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

first_img North Korea tries to accelerate building of walls and fences along border with China Facebook Twitter By Daily NK – 2015.12.24 11:40am News North Korea’s housing market makeover: private ownership in vogue AvatarDaily NKQuestions or comments about this article? Contact us at [email protected] News Ordinary Pyongyang residents have not received government rations since mid-April center_img A unified Korean Peninsula is something weall dream about. It is time for “Unification Table Talk,” where we speak tospecialists and experts in fields related to the Korean Peninsula. The marketfor private property is being expanded by North Korea’s nouveau riche, thedonju. In today’s market environment, luxury apartments in Pyongyang andSinuiju sell for tens of thousands of dollars. North Korean trading companieshave jumped into the apartment building industry in order to cash in on thistrend. The new entrants on the supply side, coupled with the growing demand,has revitalized the housing market. We sat down with Gyeongsang NationalUniversity Professor Jeong Eun Ei in order to learn about the current situationreal estate in North Korea and the future prospects.1. I’d like to begin by asking you aboutyour field of expertise, which is the de facto privatization of housingmarkets. Do you have a special reason for focusing on the North Korean housingmarket as a research subject? Yes, there are two separate reasons for mychoice. First of all, I began to hear reports from North Korean defectors inthe 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 Koreanmarkets come from or go through China, I went to the borderlands to see formyself. While there, I met with traders from China. They were saying thatinvesting in fisheries or mining was because those industries were getting morevolatile and harder to recoup seed money. Real estate, on the other hand, was adifferent story altogether. The Chinese have a different perspective than SouthKoreans. We have a firmly rooted legal system describing private ownership.Chinese traders had personal experience with real estate privatization in theirlifetime. 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 andmeeting these people, I decided to personally conduct research to learn moreabout the ins and outs of this very important and symbolic transition occurringin North Korea. 2. You believe that real estate market hassymbolic significance? Unlike food and clothes, real estaterequires a massive up front infusion of cash or capital in some form. So, thefact that people are able to buy houses means that things aren’t quite as badas 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 makingprogress on this particular part of the economy. 3. So this is a bit confusing, sincehousing is traditionally considered state property in a socialist country. Butfor the last few years people have been buying and selling houses in NorthKorea. Does this mean that the socialist system has collapsed? A socialist system does not strictly entailthat there is no private ownership. North Korea has had a socialist system inplace for 50 years, but during this time different kinds of markets haveexisted. For example, the Public Distribution System did not appropriate fundsfor performing ancestral rites, giving wedding gifts, or going out withfriends. Additionally, starting in the 1950s, therewere many ethnic Koreans who returned to North Korea from abroad. These peopletraded the goods and currency they brought from abroad and the marketsgradually grew. During the arduous march (the famine in the 1990s), theacceleration of market growth increased even more..Therefore, I don’t think it is fair to saythat the privatization of the housing market is sufficient justification todeclare that socialism is dead in North Korea. I think it means that the freemarket and the planned economy are coexisting, and that the size of private ownershiphas gradually grown. From the regime’s point of view, this private ownershipcan represent a threat if it is allowed to continue growing. But you might alsofairly contend that since the Public Distribution System (PDS) dried up, themarketization of housing is actually helping to prevent the collapse of theregime. However, if the current system is allowed to grow without systemicreforms, corruption will begin to cause serious social problems. 4. It seems like your trip to the Chineseborder city of Dandong also helped you to witness some of North Korea’stransformation in an indirect manner. I’d heard that Chinese businesses areengaged in a good deal of apartment construction projects in North Korea. NorthKorean traders don’t go to those border areas as much to engage in deals onconstruction projects, but they do engage in business by doing the interior andthe design of the apartments.   5. What is the most outstanding changeyou’ve noticed in North Korea’s housing market? Here in South Korea, we have old and newapartments. The difference in price between the two is significant. The pricedifference comes the improvement in design and facilities in the modernbuildings. We’ve heard that in North Korea as well, the new apartments are notbeing designed to match the old, socialist style, but are being fitted withmodern flourishes. The new apartments are also more spacious, which accountsfor a lot of the price difference. The windows are bigger and the glass panelsare larger. The concept of a ‘living room’ is also being introduced through thenew designs. The materials for the old apartments wereall from North Korea. Now, the building materials are being imported, whichmeans that linoleum also began making an appearance in the more ornateapartments starting in the year 2000.  The color palette has transitionedfrom a gloomy, dark palette to a more clean, white tone. 6. The bulk of the apartments being builtright now are high rises and luxury buildings. Kim Jong Un’s public companiesare engaged in building these apartments. I hear that people are buying spotsat these buildings as well. How much are the selling for? And how do people goabout buying them? If we break down the current state of themarket, I think we can divide the apartment construction companies into threedifferent groups. The government, state-run enterprises, and privatecompanies are all in the mix. However, if you look at the construction processitself, the government often doles out construction projects to state-run enterprises by region. When the state-run enterprises don’t have enoughcapital 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 differentcircumstances. 7. Can you provide specific numbers for theprice of a new apartment in one of these buildings?   There are huge regional differences inprice. In a place like Pyongyang’s Jung-gu Station, where many high rankingofficials live, the prices are astronomical. According to my research, the mostexpensive 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 300-500million.   