Take a flat bought for HK$9,000,000 that rents for HK$22,000 a month, which is HK$264,000 a year. The gross yield is the annual rent divided by the price, which is about 2.93 percent, typical of Hong Kong where capital values are high relative to rents. From the rent you deduct HK$13,200 of rates, HK$7,920 of government rent and HK$24,000 of management fees, plus property tax of HK$30,096, which is 15 percent of the net assessable value after the 20 percent allowance. That leaves a net income of about HK$188,784 a year. Dividing by the HK$9,000,000 price gives a net yield of about 2.10 percent, which you would compare against your mortgage rate to judge cash flow.
How it is calculated
Gross rental yield is simply the annual rent divided by the purchase price, and it ignores every running cost. Net yield is the more honest number because it subtracts the recurring charges a landlord actually pays. Those include rates at the standard percentage of rateable value, government rent where the lease requires it, and building management fees. On top of those you deduct property tax, which is 15 percent of the net assessable value after the statutory 20 percent allowance. The remaining net income divided by the price gives the net yield. Hong Kong yields are typically low, often two to three percent gross, so investors usually rely on capital growth rather than rental income, and comparing the net yield against the mortgage rate shows whether the property funds itself.
Frequently asked questions
What is a good rental yield in Hong Kong?
Gross rental yields in Hong Kong are historically low, often around 2% to 3%, because capital values are high relative to rents. Net yield is lower again once you deduct rates, government rent, management fees and property tax at 15% on the net assessable value. Compare the net yield against your mortgage rate to judge whether the property is cash-flow positive.
How is property tax calculated on rental income in Hong Kong?
Property tax in Hong Kong is charged at a flat rate of 15 percent on the net assessable value. The net assessable value is the annual rent minus rates paid by the owner, and the IRD then grants a 20 percent statutory deduction for repairs and maintenance before applying the 15 percent rate. The result is a fixed tax regardless of your personal income level.
What are rates and government rent in Hong Kong?
Rates are a tax levied by the Rating and Valuation Department, calculated as a percentage of the rateable value of the property, and the current standard rate is 5 percent. Government rent applies to leases granted since 1985 and is set at 3 percent of the rateable value. Both charges are billed quarterly and are deductible when calculating net rental yield.
Is rental income in Hong Kong subject to salaries tax as well as property tax?
Rental income from property held in Hong Kong is normally charged to property tax rather than salaries tax. However, if you elect for personal assessment, the IRD consolidates all your income including rental income and taxes it at salaries tax rates, which can be lower for taxpayers with dependant allowances or large mortgage interest deductions. The calculator applies the standard property tax method.