values exceeding HK$550,000 face progressive rates starting from 2024-25
Market-Based Valuation: Rateable values are based on comparable open market rents for each specific use type (retail, office, residential)
Separate Demand Notes: Every unit owner receives individual quarterly demand notes, with no consolidated building-level billing
Common Area Rules: Income-generating common areas (rooftop leases, advertising spaces) are separately assessed, with incorporated owners typically liable

Ever wondered why your ground-floor retail shop pays different property rates than the residential flat above it in the same building? Welcome to Hong Kong’s unique approach to mixed-use building taxation. With over 70% of Hong Kong’s urban properties featuring mixed-use configurations, understanding how the Rating and Valuation Department assesses these composite structures is essential for property owners, investors, and developers alike. This guide breaks down the special considerations that make mixed-use building rates different from single-use properties.

The Fundamental Principle: Individual Unit Assessment

Unlike some jurisdictions that assess mixed-use buildings as a single entity, Hong Kong’s Rating and Valuation Department operates on a clear principle: each separately occupiable unit is assessed individually. This means your ground-floor retail shop, second-floor office, and upper-floor residential units all receive independent assessments based on their specific characteristics and comparable market rents.

⚠️ Important Definition: Under the Rating Ordinance, a “tenement” means “any land or any building, structure, or part thereof which is held or occupied as a distinct or separate tenancy or holding or under any licence.” This legal definition ensures each leasable space gets its own assessment.

How Rateable Values Are Determined

The rateable value represents an estimate of the annual rental value of a property in the open market as at October 1st of the preceding year. For mixed-use buildings, the RVD assesses each unit by comparing it with similar properties of the same use type in the locality:

Retail units are compared with other retail spaces in the area
Office spaces are benchmarked against similar office properties
Residential units are evaluated against comparable residential rentals
Restaurant/F&B spaces have their own market comparables

Rate Structures: Progressive vs. Flat Rates

The most significant difference between unit types in mixed-use buildings is the rate structure applied. Starting from the 2024-25 financial year, Hong Kong introduced progressive rates for domestic (residential) tenements, while commercial units maintain a flat rate system.

Property Type	Rate Structure (2024-25)	Effective Rate	Example Calculation
Residential (Domestic) Rateable Value ≤ HK$550,000	Flat rate on entire RV	5%	RV HK$400,000 → Quarterly rates: HK$5,000 (HK$400,000 × 5% ÷ 4)
Residential (Domestic) Rateable Value > HK$550,000	Progressive rate scale	• 5% on first HK$550,000 • 8% on next HK$250,000 • 12% on amount > HK$800,000	RV HK$900,000 → Annual rates: HK$59,500 Quarterly: HK$14,875
Commercial (Non-domestic) Retail Shops	Flat rate on entire RV	5%	RV HK$800,000 → Quarterly rates: HK$10,000 (HK$800,000 × 5% ÷ 4)
Commercial (Non-domestic) Office Space	Flat rate on entire RV	5%	RV HK$1,200,000 → Quarterly rates: HK$15,000 (HK$1,200,000 × 5% ÷ 4)
Commercial (Non-domestic) Restaurant/F&B	Flat rate on entire RV	5%	RV HK$600,000 → Quarterly rates: HK$7,500 (HK$600,000 × 5% ÷ 4)

💡 Pro Tip: The progressive rate system means higher-value residential units (RV > HK$550,000) face significantly higher effective rates. This creates a tax planning consideration for developers designing mixed-use buildings—higher-end residential units may face different financial pressures than commercial spaces in the same structure.

Why Different Units Have Different Rateable Values

Even within the same building, you’ll find dramatic differences in rateable values per square foot. This isn’t arbitrary—it reflects genuine market dynamics. Ground-floor retail typically commands 2-3 times higher rental value than upper residential floors due to street visibility and foot traffic. Here’s what drives these differences:

Location Premiums Within Buildings

Ground floor retail: Commands premium rents due to street visibility, foot traffic, and accessibility—typically HK$1,200-2,500 per sq ft in prime areas
Upper commercial floors: Lower rents than ground floor but higher than residential due to commercial use value
Residential floors: Assessed against residential rental market, which operates on different economics (typically HK$400-800 per sq ft)
Upper floors with views: May command 10-30% premium within residential category

Real-World Example: Mong Kok Composite Building

Unit Type	Floor Area	Rateable Value	RV per sq ft	Annual Rates
Ground Floor Shop A	500 sq ft	HK$720,000	HK$1,440	HK$36,000 (5% flat)
Ground Floor Shop B	300 sq ft	HK$450,000	HK$1,500	HK$22,500 (5% flat)
2nd Floor Office	800 sq ft	HK$480,000	HK$600	HK$24,000 (5% flat)
5th Floor Flat A	450 sq ft	HK$270,000	HK$600	HK$13,500 (5% flat)
12th Floor Flat B	650 sq ft	HK$420,000	HK$646	HK$21,000 (5% flat)
Penthouse (14th Floor)	1,200 sq ft	HK$900,000	HK$750	HK$59,500 (progressive rates)

Notice how the penthouse, despite having a lower per-square-foot rateable value than ground-floor retail, pays nearly double the annual rates due to the progressive rate system. This illustrates the critical interaction between valuation and rate structure in mixed-use buildings.

Common Area Assessment: Who Pays What?

Common areas (lobbies, corridors, staircases, rooftops, external walls) present special considerations in mixed-use buildings. The key principle: income-generating common areas are separately assessed, while non-income generating areas typically aren’t.

