Hong Kong's Property Rates and the Impact of COVID-19: What Changed?

Last Updated: December 2024

The COVID-19 pandemic fundamentally disrupted Hong Kong's economy, property market, and government fiscal policy from early 2020 through 2024. In response to unprecedented economic challenges, the Hong Kong SAR Government implemented extensive relief measures, including significant property rates concessions, rental relief schemes, and comprehensive support for households and businesses. This article examines the evolution of property rates policy during the pandemic, analyzes the government's HK$300 billion Anti-epidemic Fund, and assesses the lasting impacts on Hong Kong's property market and taxation framework.

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Pre-Pandemic Baseline: Hong Kong's Property Market in 2019

Before the COVID-19 pandemic struck, Hong Kong's property market was characterized by high valuations, strong transaction volumes, and robust rental yields. The 2019 fiscal year represented the peak of a decade-long bull market in property.

Key Characteristics of the 2019 Property Market

• High Valuations: Property prices in Hong Kong were among the highest globally, with the median property price-to-income ratio exceeding 20 times annual household income
• Strong Transaction Activity: Residential property transactions were active, with both primary and secondary market sales proceeding at healthy volumes
• Government Revenue: Property-related revenues (including stamp duty, land premiums, and property rates) constituted a substantial portion of government income
• Rental Market: Commercial and residential rental markets were robust, supporting strong rateable value assessments by the Rating and Valuation Department
• Policy Environment: Multiple property cooling measures remained in place, including high stamp duty rates designed to curb speculation and ensure housing affordability

Property Rates Framework in 2019

The fundamental structure of property rates in Hong Kong remained unchanged from previous years:

Property rates and government rent were (and remain) payable quarterly in advance. The Rating and Valuation Department assesses rateable values based on estimated annual rental values, which in 2019 reflected the strong market conditions.

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COVID-19 Strikes: Initial Government Response (2020-21)

When COVID-19 reached Hong Kong in early 2020, the government recognized the immediate need for fiscal stimulus and relief measures. Property rates concessions became a central component of the government's economic support strategy.

2020-21 Rates Concessions: Unprecedented Relief

The 2020-21 Budget, announced in February 2020 and subsequently enhanced as the pandemic intensified, introduced comprehensive rates concessions:

Domestic Properties (Residential)

Total Annual Concession (Domestic): Up to HK$6,000 per property for the full 2020-21 fiscal year.

Non-Domestic Properties (Commercial, Industrial, Office)

Recognizing the severe impact on businesses, the government provided enhanced relief for non-domestic properties:

Total Annual Concession (Non-Domestic): Up to HK$20,000 per property for the full 2020-21 fiscal year.

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Sustained Relief: 2021-22 and 2022-23 Concessions

As the pandemic continued through 2021 and 2022, with recurring waves of infections and periodic social distancing measures, the government maintained rates concessions, though at adjusted levels reflecting evolving economic conditions.

2021-22 Rates Concessions

Domestic Properties

Total Annual Concession (Domestic): Up to HK$5,000 per property for 2021-22.

Non-Domestic Properties

Total Annual Concession (Non-Domestic): Up to HK$14,000 per property for 2021-22.

2022-23 Rates Concessions

The 2022-23 fiscal year saw the continuation of rates concessions at the same levels as the second half of 2021-22, reflecting a gradual normalization approach:

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Transition to Normalcy: 2023-24, 2024-25, and 2025-26

As Hong Kong emerged from the pandemic and reopened its borders in early 2023, the government began phasing out extraordinary relief measures.

2023-24: Significant Reduction

By 2023-24, with economic activity resuming and tourism returning, the government substantially reduced rates concessions, though some relief continued to support recovery.

2024-25: Minimal Relief

The 2024-25 Budget reflected Hong Kong's return to economic normalcy:

• Q1 2024-25 (April-June 2024): Concession of HK$1,000 (domestic and non-domestic)
• Q2-Q4 2024-25: No concessions (full rates payable)

This marked a clear signal that the government viewed the emergency phase as concluded.

