Archive for the ‘Real estate’ Category

What North Korea’s 2017 budget report and 2018 projections tell us about its economy

Monday, April 16th, 2018

By Benjamin Katzeff Silberstein

What could be better on a rainy Sunday (at least for those of us on the U.S. east coast) than to delve a little deeper into North Korea’s 2017 budget reporting? I don’t have as much time as I would wish at the moment to give the topic the attention it deserves, so I would advise readers who wish to do more research on their own to use Ruediger Frank’s previous writing on the topic as a guide to making sense of the most recent budget report (see, for example, here, and here), in combination with information about the budget report itself.

Before delving into some points from the report, here’s the usual mantra about figures from North Korea: numbers should never be taken as exact, and their reliability is sketchy at best. It is impossible to tell for sure what is propaganda and what is actual, realistic information, and all figures should be taken as indicative only.

With that out of the way, here are some observations, in no particular order:

The economy has grown, according to North Korea’s own figures, but by less than previous yearsThat is, if you take Ruediger Frank’s view that growth of state budget revenue is a proxy for overall economic growth, which went up by 4.9 from the previous year. This is significantly lower than the past few year’s estimates and results, so in a way, it’s an admission of a real decrease in economic performance. Thus, it is an admission of sorts that the economy isn’t doing all that well at the moment. There are several potential reasons for this figure (which, again, may not even be true or accurate). Recall that exports only started dropping in any drastic sense from early fall last year, when Chinese sanctions enforcement began.

For 2018, the “envisaged” growth rate is much lower, at 3.2 percent. Perhaps this, too, is overtly optimistic given how difficult things seem at the moment. Or perhaps it’s a realistic anticipation of a real downturn, but no disaster.

The budget report recognizes that a significant share of economic activity occurs out of the central government’s handsThough North Korean publications do not explicitly recognize private economic activity, they’re less and less shy about talking quite openly about key facets of the marketized system. Frank pointed out previously, for example, that budgetary items such as revenues from provinces, according to some, essentially represent incomes from the non-centrally planned share of the economy. If this interpretation is correct, over a quarter of economic production (26.1%) is openly admitted by Pyongyang to be out of central planning hands. The share may well be more than the double of that in reality, depending on how you count. In any case, the budget report – and this isn’t new at all, I should point out – recognizes that a significant share of the economy is out of central government hands: “[…] 도,시,군들에서 자체의 수입으로 지출을 맞추고 많은 자금을 중앙예산에 들여놓을것으로 예견하였다 (Provinces, cities and counties are expected to balance expenditure with their own revenue and contribute lots of funds to the central budget)”.

The state foresees continued growth from private and semi-private enterprise revenue next yearTo see why, consider two budget posts that may appear especially peculiar for a nominally socialist economy: the social insurance fee (사회보험료수입금) and the real estate rent (부동산사용료수입금). The income from the former is expected to grow by 1.2 and 1.8 percent respectively. Revenues from the transaction tax (거래수입금) anticipated to grow by 2.5 percent. These, too, have been mentioned in previous budget reports so their appearance per se is not new. Information about what exactly they are is rather tricky to come by, and I’m grateful to my good friend and colleague Peter Ward for sending me excerpts from a 2010 North Korean dictionary (광명백과사전) on the social insurance and real estate rent fees.

The social insurance fee, basically, is just what it sounds like: a fee charged from “socialist organs and factories” as well as individual worker’s earnings, to help guarantee a decent life for “people who loose their ability to work [로동능력을 잃은 사람]” as well as the elderly and others in need. The real estate usage fee is explained as a revenue from “socialist organs and factories” charged in order for the government to maintain the quality and standard of its property, i.e., its buildings and land (which technically is all the land and all the buildings in the country). In other words, this is a fee charged to enterprises in a general sense, it seems. Both the social insurance fee and the real estate usage fee are probably best thought of as general revenue streams for the government, rather than income later used for a specific purpose. The transaction tax was first mentioned in the budget report for 2011, and is most likely a form of general tax on enterprise activity.

