'Private Property Prohibition' Yet Mortgage Loans in North Korea?

KDI North Korea Economic Review

The view of Pyongyang city from the Ryugyong Hotel in Pyongyang. / Photo by Pyongyang Joint Press Corps

[Sejong=Asia Economy Reporter Son Seon-hee] An expert analysis has emerged that, even in North Korea where private ownership of means of production is not allowed, private finance has developed to the extent that housing mortgage loans are effectively being made.

According to a dialogue between Lee Seok, Senior Research Fellow at the Korea Development Institute (KDI), and Professor Yang Moon-su of the University of North Korean Studies, published in the KDI North Korean Economic Review on the 27th, Professor Yang explained, "Although private finance in North Korea is not highly developed, at a certain level, the primary collateral is naturally housing," adding, "Borrowers entrust their housing entry certificates to lenders and borrow money." In other words, loans secured by housing are effectively taking place.

Professor Yang stated, "If the borrower fails to repay the money, the lender sometimes actually disposes of the house." He continued, "In such cases, many disputes arise that are difficult to resolve legally," explaining, "This is because private finance itself is illegal from the start, and the sale of housing itself is also illegal."

This form of private finance in North Korea differs somewhat from the typical housing mortgage loans in South Korea, which are made through banks with guarantees from public institutions.

All such loans in North Korea rely on 'donju' (emerging commercial class) private finance. Moreover, North Korea does not recognize ownership rights of housing. All housing is state-owned, and residents are considered to have only the right to reside.

Because housing sales and private finance are illegal in this way, borrowers may refuse to vacate the house even if they fail to repay the loan.

Professor Yang said, "Ultimately, residents have no choice but to resolve these issues through mutual negotiation, and sometimes by force," adding, "As a result, donju in North Korea sometimes hire organized crime groups."