2025-26: Near-Complete Normalization

The 2025-26 Budget, announced in February 2025, continued the normalization trajectory:

• Q1 2025-26 (April-June 2025): Concession of only HK$500 (domestic and non-domestic)
• Q2-Q4 2025-26: No concessions announced (full rates expected to be payable)

The minimal HK$500 concession represents a token relief measure rather than substantive economic support, indicating that the government expects property owners and businesses to resume normal financial capacity.

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Comprehensive Timeline: Rates Concessions 2020-2025

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The Anti-Epidemic Fund: HK$300 Billion in Comprehensive Support

Property rates concessions, while significant, represented only one component of the Hong Kong Government's comprehensive response to COVID-19. The Anti-epidemic Fund, established in early 2020 and expanded through successive rounds, ultimately reached HK$300 billion, equivalent to approximately 10% of Hong Kong's annual GDP.

Scale and Scope of the Anti-Epidemic Fund

Key Components of the Anti-Epidemic Fund

The HK$300 billion Anti-epidemic Fund comprised multiple streams of support:

1. Direct Cash Payments to Residents

• Cash Payout Scheme: HK$10,000 cash payment to all permanent residents aged 18 or above (2020)
• Consumption Vouchers: Electronic vouchers of HK$5,000-HK$10,000 distributed in phases (2021-2022)
• Coverage: Over 7 million residents benefited

2. Employment Support Scheme (ESS)

• Wage Subsidies: 50% of employee wages, capped at HK$9,000 per employee per month
• Duration: Initially 6 months, extended through multiple rounds
• Beneficiaries: Over 1.6 million employees; employers received subsidies conditional on not laying off workers
• Total ESS Allocation: Over HK$90 billion

3. Sector-Specific Support

• Retail and Food Services: Subsidies for rent, wages, and operational costs
• Tourism and Aviation: Support for travel agencies, hotels, airlines, and tourism workers
• Transportation: Subsidies for taxi drivers, public light bus operators, and coach operators
• Arts and Culture: Grants for artists, cultural organizations, and performance venues
• Sports and Recreation: Support for sports organizations and fitness centers

4. SME Financing and Relief

• SME Financing Guarantee Scheme: 100% government guarantee for loans up to HK$5 million per enterprise
• Concessionary Loans: Low-interest or interest-free loans for affected businesses
• Rent Relief: Subsidies to help SMEs pay rent (discussed below)

5. Healthcare and Public Health Measures

• Medical Equipment: Procurement of testing equipment, protective gear, and medical supplies
• Quarantine Facilities: Construction and operation of community isolation facilities
• Vaccination Program: Free vaccination for all residents, with promotional incentives
• Testing Infrastructure: Mass testing programs and community testing centers

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Government Rent and Rental Relief Schemes

Beyond property rates concessions, the government implemented extensive rental relief measures, recognizing that rental costs constituted a major burden for businesses during the pandemic.

Government Rent Relief (75-100% for Government Premises)

For tenants of government-owned properties, the government provided direct rental relief:

• Relief Rate: 75% to 100% of monthly rent, depending on the period and premises type
• Beneficiaries:
  • Market stall operators in government markets
  • Cooked food stall operators
  • Sports and recreational facility operators
  • Community hall and event space tenants
  • Government land short-term tenancy holders
• Duration: Relief provided during peak pandemic periods (2020-2022), with some measures extending into 2023
• Implementation: Automatic reduction in rent charged; no application required

Government Rent Structure

It's important to distinguish between property rates and government rent:

During the pandemic, the government also provided concessions on government rent for some properties, though these were distinct from (and less publicized than) the property rates concessions.