Again, these revenue flows are not new, and neither is their reporting. But fact that these revenue channels are institutionalized parts of the official economy say something about how far North Korea has gone from the Stalinist economic model, even nominally speaking. In a fully planned economy, there would be no need for fees or taxes (and indeed, North Korea claims to be a tax-free society) because all production would be planned, and its results collected in full and distributed by the state. Fees and taxes are only necessary when economic production occurs outside of state hands, which likely about half or more of economic activity in North Korea does.

Conclusion

No reader should take this post to mean that the North Korean economy is doing well, improving, or remains untouched by sanctions. Politically, it would likely be very tough for the state to report a major downturn in a year of such scaled-up sanctions and international pressure. But the overall assessment, that things are getting tougher but are not yet catastrophic in any way, may well be accurate. The question is how long it can go on this way, and it seems to me that economic projections for 2018 may well be more optimistic than they should be. Of course, with China’s sanctions enforcement reportedly letting up in some respects, there might be more cause for optimism than we realize.

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Jang Song-thaek photo-shopped out of guidance picture

Tuesday, February 13th, 2018

On February 2, KCTV broadcast from inside a home on Mirae Scientist Street. You can see the video here at 5:07:38 if you subscribe to NK News. Inside the apartment, they showed where the resident had been photographed with Kim Jong-un and Kim Jong-il. Here are the photos on the wall:

Here is a blow up of the lower-center picture:

Surprisingly, I recognized this picture. It is from Kim Jong-il’s and Kim Jong-un’s guidance trip to the Jagang Machine Plant on 2011-4-8. Here is the official photo as it appeared in the media at the time:

In this lower photo, the three individuals wearing grey coats are (from left to right) Jang Song-thaek, Kim Jong-un, and Kim Jong-il. In the photo above (hanging on the wall of the apartment on Mirae Street) there are only two people wearing grey coats: Kim Jong-il and KimJong-un. There is also one less person in the photo.

I thought this was interesting. I wonder how many photos have been altered to remove Jang Song-thaek? Also, I wonder how many apartments on Mirae Scientists Street are dedicated to the machine plant industry.

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Advance payments in the Pyongyang housing market

Tuesday, February 6th, 2018

By Benjamin Katzeff Silberstein

Daily NK reports an interesting trend on the Pyongyang real estate market (or is it a countrywide phenomenon?) of construction companies selling apartment units before construction is finished, requiring what to me sounds like a regular deposit. First construction companies require the equivalent of $10,000 for the initial phase, and later, for interior work, at least another installment of the same amount.

I’m not sure this is an entirely new system or phenomena in the North Korean housing market, which, like virtually all spheres of the economy, has been increasingly guided by market mechanisms since the late 1990s. Nevertheless, the trend is interesting for several reasons. For example, advance payments suggest a trust in the system itself, despite a lack of transparency and formal rules. It’s unclear what would happen to customers who have made advance payments on apartments if construction doesn’t come through, but since the real estate market is still formally illegal, there is likely no judicial mechanism for people to demand their money back. It’s also unclear how widespread these practices are – obviously, most North Koreans can’t put up $10,000 for a new apartment.

Full article at Daily NK:

Real estate companies in Pyongyang are pushing ahead with construction projects in the new year after receiving permission from the North Korean authorities. These companies are reportedly securing construction funds by demanding upfront payments for spaces in the buildings.

“Owners have already been determined for half of the units in the apartment building in the Sadong area of Pyongyang, set to finish construction in the spring,” a source in the capital told Daily NK on February 1. “Typically, construction project managers announce the planned location and expected completion date, and then people who want to buy a unit are required to pay in advance in (US) dollars.”

According to the source, the advance payment system was created by individual construction project managers who lacked the private funds to begin building. They are demanding at least $10,000 USD for each advance payment, and are using these funds to begin construction.

Project managers must first gain permission to build in certain locations, and they cannot expect to raise the necessary capital through advance payments unless the location is central. This has led to intense competition between project managers to curry favor with the influential figures in charge of granting local building permits.

“Construction companies cannot earn the funds to start building unless they get a good location for the project,” the source said. “Although the new 12-floor apartment building is being built in the outskirts (of Pyongyang), they were able to secure advance payments because of the location’s convenient transport options to the city center.”

