North Korea’s Property Market

Rason has opened up property development to foreign investors (see some of the pictures a colleague took). Some investors have asked me about the prospects for property investments elsewhere in North Korea. The short answer is that there are opportunities to invest in North Korea’s property market outside of Rason, although it will take some ingenuity to execute well on an investment strategy focused on this asset class. To understand the property market in North Korea, it is useful to think of this market as being made up of three sectors. There is the state-owned sector driven by the government, the legal private sector in which both joint-ventures and local companies are involved in, and an illegal but flourishing housing market.

The state owned-companies, normally with manpower provided by the Korean People’s Army, build housing and other buildings for state purposes. While the state is technically supposed to provide all housing, it is unable to satisfy demand, or unable to cater well to a sub-segment that desire higher-quality or roomier housing. Hence, enterprising individuals or groups of North Koreans undertake construction of housing which are then re-sold to paying customers. A friend at the Economist wrote a very good article on this in 2007. DailyNK has also commented on this practice recently.

One entry point (and there are a few) is for a North Korean entrepreneur to fall off the grid by joining the army at a lower level, and using his connections, ability to put together financing, and manpower from the army unit to build and sell apartments (which are officially “allocated” to people who paid for them). In some reported cases, the state shares in the project as it gets its share of apartments.

Investors can legally participate in property development most directly through building hotels and office space. However, at last glance, it looks like Pyongyang has an oversupply of hotel rooms, especially with the Taedonggang Hotel finally completing its multi-year refurbishment next year, and more so now that the Ryuggyong Hotel is finally on the way to completion and will be open for business with a projected 300 rooms next year. With the potential to release unused capacity as and when the market can accept it (>1000 rooms), Ryuggyong will hang as a sword of Damocles over any new high-end hotel developer. The office rental market is rather opaque, and there is a risk that foreign investors might be stuck only being able to rent their offices to other foreign businesses, of which there is questionable demand at the moment.

There are other entry points into the property market that might make more sense. We are trying to gain a better understanding of some of those options at the moment.