SME Rent Deferral Scheme (January 2022)

Recognizing continued pressure on small and medium enterprises, particularly during the fifth wave of COVID-19 in early 2022, the government introduced a rent deferral scheme:

Key Features

• Eligible Tenants: SMEs in retail, food and beverage, and service sectors
• Deferral Period: 3 to 6 months, depending on business circumstances and landlord agreement
• Launch Date: January 2022, during the severe fifth wave outbreak
• Mechanism:
  • Government provided incentives to landlords to grant rent deferrals
  • Deferred rent was to be paid back over an extended period after the deferral period ended
  • No interest charged during deferral period for participating landlords
• Participation: Voluntary for landlords; government encouraged participation through tax incentives and public recognition

Challenges and Uptake

The rent deferral scheme faced practical challenges:

• Landlord Reluctance: Many private landlords chose not to participate, preferring to maintain existing lease terms
• Deferred Liability: Tenants still owed the deferred rent, creating future financial obligations
• Limited Scope: Scheme primarily applied to government-related or semi-government premises and certain private landlords who voluntarily participated

Despite limitations, the scheme provided critical breathing room for thousands of SMEs during the most severe period of restrictions in early 2022.

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Tax Deduction for Domestic Rental Expenses (From 2022-23)

To provide relief to residential tenants and stimulate the rental market, the government introduced a new tax deduction for domestic rental expenses in the 2022-23 fiscal year.

Key Features of the Rental Expense Deduction

Eligibility Conditions

To claim the deduction, taxpayers must meet several conditions:

• Principal Residence: The rented property must be the taxpayer's principal place of residence during the basis period
• Not a Property Owner: Neither the taxpayer nor their spouse can be the owner of any domestic property in Hong Kong during the relevant year of assessment
• Tenancy Agreement: A valid tenancy agreement must exist, and the taxpayer must hold a stamped lease
• Documentary Evidence: Receipts for rent paid must be retained and provided upon request by the Inland Revenue Department
• Salaries Tax or Personal Assessment: The deduction is available under salaries tax or personal assessment, not property tax

Practical Impact and Examples

Policy Rationale

The introduction of the rental expense deduction served multiple policy objectives:

• Support for Non-Homeowners: Provided tax relief to the approximately 45% of Hong Kong households who rent rather than own their homes
• Economic Stimulus: Increased disposable income for renters, supporting consumption
• Rental Market Support: Helped sustain rental demand during a period of economic uncertainty
• Equity: Balanced the existing home loan interest deduction available to property owners

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Property Market Impact: Transaction Volumes and Stamp Duty Removal

The COVID-19 pandemic and subsequent government measures had profound effects on Hong Kong's property market, characterized by distinct phases of decline, stabilization, and eventual recovery.

2020-2022: Transaction Volume Collapse

The initial pandemic period saw sharp declines in property transactions:

• Residential Transactions (2020): Declined approximately 20% compared to 2019, reflecting uncertainty and travel restrictions
• Commercial Property: Office and retail transactions fell even more sharply due to remote work trends and retail closures
• Price Trends: Prices declined moderately in 2020-2021 but remained relatively stable compared to transaction volumes, reflecting supply constraints
• Rental Yields: Commercial rents declined significantly, particularly in retail districts like Causeway Bay and Tsim Sha Tsui

2022-2023: Stabilization and Early Recovery

As Hong Kong reopened borders and lifted restrictions:

• Border Reopening (Early 2023): Removal of travel restrictions with Mainland China boosted sentiment
• Transaction Recovery: Gradual increase in transaction volumes, though still below pre-pandemic levels
• Price Trends: Stabilization and modest recovery in certain segments, particularly luxury residential

February 2024: Stamp Duty Removal and Market Recovery

In a landmark policy shift announced in the 2024-25 Budget, the Hong Kong Government removed all demand-side property cooling measures, including key stamp duty components.