Examples of Separately Assessed Common Areas

Rooftop telecommunications equipment leases: If a building leases rooftop space to telecom companies, this creates a separate rateable assessment
External advertising spaces: Building facade advertising rights may be separately assessed
Podium car parks: If operated commercially or leased to third parties, separate assessment applies
Ground floor management office: If leased to property management company or used commercially

⚠️ Important: According to Section 16 of the Building Management Ordinance, incorporated owners (owners’ corporation) are regarded as the “owner” for property tax and rates purposes when receiving rental income on common parts. This means the owners’ corporation receives demand notes for income-generating common areas.

The Quarterly Demand Note System

Each separately assessed unit receives its own quarterly demand note from the RVD. This system ensures clarity and accountability but requires careful management for owners of multiple units in mixed-use buildings.

What’s on Your Demand Note

The rateable value for the current financial year
The applicable rate percentage (5% for commercial, progressive for residential)
The quarterly rates amount due
Government rent (if applicable—3% of rateable value for most post-1997 leases)
Last day for payment (typically last day of January, April, July, or October)
Any rates concessions applied (government periodically offers rates relief)

⚠️ Payment Deadlines and Penalties: Rates must be paid by the “Last Day for Payment” shown on the demand note. Late payments face: 5% surcharge if not paid by due date, and an additional 10% surcharge on total outstanding amount if unpaid 6 months after default date.

Practical Considerations for Different Stakeholders

For Property Investors

When investing in mixed-use buildings, consider these rate implications:

Scenario: Purchasing Ground Floor Retail + Upper Residential Flat

Ground Floor Retail Shop (500 sq ft):
Rateable Value: HK$1,200,000
Annual Rates: HK$1,200,000 × 5% = HK$60,000
Quarterly Payment: HK$15,000

3rd Floor Residential Flat (600 sq ft):
Rateable Value: HK$620,000
Annual Rates (Progressive):
First HK$550,000 × 5% = HK$27,500
Next HK$70,000 × 8% = HK$5,600
Total = HK$33,100
Quarterly Payment: HK$8,275

Combined Quarterly Obligation: HK$23,275

For Developers and Planners

Rate implications in pro-forma analysis: Different rate structures affect investment returns—commercial units maintain flat 5%, while premium residential faces progressive rates
Marketing considerations: Higher-value residential units (RV > HK$550,000) face progressive rates, which may affect buyer appeal and pricing
Common area revenue: Rooftop or facade rental income creates additional rate liability for owners’ corporation
Podium design: Commercial podium creates separate rate class from tower residential units above

For Incorporated Owners / Management Committees

Budget planning: Include rates on income-generating common areas in annual budget
Rental income reporting: Ensure all common area rental income is properly declared for property tax and rates assessment
Demand note management: Ensure proper receipt and payment of any common area demand notes
Communication with owners: Clarify that individual unit rates are each owner’s responsibility, separate from management fees

Annual Revaluation Process

The RVD conducts annual general revaluations to ensure rateable values reflect current market rental levels. For mixed-use buildings, this means separate reviews for each use category:

Valuation Reference Date: October 1st of the preceding year (e.g., October 1, 2024 for 2025-26 assessment)
Effective Date: New rateable values take effect April 1st each year
Publication: New Valuation List published in mid-March for public inspection
Objection Period: Approximately 2.5 months (typically March 17 to May 31) for submitting objections via Form R20A

💡 Pro Tip: Units in the same building may experience very different year-over-year changes in rateable value. If retail rents increase 10% but residential rents decrease 5%, ground floor shops see RV increases while residential units might see decreases. Monitor your specific use category’s market trends.

✅ Key Takeaways

No Building-Level Assessment: Mixed-use buildings are never assessed as a whole—each unit receives individual assessment based on its specific use and rental market
Use-Based Rate Application: Residential units follow progressive rates (5-12% for RV > HK$550,000), while commercial units pay flat 5% regardless of value
Market-Driven Valuations: Ground floor retail typically has 2-3x higher rateable value per square foot than upper residential floors due to different rental market dynamics
Separate Demand Notes: Every assessed unit owner receives quarterly demand notes independently—no consolidated building-level billing exists
Common Area Liability: Income-generating common areas (rooftop leases, advertising spaces) are separately assessed, with incorporated owners typically liable
Progressive Rates Impact: Higher-value residential units (RV > HK$550,000) face significantly higher effective rates, creating different financial pressures than commercial spaces
Annual Revaluation: Rateable values are reviewed annually with reference date October 1st, taking effect the following April 1st
Change of Use Reporting: Any structural alterations or change of use must be reported to RVD for reassessment
Historical Urban Pattern: Composite/mixed-use buildings are fundamental to Hong Kong’s efficient land use, from traditional shophouses to modern commercial-residential towers

Understanding Hong Kong’s approach to mixed-use building rates is more than just a tax compliance matter—it’s essential for informed property investment, development planning, and financial management. With progressive rates now affecting higher-value residential units and commercial spaces maintaining their flat rate structure, the financial dynamics within mixed-use buildings have become more complex than ever. Whether you’re a property owner, investor, or developer, staying informed about these special considerations will help you make better decisions and avoid unexpected liabilities in Hong Kong’s unique urban landscape.

📚 Sources & References

This article has been fact-checked against official Hong Kong government sources and authoritative references:

Inland Revenue Department (IRD) – Official tax rates, allowances, and regulations
Rating and Valuation Department (RVD) – Property rates and valuations
GovHK – Official Hong Kong Government portal
Legislative Council – Tax legislation and amendments
RVD – Rates Services – Official rates information and procedures
RVD – Progressive Rating System – Detailed progressive rates information
GovHK – Progressive Rates Announcement – Official 2024-25 budget announcement

Last verified: December 2024 | Information is for general guidance only. Consult a qualified tax professional for specific advice.

Tax.HK