North Korea’s housing market makeover: private ownership in vogue

A unified Korean Peninsula is something we
all dream about. It is time for “Unification Table Talk,” where we speak to
specialists and experts in fields related to the Korean Peninsula. The market
for private property is being expanded by North Korea’s nouveau riche, the
donju. In today’s market environment, luxury apartments in Pyongyang and
Sinuiju sell for tens of thousands of dollars. 

North Korean trading companies
have jumped into the apartment building industry in order to cash in on this
trend. The new entrants on the supply side, coupled with the growing demand,
has revitalized the housing market. We sat down with Gyeongsang National
University Professor Jeong Eun Ei in order to learn about the current situation
real estate in North Korea and the future prospects.

1. I’d like to begin by asking you about
your field of expertise, which is the de facto privatization of housing
markets. Do you have a special reason for focusing on the North Korean housing
market as a research subject?
 

Yes, there are two separate reasons for my
choice. First of all, I began to hear reports from North Korean defectors in
the early 2000s that the real estate market was beginning to form. Second,
since a large amount of products and materials that end up in North Korean
markets come from or go through China, I went to the borderlands to see for
myself. While there, I met with traders from China. They were saying that
investing in fisheries or mining was because those industries were getting more
volatile and harder to recoup seed money.
 

Real estate, on the other hand, was a
different story altogether. The Chinese have a different perspective than South
Koreans. We have a firmly rooted legal system describing private ownership.
Chinese traders had personal experience with real estate privatization in their
lifetime. So they were able to get an early jump on the North Korean market.
They recognized it as a growing industry. Upon hearing these stories and
meeting these people, I decided to personally conduct research to learn more
about the ins and outs of this very important and symbolic transition occurring
in North Korea.
 

2. You believe that real estate market has
symbolic significance?
 

Unlike food and clothes, real estate
requires a massive up front infusion of cash or capital in some form. So, the
fact that people are able to buy houses means that things aren’t quite as bad
as they used to be. It also means that the reach of the market has expanded.
Much in the way that China reformed in the 1980s, North Korea is making
progress on this particular part of the economy.
 

3. So this is a bit confusing, since
housing is traditionally considered state property in a socialist country. But
for the last few years people have been buying and selling houses in North
Korea. Does this mean that the socialist system has collapsed?
 

A socialist system does not strictly entail
that there is no private ownership. North Korea has had a socialist system in
place for 50 years, but during this time different kinds of markets have
existed. For example, the Public Distribution System did not appropriate funds
for performing ancestral rites, giving wedding gifts, or going out with
friends.
 

Additionally, starting in the 1950s, there
were many ethnic Koreans who returned to North Korea from abroad. These people
traded the goods and currency they brought from abroad and the markets
gradually grew. During the arduous march (the famine in the 1990s), the
acceleration of market growth increased even more.
.

Therefore, I don’t think it is fair to say
that the privatization of the housing market is sufficient justification to
declare that socialism is dead in North Korea. I think it means that the free
market and the planned economy are coexisting, and that the size of private ownership
has gradually grown. From the regime’s point of view, this private ownership
can represent a threat if it is allowed to continue growing. But you might also
fairly contend that since the Public Distribution System (PDS) dried up, the
marketization of housing is actually helping to prevent the collapse of the
regime. However, if the current system is allowed to grow without systemic
reforms, corruption will begin to cause serious social problems.
 

4. It seems like your trip to the Chinese
border city of Dandong also helped you to witness some of North Korea’s
transformation in an indirect manner.
 

I’d heard that Chinese businesses are
engaged in a good deal of apartment construction projects in North Korea. North
Korean traders don’t go to those border areas as much to engage in deals on
construction projects, but they do engage in business by doing the interior and
the design of the apartments.  
 

5. What is the most outstanding change
you’ve noticed in North Korea’s housing market?
 

Here in South Korea, we have old and new
apartments. The difference in price between the two is significant. The price
difference comes the improvement in design and facilities in the modern
buildings. We’ve heard that in North Korea as well, the new apartments are not
being designed to match the old, socialist style, but are being fitted with
modern flourishes. The new apartments are also more spacious, which accounts
for a lot of the price difference. The windows are bigger and the glass panels
are larger. The concept of a ‘living room’ is also being introduced through the
new designs.
 

The materials for the old apartments were
all from North Korea. Now, the building materials are being imported, which
means that linoleum also began making an appearance in the more ornate
apartments starting in the year 2000.  The color palette has transitioned
from a gloomy, dark palette to a more clean, white tone.
 

6. The bulk of the apartments being built
right now are high rises and luxury buildings. Kim Jong Un’s public companies
are engaged in building these apartments. I hear that people are buying spots
at these buildings as well. How much are the selling for? And how do people go
about buying them?
 

If we break down the current state of the
market, I think we can divide the apartment construction companies into three
different groups. The government, state-run enterprises, and private
companies are all in the mix. However, if you look at the construction process
itself, the government often doles out construction projects to state-run enterprises by region. When the state-run enterprises don’t have enough
capital to begin the project, they will recruit donju as early round investors.
As you can see, the barriers between the three groups is blurred in different
circumstances.
 

7. Can you provide specific numbers for the
price of a new apartment in one of these buildings?  
 

There are huge regional differences in
price. In a place like Pyongyang’s Jung-gu Station, where many high ranking
officials live, the prices are astronomical. According to my research, the most
expensive one I’ve come across thus far cost KRW 200 million (about US
$169,518), but now there are houses coming out that sell for KRW 300-500
million.  
 