Stamp Duty Measures Removed (February 2024)

• Buyer's Stamp Duty (BSD): The additional 15% stamp duty on purchases by non-Hong Kong permanent residents was removed
• New Residential Stamp Duty (NRSD): The 15% flat rate stamp duty applicable to most residential property transactions was abolished
• Special Stamp Duty (SSD): The anti-speculation duty on short-term resales was removed

Rationale for Stamp Duty Removal

The government justified the removal based on several factors:

• Changed Market Conditions: Property prices had moderated, reducing overheating concerns
• Economic Recovery: Supporting the property market was seen as crucial for overall economic recovery
• Revenue Considerations: Low transaction volumes meant stamp duty revenue had already declined substantially
• Competitiveness: Aligning Hong Kong's property market with regional competitors to attract investment and talent

Market Response to Stamp Duty Removal

The impact was immediate and significant:

Current Market Conditions (Late 2024-2025)

As of late 2024 and into 2025, Hong Kong's property market shows signs of sustained recovery:

• Transaction Volumes: Returned to approximately 80-90% of pre-pandemic (2019) levels
• Price Trends: Moderate growth in most segments, with luxury residential leading
• Rental Market: Commercial rents recovering, particularly in prime office districts
• Investor Confidence: Improved sentiment driven by economic recovery, policy support, and regional integration initiatives
• Outlook: Market participants expect continued gradual recovery through 2025-2026

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Unchanged Fundamentals: Property Rates at 5% of Rateable Value

Despite extensive concessions and relief measures, the fundamental structure of Hong Kong's property rating system remained unchanged throughout the pandemic and continues to the present:

What Did NOT Change

• Rate Percentage: The 5% rate applied to rateable value has not changed
• Assessment Methodology: The Rating and Valuation Department continues to assess rateable values based on estimated annual rental values
• Payment Schedule: Quarterly payment in advance remains the standard schedule
• Legal Framework: The Rating Ordinance (Cap. 116) remains the governing legislation
• Assessment Basis: Properties are assessed individually based on location, size, age, facilities, and market rental levels

What Did Change

• Temporary Concessions: Extraordinary relief measures provided substantial reductions in actual amounts payable (2020-2025)
• Administrative Processes: Enhanced digital services for payment and inquiry
• Rateable Value Trends: Rateable values adjusted to reflect market rental changes during and after the pandemic

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Lessons Learned and Policy Implications

Effectiveness of Fiscal Support Measures

The COVID-19 relief measures, including property rates concessions, demonstrated both strengths and limitations:

Strengths

• Rapid Implementation: The government deployed concessions quickly, providing immediate relief
• Broad Coverage: Nearly all property owners and tenants benefited from some form of relief
• Automatic Application: No applications were required; concessions were applied automatically to rates demands
• Complementary Measures: Rates concessions worked alongside other relief measures (cash payouts, wage subsidies, etc.)

Limitations

• Regressive Nature: Property rates concessions provided the same absolute benefit to wealthy and low-income property owners
• Limited Impact on Tenants: Relief for property owners did not necessarily translate to rent reductions for tenants
• Fiscal Cost: Concessions reduced government revenue substantially at a time when expenditures were surging
• Temporary Nature: As concessions are phased out, property owners face the full burden of rates again

Long-Term Structural Considerations

The pandemic experience has prompted discussion of potential structural reforms:

1. Progressive Property Taxation

Some commentators have proposed replacing the flat 5% rate with progressive rates based on property value or rateable value:

• Rationale: More equitable distribution of tax burden; higher rates for luxury properties, lower for modest properties
• Challenges: Administrative complexity; potential distortions in property market; resistance from higher-value property owners

2. Permanent SME Rent Relief Mechanisms

• Proposal: Establish standing mechanisms for rent deferral or relief during economic downturns
• Challenges: Moral hazard concerns; impacts on landlords' property rights; administrative burden

3. Rental Expense Deduction Permanency

• Current Status: The HK$100,000 rental expense deduction is currently set for five years (2022-23 to 2026-27)
• Debate: Should this become a permanent feature of Hong Kong's tax system, or is it strictly a temporary pandemic relief measure?
• Arguments For Permanency: Equity with homeowners who can deduct mortgage interest; support for non-homeowners; stabilizes rental market
• Arguments Against: Fiscal cost; may subsidize higher rents; benefits may accrue more to landlords than tenants

