Despite the fall in North Korean real estate prices, apartment construction has not slowed down, report sources in the country.

“The prices of apartments in Pyongyang have fallen a lot, but strangely the construction of apartments has continued and even increased,” said a Pyongyang-based source on October 26. “There’s apartment construction going on in central Pyongyang and in the city’s suburbs, like the Rakrang and Sosong districts. I’ve seen seven apartment construction sites myself.”

A separate source in Pyongyang added, “The donju (nouveau riche) are financially supporting these apartment construction projects and then selling the apartments to buyers. There are really nice ones being constructed, similar to those in Changchon Street and Ryomyong Street. Twenty to thirty soldiers are usually mobilized to build them. There are 30-story apartments and others of varying heights.”

Daily NK reported earlier this month that the price of apartments in central Pyongyang, including in Jung district and those near the Taedong River, had fallen from a high of 200-300,000 dollars in June this year to around 50,000 dollars in August.

However, local investors still appear keen to build the apartments because they can be sold for significant profits.

According to an analysis of a North Korean construction profit-and-loss statement Daily NK obtained in April, apartments that can house 40 families (around 12-stories tall; similar to South Korean “villas”) can make a profit of around US $230,000 US dollars (around 240 million South Korean won) [from rent].

The continued rise in apartment prices over the past 10 years has helped the donju accumulate a lot of wealth, which appears to be one factor in the continued construction of apartments. And as tensions on the Korean Peninsula have dissipated, there may also be the expectation among investors in the country that international sanctions will be lifted, which would again lead to a rise in apartment prices.

There is also the possibility that investors are in reality making poor investment decisions and the real estate market is simply moving to one that is driven by apartment construction.

In South Korea and other countries, there are many different options for investors to invest their money, including stocks, bonds, gold, and various financial funds. This allows investments to be spread out over a number of different areas. North Korea, however, does not have a strong financial system and there are few places for investors to invest in outside of real estate.

Investors could find themselves losing a lot of money if North Korea’s real estate market falls into long-term stagnation and the market bubble bursts.

The supply of new apartments continues to increase as apartment prices fall, which means that the real estate market is paralyzed and suffering from a drastic fall in apartment sales. North Korean sources reported early this year that, in the face of falling apartment prices, apartment construction companies feel like they are in a crisis that many won’t survive.

There is also the possibility that the collapse of the real estate market due to long-term stagnation could negatively impact the entire North Korean economy. The bursting of the Japanese real estate market in the early 1990s led to a loss in economic momentum and 20 long years of economic stagnation.