8. I’m curious what happened to precipitate
the marketization of the housing market. It seems like one aspect of the new
operating principle in North Korea: if it makes money, sell it. So we can see
the donju getting richer and more influential, and the government’s state owned
companies are also raking it in through taking advantage of the new markets.
 

In the past, the planned economy stipulated
when housing would be built. So there would be construction and then for a
period of 5, 10, or 15 years, there would be stagnation. But now, apartment
complexes can shoot up inside one or two years. In 2012, some new buildings were
erected after a marketplace was removed somewhere in Sinuiju. That was a really
impressive show of the donju’s economic might.

9. Another factor accounting for the
vitalization of the housing market in the increased investments of trading
companies. Can you explain a little bit about what sort of role they play?
 

That’s a good observation. Let’s start by
asking why they are getting involved. First, they’ve been able to earn a
handsome profit in this racquet. The main agents of North Korea’s economy were
the trading companies. That is because it is hard to produce, manufacture, and
grow all the necessary goods and foods to make North Korea self sufficient.
This means that importing becomes an important solution to any manufacturing
insufficiencies. But the obstacles to importation are many. Not just anyone is
in a good position to be an importer. After China’s economic reforms in the
1980s, Chinese-born Koreans and Chinese living in North Korea were able start
playing a role as merchant facilitators and bringing products into North Korea.
 

During the 1990s famine, the government
gave the green light to every unit to opening a trading company. At that time,
the Korean-born Chinese were packing goods in bundles and huffing it on foot.
The trading companies began using vehicles to import products in bulk. So they
ended up making quite a bit of money. But building and buying houses is not
just about having money. First, the investors need to have knowledge about
construction. Next, they need to have the shrewd investment sense of a
capitalist. Last, they need to know about the political power dynamics in North
Korea. The trading companies satisfied these three conditions and so they were
the ones to get in the construction business early.  

10. It seems as if there is a very close
connection between economic might and political contacts. Is the apartment
building industry all about connections?
 

No matter how much money you might have,
building an apartment is no easy task. There are a number of problems to be
worked out, such as managing the land, hiring the workers, passing inspection,
and organizing all the intricate layers of construction in the correct
sequence. Then you need to parcel up and allot the units. Many of these
processes require collaboration, if not downright collusion, with the
authorities. 

As the donju and trading companies continue to build houses, the
government agencies are also earning money at all steps of the process. If
you’re not working well with the authorities, there is zero chance that you
will finish your project. So you might even say that this process even brings
the two together.
 

In 2014, a building collapsed in
Pyongyang’s Pyeongcheon district. After that, you saw the unprecedented scene
of high level officials apologizing. That is proof that the authorities are
heavily involved in the construction industry, so much so that they felt
compelled to apologize after that fatal accident. The authorities take the
profits and split them up with the donju.

 If the distribution system was
working according to North Korea’s planned economy, apartments would be
constructed by the state and then appropriated to specific people after their
completion. But if you look at the Pyeongcheon apartment incident, you can see
that people were living in the bottom levels of the building before
construction was even completed. That is an indication that the units were
appointed through different means. Those who invested in the building simply
moved in because they were the ones to front the money and felt a sense of
ownership.
 

11. When we observe the social implication
of this trend, it becomes apparent that the rich are moving to luxury
apartments in nice parts of town while the poor live in old apartments in the
shabby part of town. The gap between the rich and the poor is getting worse and
worse. Accordingly, are some North Koreans feeling resentful that they can’t
afford to buy a place in
one of these modern
buildings?
 

To tell the truth, I was also extremely
interested in this exact problem when I set about doing my research. So I
started asking around. In the old days, the rich-poor gap was represented
through things like food: the wealthy ate rice and the poor ate corn meal. The
rich also tended to have meat and fish, while the poor had much less access to
expensive foods like that.  Clothes were another indicator of class.
However, these days housing has become the single biggest indicator of wealth.
 

So I began asking people if this is fueling
resentment, but from speaking to people on the ground, I don’t think that those
feelings have really set in just yet. Instead, it is fanning the flames of
competition. My neighbor has this product or that product, so I feel like I
should have that as well. So I think about how that person earned their money
and ask myself if I could follow in his or her footsteps. For the jangmadang
generation, the rich-poor gap is felt in a number of different ways.

12. Are there any new jobs that have
emerged as a consequence of the growing housing market?
 

The appearance of the privatized housing
market has led to the strengthening of the labor market and the mainstreaming
of private loans. This means new jobs in near industries. The most
representative profession would have to be real estate broker, who sells the
units. There is also an increased need for repairmen and designers. We might
also see the emergence of specialty design and furniture stores. Indeed, this
industry, and the spare money that made it possible, will likely contribute to
the emergence and vitalization of countless professions.


13. Last of all, it seems as if the authorities and the donju are pursuing a
luxurious lifestyle just as people do in capitalist societies. We might
anticipate that the privatization of housing in North Korea will have many
social effects. What do you think some of these effects might be?
 

I think the effects are enormous. In the
old days, if you sold contraband cigarettes, the authorities would take them
away from you. Then you’d probably turn around and try to sell some more. In
general, people would think you were a lowlife. But imagine if the authorities
tried to repossess your house. It would cause a huge blowback. It might fairly be
argued that private ownership has become much stronger since the privatization
of housing and the strengthening of inheritance rights.
 

Even though there is no real concept for
 private ownership in a socialist nation, North Korea has seen the growth
of it in this regard. Because of the cost, the most important type of private
ownership is housing. So the increase of the privatized housing market is a
very important change. I think it will have a positive effect in pressuring the
government in the direction of liberal reforms. Private ownership isn’t in 100%
effect right now, but the authorities have ceded ground in an important
industry.
 

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