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Key Takeaways

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Looking Forward: Post-Pandemic Property Rates Policy

Current Status (2025)

As Hong Kong enters 2025, the property rates landscape has largely returned to pre-pandemic normalcy:

• Concessions: Minimal token relief (HK$500 for Q1 2025-26) expected to be phased out entirely by 2026-27
• Economic Recovery: Tourism, cross-border activity, and business operations have substantially recovered
• Property Market: Stabilized and recovering, with transaction volumes approaching pre-pandemic levels
• Fiscal Position: Government needs to restore revenue streams to address accumulated deficits

Potential Future Developments

1. Rental Expense Deduction Extension

The HK$100,000 rental expense deduction is scheduled to conclude after the 2026-27 year of assessment. Key considerations:

• If Extended/Made Permanent: Would represent a significant structural change to Hong Kong's tax system, providing ongoing support to non-homeowners
• If Allowed to Lapse: Would affect approximately 400,000-500,000 taxpayers who currently benefit
• Decision Timeline: Expected to be addressed in the 2026-27 Budget (February 2026)

2. Rateable Value Reassessment

The Rating and Valuation Department periodically reassesses rateable values to reflect market rental levels:

• Post-Pandemic Adjustments: Rateable values for commercial properties may be adjusted downward if market rents have declined
• Residential Properties: Rateable values may see upward pressure as rental market recovers
• Impact on Rates Bills: Changes in rateable values directly affect rates payable, even with the unchanged 5% rate

3. Potential Structural Reforms

While no major reforms are currently proposed, the pandemic experience may influence future policy:

• Emergency Relief Mechanisms: Establishing pre-defined criteria and processes for future economic crises
• SME Protection: Enhanced support frameworks for small businesses facing rental pressures
• Progressive Elements: Possible introduction of means-tested or property value-based differentiation in rates or concessions

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Conclusion

The COVID-19 pandemic represented an unprecedented challenge for Hong Kong's economy, property market, and fiscal policy. The government's response through property rates concessions, the HK$300 billion Anti-epidemic Fund, rental relief schemes, and stamp duty removal demonstrated both the strengths of Hong Kong's fiscal position and the government's willingness to deploy substantial resources during crisis.

Property rates concessions, while maintaining the fundamental 5% rate structure, provided meaningful relief to millions of property owners and businesses. The phased withdrawal of these concessions, from maximum relief in 2020-21 (up to HK$6,000 domestic, HK$20,000 non-domestic) to token relief in 2025-26 (HK$500), reflects the government's judgment that economic conditions have sufficiently normalized to restore standard fiscal arrangements.

The broader package of measures, including rental expense deductions, government rent relief, SME support, and ultimately the February 2024 stamp duty removal, worked in concert to support economic resilience. The property market's recovery, with transaction volumes rebounding strongly after stamp duty removal, suggests that these policies achieved their objectives of stabilizing the market and supporting economic activity.

As Hong Kong moves beyond the pandemic era, key questions remain about which temporary measures might become permanent features (particularly the rental expense deduction), how the government will restore fiscal balance after years of deficits, and whether the pandemic experience will inform future crisis response frameworks. For property owners, businesses, and tenants, the return to normal rates liability marks the end of an extraordinary period of fiscal support and the beginning of a new phase of post-pandemic economic development.

Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. All figures and dates have been verified from official Hong Kong Government sources, including Budget Speeches, Rating and Valuation Department announcements, and Inland Revenue Department circulars. Laws, regulations, and policies are subject to change. Readers should consult qualified professionals for advice specific to their circumstances. Information is current as of December 2024.

References: Hong Kong SAR Government Budget Speeches (2020-2025), Rating Ordinance (Cap. 116), Inland Revenue Ordinance (Cap. 112), Rating and Valuation Department, Inland Revenue Department, Financial Secretary's Office, Anti-epidemic Fund documentation, Legislative Council papers on property relief measures.