8. I’m curious what happened to precipitatethe marketization of the housing market. It seems like one aspect of the newoperating principle in North Korea: if it makes money, sell it. So we can seethe donju getting richer and more influential, and the government’s state ownedcompanies are also raking it in through taking advantage of the new markets. In the past, the planned economy stipulatedwhen housing would be built. So there would be construction and then for aperiod of 5, 10, or 15 years, there would be stagnation. But now, apartmentcomplexes can shoot up inside one or two years. In 2012, some new buildings wereerected after a marketplace was removed somewhere in Sinuiju. That was a reallyimpressive show of the donju’s economic might.9. Another factor accounting for thevitalization of the housing market in the increased investments of tradingcompanies. Can you explain a little bit about what sort of role they play? That’s a good observation. Let’s start byasking why they are getting involved. First, they’ve been able to earn ahandsome profit in this racquet. The main agents of North Korea’s economy werethe trading companies. That is because it is hard to produce, manufacture, andgrow all the necessary goods and foods to make North Korea self sufficient.This means that importing becomes an important solution to any manufacturinginsufficiencies. But the obstacles to importation are many. Not just anyone isin a good position to be an importer. After China’s economic reforms in the1980s, Chinese-born Koreans and Chinese living in North Korea were able startplaying a role as merchant facilitators and bringing products into North Korea. During the 1990s famine, the governmentgave 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 theyended up making quite a bit of money. But building and buying houses is notjust about having money. First, the investors need to have knowledge aboutconstruction. Next, they need to have the shrewd investment sense of acapitalist. Last, they need to know about the political power dynamics in NorthKorea. The trading companies satisfied these three conditions and so they werethe ones to get in the construction business early.  10. It seems as if there is a very closeconnection between economic might and political contacts. Is the apartmentbuilding 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 beworked out, such as managing the land, hiring the workers, passing inspection,and organizing all the intricate layers of construction in the correctsequence. Then you need to parcel up and allot the units. Many of theseprocesses require collaboration, if not downright collusion, with theauthorities. As the donju and trading companies continue to build houses, thegovernment agencies are also earning money at all steps of the process. Ifyou’re not working well with the authorities, there is zero chance that youwill finish your project. So you might even say that this process even bringsthe two together. In 2014, a building collapsed inPyongyang’s Pyeongcheon district. After that, you saw the unprecedented sceneof high level officials apologizing. That is proof that the authorities areheavily involved in the construction industry, so much so that they feltcompelled to apologize after that fatal accident. The authorities take theprofits and split them up with the donju. If the distribution system wasworking according to North Korea’s planned economy, apartments would beconstructed by the state and then appropriated to specific people after theircompletion. But if you look at the Pyeongcheon apartment incident, you can seethat people were living in the bottom levels of the building beforeconstruction was even completed. That is an indication that the units wereappointed through different means. Those who invested in the building simplymoved in because they were the ones to front the money and felt a sense ofownership. 11. When we observe the social implicationof this trend, it becomes apparent that the rich are moving to luxuryapartments in nice parts of town while the poor live in old apartments in theshabby part of town. The gap between the rich and the poor is getting worse andworse. Accordingly, are some North Koreans feeling resentful that they can’tafford to buy a place in ㅐone of these modernbuildings? To tell the truth, I was also extremelyinterested in this exact problem when I set about doing my research. So Istarted asking around. In the old days, the rich-poor gap was representedthrough things like food: the wealthy ate rice and the poor ate corn meal. Therich also tended to have meat and fish, while the poor had much less access toexpensive 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 fuelingresentment, but from speaking to people on the ground, I don’t think that thosefeelings have really set in just yet. Instead, it is fanning the flames ofcompetition. My neighbor has this product or that product, so I feel like Ishould have that as well. So I think about how that person earned their moneyand ask myself if I could follow in his or her footsteps. For the jangmadanggeneration, the rich-poor gap is felt in a number of different ways.12. Are there any new jobs that haveemerged as a consequence of the growing housing market? The appearance of the privatized housingmarket has led to the strengthening of the labor market and the mainstreamingof private loans. This means new jobs in near industries. The mostrepresentative profession would have to be real estate broker, who sells theunits. There is also an increased need for repairmen and designers. We mightalso see the emergence of specialty design and furniture stores. Indeed, thisindustry, and the spare money that made it possible, will likely contribute tothe emergence and vitalization of countless professions.13. Last of all, it seems as if the authorities and the donju are pursuing aluxurious lifestyle just as people do in capitalist societies. We mightanticipate that the privatization of housing in North Korea will have manysocial effects. What do you think some of these effects might be? I think the effects are enormous. In theold days, if you sold contraband cigarettes, the authorities would take themaway from you. Then you’d probably turn around and try to sell some more. Ingeneral, people would think you were a lowlife. But imagine if the authoritiestried to repossess your house. It would cause a huge blowback. It might fairly beargued that private ownership has become much stronger since the privatizationof 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 growthof it in this regard. Because of the cost, the most important type of privateownership is housing. So the increase of the privatized housing market is avery important change. I think it will have a positive effect in pressuring thegovernment in the direction of liberal reforms. Private ownership isn’t in 100%effect right now, but the authorities have ceded ground in an importantindustry.  News News SHARE RELATED ARTICLESMORE FROM AUTHOR Hamhung man arrested for corruption while working at a state-run department storelast_img

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