Did you know that Hong Kong’s property rates system has been quietly funding essential services since 1845? While often overshadowed by more volatile revenue sources like stamp duties and land sales, property rates provide the government with something invaluable: stability. In a city where property markets can swing dramatically, this 180-year-old system delivers consistent revenue that helps balance the budget during economic turbulence. Let’s explore how this historical fiscal tool continues to shape Hong Kong’s financial landscape today.

Historical Foundations: From Colonial Police Funding to Modern Fiscal Tool

Hong Kong’s property rates system isn’t just another tax—it’s a living piece of financial history. Established in 1845, just four years after British occupation, the system began with a simple purpose: funding the Police Force. This pragmatic approach reflected the colony’s immediate needs, but over time, the system evolved dramatically.

The Evolution of Public Service Funding

As Hong Kong grew, so did the scope of services funded by property rates. The system expanded systematically to finance essential public services:

• 1856: Street lighting
• 1860: Water supply infrastructure
• 1875: Fire brigade services

The pivotal moment came with the Rating Ordinance 1888, enacted on May 5, 1888. This legislation consolidated the previously separate rates for police, water, lighting, and fire services into a unified framework that still forms the foundation of today’s system. Since 1931, rates revenue has flowed into the General Revenue account, transitioning from earmarked funding to general fiscal purposes.

The Rating and Valuation Department: Hong Kong’s Property Valuation Experts

The Rating and Valuation Department (RVD) serves as the administrative backbone of Hong Kong’s property rates system, responsible for three critical functions that ensure fairness and accuracy:

Understanding Rateable Value: The Foundation of Fair Assessment

Rateable value represents an estimate of the annual rental value of a property in the open market as at the designated valuation reference date, assuming the property is vacant and available to let. This hypothetical tenancy approach considers:

• Tenant undertakes to pay all usual rates and taxes
• Landlord undertakes to pay government rent and maintenance costs
• All factors affecting rental values: age, size, quality, location, transport, amenities

Property Rates Revenue: The Steady Hand in Hong Kong’s Fiscal Portfolio

In the fiscal period 2022-23, Hong Kong’s government revenue from property rates amounted to approximately HK$19 billion, representing roughly 3.75% of total government revenue. While this may appear modest compared to other revenue sources, property rates provide a stable, predictable revenue stream that has historically demonstrated resilience even during economic turbulence.

The Fiscal Context: Property Rates as a Counter-Cyclical Anchor

Hong Kong’s fiscal position has faced significant challenges in recent years, primarily driven by weakness in property-related revenues. The 2023-24 fiscal year recorded a deficit of HK$101.6 billion—nearly double the original forecast. For 2024-25, the deficit was revised to HK$87.2 billion, almost double the initial estimate.

The Progressive Rating System: Hong Kong’s Most Significant Rates Reform in Decades

On February 28, 2024, Hong Kong’s Financial Secretary announced a landmark reform: the introduction of a progressive rating system for high-value domestic properties. This initiative, which took effect from January 1, 2025, represents the most significant structural change to the rates system in decades.

Real-World Calculation Examples

Policy Rationale and Impact Assessment

The progressive rating system embodies the government’s commitment to the “affordable users pay” principle. Key statistics and impacts include:

• Properties Affected: Approximately 42,000 domestic tenements (about 1.9% of all private domestic properties)
• Properties Unaffected: 98% of domestic properties continue at 5% rate
• Expected Revenue: Additional HK$820 million annually from the progressive system
• Business Protection: All non-domestic properties remain at 5% to maintain Hong Kong’s competitiveness

Rates Concessions: Balancing Fiscal Responsibility with Economic Support

Hong Kong’s government has consistently utilized rates concessions as a fiscal policy tool to provide relief during economic challenges. These concessions, while reducing revenue, serve important macroeconomic stabilization functions.

Exemptions and Special Provisions: Balancing Revenue with Social Objectives

The Rating Ordinance provides for various exemptions that reflect social policy priorities and Hong Kong’s unique characteristics. Understanding these exemptions is crucial for property owners and investors.

The Broader Property Policy Context: Stamp Duty Reforms

On February 28, 2024, the same day the progressive rating system was announced, the government made a dramatic policy shift by removing all extra stamp duties that had been in place for a decade to cool the property market:

These “spicy measures” had been introduced during the property boom years to prevent speculation and make housing more affordable. Their removal reflected changed market conditions including rising interest rates, external economic uncertainties, and declining property prices from peak levels.

Practical Guide: Payment Procedures and Rateable Value Access

Who Pays Rates and When?

Both the owner and occupier of a property are legally liable for rates under the Rating Ordinance. In practice, liability is determined by:

• Rental Agreements: The tenancy agreement typically specifies who pays rates (usually the tenant)
• Default Position: In the absence of any agreement to the contrary, liability rests with the occupier
• Owner-Occupied Properties: The owner pays both rates and government rent

Accessing Rateable Value Information

Property owners and prospective buyers can access rateable value information through multiple channels:

• Quarterly Demands: Show current year’s rateable value
• Property Information Online (PIO): RVD’s website (www.rvdpi.gov.hk) provides searchable database
• Enquiry on Rateable Value Service: Historical rateable values for the latest 3 years available at HK$9 per valuation
• Valuation List Inspection: Annual Valuation List and Government Rent Roll available for public inspection

Future Outlook: Balancing Fiscal Needs with Economic Competitiveness

Hong Kong faces mounting fiscal challenges that will shape the future role of property rates in fiscal policy. The government aims to close the deficit by 2027 amid mounting aging-related spending pressures identified by the IMF. Several policy directions may emerge:

1. Further Progressive Rate Refinements: The current system generated HK$820 million in additional annual revenue while affecting only 2% of properties. This success may encourage potential extension to even higher-value properties with additional tiers.
2. Reduction in Concession Generosity: The trend from HK$1,000 (2024-25) to HK$500 (2025-26 for domestic properties) signals gradual phase-out of pandemic-era relief measures.
3. Enhanced Valuation Accuracy: With advancing technology and data analytics, the RVD may implement more frequent revaluations and advanced modeling techniques.
4. Broadening the Assessment Base: Review of exemptions and special provisions may occur to ensure they continue to serve current policy objectives.