Asia's hottest property market is also its most unlikely: North Korea

[March 26, 2014]  By Ju-min Park

SEOUL (Reuters) — One of the world's fastest developing property markets is also in one of its least likely places — North Korea.

Even though the buying and selling of houses and apartments is illegal, it is becoming more widespread and sophisticated, said defectors as well as experts who study the ruined economy.

On paper, the socialist state owns all property. But the percentage of North Koreans who are buying their own home — as opposed to waiting for the government to assign one — is growing rapidly, surveys of defectors show.

Brokers can be found with lists of property for sale in private markets selling food and cheap consumer goods that are tolerated by the government in cities and towns around North Korea, the defectors and experts said.

"You can find a house you want by asking brokers," said Kim Young-il, a defector and activist in Seoul.

Deals are done in U.S. dollars in the capital Pyongyang and in Chinese yuan along the border with China, where most of the North's trade with the outside world takes place. The buyers and sellers then bribe housing officials to effectively approve the transaction by issuing or modifying residency documents, the defectors and experts said.

It's another example of how the regime of leader Kim Jong Un is turning a blind eye to a black market that is offering North Koreans a chance to upgrade their living conditions, move from one location to another or to simply make some money, especially given that house prices have been rising steadily.

It is common for defectors to send money to the North so their families can buy better homes. Activist Kim and two other defectors say they have also heard of some people buying property as an investment ahead of what they hope will be the eventual reunification of their impoverished homeland and the wealthy South. Reuters could not confirm those accounts.

Defectors send an estimated $10 million each year to help their families in the North, according to the Organization for One Korea, a South Korean support group for defectors. The money is routed through agents on China's side of the land border.

"Money talks in North Korea. If you have money, send it to somebody you trust. You can buy a decent house in the border region with China," said Kim, the defector, who runs a non-governmental organization called People for Successful Corean Reunification, which uses the ancient spelling of Korea.

Kim told Reuters he had a friend who needed to raise money last winter to fund his escape to the South, so the friend sold his apartment in the North Korean border city of Hyesan for 40,000 Chinese yuan ($6,600).

He declined to identify his friend, who he said was at a re-settlement center south of Seoul that helps defectors try to get to grips with life in South Korea.

MISSILES INSTEAD OF HOUSING

Under the socialist system erected by Kim Il Sung, the young leader's grandfather, the government built and allocated housing to its citizens.

Then famine killed an estimated 1 million people in the mid-1990s, causing the collapse of the state food distribution system. That opened the door to private markets selling food in the late 1990s.

Trading in property soon followed, especially since the increasingly cash-starved state spent money on its 1.2-million strong military instead of public housing.

Under North Korean law, anyone who sells, buys or rents a house can be sentenced to hard labor.

But a survey last year of 133 defectors by the Seoul National University's (SNU) Institute for Peace and Unification Studies found 67 percent of them had bought their own homes, compared to 14 percent who had been given accommodation. The defectors left North Korea in 2012.

A similar survey of 126 defectors who left in 2011 showed 46 percent bought their own home.

"With market forces spreading, North Koreans are becoming able to dream of moving into a better house," said Jeong Eun-mee, an SNU research professor involved in the survey.

"Homes, one of the few resources North Koreans have, are now extensively traded unofficially. The regime has no option but to tolerate this ... because officials are involved as well."

CIGARETTES OR FOOD WILL DO

In a 2013 report, the Korea Institute for National Unification, a South Korean state-run think tank, said housing officials were usually bribed with cigarettes or food to approve a property transaction in one of the world's most corrupt countries.

While it is impossible to independently confirm anything in North Korea, similar studies support the suggestion of growing property ownership.

Defectors are also among the best sources of information since better communications have opened the way for regular contact with their families. Defector groups in Seoul estimate 3,000 phone calls are made each day to the North, routed through Chinese mobile networks along the border.

There is no hard data, but apartment prices have risen in the last decade in Pyongyang and small cities on the Chinese border, defectors said.

Housing now acts as a store of value for North Koreans looking for ways to earn money outside the poorly paid government sector, they added.

Lee Yun-keol, a biologist who came to Seoul in 2005, said he had heard that an apartment he used to own in Pyongyang was worth $100,000, nearly 15 times what he paid more than a decade ago.

Properties close to statues of Kim Il Sung or his son Kim Jong Il in the center of Pyongyang command a higher price thanks to constant water and electricity supplies, defectors said.

They added that the property market revolved around the brokers, who keep a low profile in private markets but can be found by asking around. Once a buyer and seller agree the price, they bribe housing authorities to alter names on mandatory residence permits that give an address.

North Korea only allows one house to be registered against one name, so people use the names of relatives if they want to buy more.

PRIVATE CONTRACTORS

Outside Pyongyang, where there is more scope for private commerce because state scrutiny is less intense, the property market has also created a new class of businessmen who employ workers outside the broken state system and raise funds to buy building materials, defectors and experts said.

Kim Joo-sung, a North Korean scientific researcher who defected in 2008, said he had a friend in his home city who became a construction contractor as far back as 2002.

The friend worked with brokers who promoted unit sales by phone before they were even built, the researcher said, adding he paid off officials by giving them new homes.

"He became one of the richest men in my community," said Kim, who declined to name his home city for fear of reprisals against his family in North Korea. He also declined to reveal his friend's identity, saying he had lost contact with him when he fled North Korea.

The North Korean state has also been getting in on the property trade.

Since taking office more than two years ago, Kim Jong Un has presided over a construction boom with the aid of funds from China, the North's major backer, and Russia, a former Cold War ally.

The state-run KCNA news agency, for example, reported in January that the government had built apartments for 1,000 families of scientists in Pyongyang.

For some newly built flats in Pyongyang, government firms sell the units, keeping the money as profit to stay viable, experts and defectors said.

"With the government's knowledge, state agencies and institutions are selling houses they have built," said an ex-senior intelligence official, who came to Seoul in 2008 but declined to be identified because of concerns for his safety.

($1=6.1185 yuan)

(Editing by Dean Yates)

[© 2014 Thomson Reuters. All rights reserved.]

Copyright 2014 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.