Billionaire Ken Griffin recently paid $238 million for a Manhattan condo, the most expensive home ever sold in the U.S. But according to New York City tax collectors, it is effectively worth only $9.4 million.

The difference is the result of New York City’s complex property tax system, which requires that all co-op and condos be assessed as if they were rental buildings. That means assessors look at rental income at nearby buildings and make an estimate of a condo’s value.

For the hedge fund executive’s 23,000-square-foot home in a midtown limestone tower, the effective tax rate works out to roughly 0.22%, based on a Wall Street Journal analysis of the initial closed sales in the building. When tax bills go out in June, Mr. Griffin will be billed about $516,500.

That tax rate is similar to rates for individual homes in Manhattan and in trendy Brooklyn neighborhoods, where increases in taxes have been capped while property values have soared. In less affluent parts of the city, such as the south shore of Staten Island, the effective tax rate is far higher: about 1% of market value in several ZIP Codes.

The city’s tax system undervalues condominiums and co-ops in prime neighborhoods, according to a study last year by the city’s Independent Budget Office. It estimated that the city’s official values for co-ops and condos were 20% of their true market value.

“It is a crazy system,” said Martha Stark, a former city finance commissioner, who is the policy director of a group that filed suit in 2017 asking the court to find the current tax system unconstitutional. “The true market value bears no relation to sales price, and nowhere is that truer than among high-value coops and condos.”

Bigger Home, Smaller Tax Burden Middle-class homeowners in New York City can pay more in property taxes than the wealthiest ones. Bronx Ken Griffin, the hedge fund billionaire, will pay an effective tax rate of 0.22% on his 23,000-square-foot condo, based on his $238 million purchase price. Manhattan Effective tax rate by zip code* 0.8 0.2% 0.4 0.6 1.0+ Queens Not enough data† Joseph Siciliano is facing a $10,450 bill on a home valued less than $870,000, or a 1.2% rate. Brooklyn Staten Island Mayor Bill de Blasio is due to pay a bill of $4,197 on a home valued at $1.94 million, a rate of 0.22%. *Property taxes on 1-3 family homes as a percentage of market value. †Less than ten 1-3 family homes. Source: WSJ analysis of city tax records 5 miles 5 km Bigger Home, Smaller Tax Burden Middle-class homeowners in New York City can pay more in property taxes than the wealthiest ones. Bronx Effective tax rate by zip code* 0.6 0.4 0.8 0.2% 1.0+ Manhattan Not enough data† Ken Griffin, the hedge fund billionaire, will pay an effective tax rate of 0.22% on his 23,000-square-foot condo, based on his $238 million purchase price. Queens Brooklyn Staten Island Mayor Bill de Blasio is due to pay a bill of $4,197 on a home valued at $1.94 million, a rate of 0.22%. Joseph Siciliano is facing a $10,450 bill on a home valued less than $870,000, or a 1.2% rate. *Property taxes on 1-3 family homes as a percentage of market value. †Less than ten 1-3 family homes. Source: WSJ analysis of city tax records 5 miles 5 km Bigger Home, Smaller Tax Burden Middle-class homeowners in New York City can pay more in property taxes than the wealthiest ones. Effective tax rate by zip code* Bronx Ken Griffin, the hedge fund billionaire, will pay an effective tax rate of 0.22% on his 23,000-square-foot condo, based on his $238 million purchase price. 0.2% Not enough data† 0.4 0.6 Manhattan 0.8 1.0+ Queens Joseph Siciliano is facing a $10,450 bill on a home valued less than $870,000, or a 1.2% rate. Brooklyn Staten Island Mayor Bill de Blasio is due to pay a bill of $4,197 on a home valued at $1.94 million, a rate of 0.22%. *Property taxes on 1-3 family homes as a percentage of market value. †Less than ten 1-3 family homes. Source: WSJ analysis of city tax records 5 miles 5 km Bigger Home, Smaller Tax Burden Middle-class homeowners in New York City can pay more in property taxes than the wealthiest ones. Effective tax rate by zip code* Bronx 0.2% Not enough data† Manhattan 0.4 3 0.6 Queens 0.8 1.0+ 2 Brooklyn Staten Island 1 5 miles 5 km Joseph Siciliano is facing a $10,450 bill on a home valued less than $870,000, or a 1.2% rate. 1 Mayor Bill de Blasio is due to pay a bill of $4,197 on a home valued at $1.94 million, a rate of 0.22%. 2 Ken Griffin, the hedge fund billionaire, will pay an effective tax rate of 0.22% on his 23,000-square-foot condo, based on his $238 million purchase price. 3

In a statement, the city’s Department of Finance said that the property “was assessed using comparable rents of neighboring properties,” as required by state law.

The assessment was determined before Mr. Griffin closed on his purchase, and one tax expert said the bill could go up in 2020, after the entire building is completed.

A spokesman for Mayor Bill de Blasio said the tax system is in need of reform. He added that a commission set up by the mayor and the City Council is looking at changes to the property tax system, including taxing co-ops and condos based on actual sale values, and eliminating the long phase-in of assessment increases as home values rise.

Mr. de Blasio owns two homes in Park Slope that have an effective tax rate of 0.22%, city records show.

New York City’s tax system is a creation of the state Legislature and reflects a political compromise made four decades ago after the previous tax system was thrown out by the Court of Appeals, New York’s highest court.

Some provisions give advantages to co-op and condo owners, especially wealthy ones, others to homeowners.

The Legislature pegged taxes on owners of one- to three-family homes at 6% of market value. Other properties were taxed at 45% of market value, but to give co-ops and condos a break, they were assessed as rental buildings.

To protect office and rental buildings, the law divided properties into four classes, and required adjustments to keep the share in each class the same. Over the years, the City Council and state Legislature have tweaked the formula to limit the impact on owners of one- to three-family homes.

Mr. Griffin’s new apartment sprawls over four stories, including a 31-foot-long balcony facing Central Park on the 50th floor of the 70-story tower at 220 Central Park South.

Joseph Siciliano, in front of his Staten Island home. Photo: Kellyann Petry for The Wall Street Journal

His affluent neighbors are also being taxed at comparatively low rates. The building was valued by city tax assessors at $157.6 million, but the developers told the attorney general that the condos were listed for a total of $3.39 billion.

Joseph Siciliano, a former city garbage collector on disability who lives in a 2,600-square-foot colonial house in Staten Island, pays an effective tax rate of 1.2%, according to city records. Mr. Siciliano and his wife face a potential tax bill of about $10,450 on a house valued at less than $870,000.

“Do you think it is fair that condos in Manhattan pay lower taxes?” Mr. Siciliano asked.

Write to Josh Barbanel at josh.barbanel@wsj.com