“Generally, prices for spaces in the planned buildings are set depending on the floor number and usage, such as for underground vs. upper-floor units, or for spaces intended to be used for a business,” she added. “Developers thus have to plan according to expected customer demands.”

A 1st-floor apartment may require a $10,000 advance payment, $30,000 for a mid-level unit, and $8,000 for an 11th-floor unit. Mid-level apartments are the most popular and therefore most expensive in North Korea, as they are considered a good balance between safety from burglary and ease of access by stairs during the country’s frequent power outages.

Once the building’s framework is complete, customers, who must be issued usage permits for new apartment units by the Pyongyang People’s Committee. must then pay about twice the initial payment for the interior construction of their unit to proceed.

The construction companies must also save a portion of the funds to give to the government. “For this building (in Sadong), units on the 12th-floor were deliberately withheld from sale. They are saving the entire space to give to the government upon completing construction,” said a separate source in Pyongyang, adding that this can be seen in the context of the fact that the real estate market remains illegal under North Korean law.

According to the Article 6 Section 44 of the Real Estate Administration Law (adopted by the Supreme People’s Assembly on November 11, 2009), “All revenue gained from unapproved real estate ventures are to be forfeited to the state.”

“Private businesses must give about 10% of the revenue from a construction project to the government, and they also have to give them the entire top floor,” the second source said, “but the top floor is generally not very popular anyway, the companies do not see this as a huge loss.

Article source:

Real estate companies in Pyongyang use advance payments to fund construction
Seol Song Ah
Daily NK
2018-02-06

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Satellite (Wisong) Scientists Street Part 2 Announced (sort of)

Friday, January 12th, 2018

Kim Jong-un made his first guidance trip of 2018 to the State Academy of Science in Unjong District, Pyongyang, on January 12.

While touring the newly renovated history museum, he was photographed in front of a map that advertised the plan for “Phase 2” of the Wisong Scientists Street (위성과학자거리 2단계배치계화안).

I have outlined the approximate area on Google Earth in red below.

Although housing renovation in Pyongyang started before Kim Jong-un took over from his father, he has touted new housing as one of his signature policy accomplishments. Kim Jong-un launched his leadership with the opening of the renovated eastern end of Mansudae Street (and Changjon Street), then moved onto Unha Scientists Street, Wisong Scientists Street, Mirae Scientists Street, and Ryomyong Street.

Construction on new facilities has noticeably slowed over the last year, though implementation of specific types of construction projects is ongoing nationwide. It will be interesting to see if anything comes of this project in the next couple of years given all that is taking place in the domestic economy (sanctions).

And just to add to the confusion, this same area has also been previously designated for the Unjong Cutting-Edge Technological Development Zone, so it will be interesting to see how that develops as well.

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Real estate prices up in Pyongsong

Saturday, January 7th, 2017

By Benjamin Katzeff Silberstein

According to DailyNK, prices of real estate are skyrocketing around the wholesale market in Pyongsong, whose trade is tightly connected to that of the richer Pyongyang:

“The price of a unit in this building near Yokchon-dong, located near the railway station and a major road leading to Pyongyang and Sinuiju, has sharply risen to 60,000 USD from 40,000 USD. Although the building is not in the center of the city, many wholesale vendors want to buy these homes, resulting in the price jump,” a source in South Pyongan told Daily NK on January 4.
“The residential property is attractive to major market heavyweights even though it wasn’t built recently. Ease of transportation seems to be the major pulling factor.”
Pyongsong City is home to Doksan Farmers’ Market (formerly Pyongsong Market),  the largest wholesale market in the nation. The market is constantly busy with merchants from other regions because it not only offers trade in commodities but also deals with the labor market, foreign currency, and the services sector.
Previously, the real estate trade was prohibited in North Korea, but the authorities have tacitly permitted it since the 1990s, with an increasing number of people now purchasing houses. Due to restrictions in North Korea that make it difficult to move about freely, merchants prefer to reside closer to the market.
“In the past, Okchon-dong was more popular because the General Market was located in it. But there were many problems because it was difficult for the wholesale merchants with big vehicles like trucks to come and go along the narrow roads. For this reason, Yokchon-dong became more popular because they can directly unload their cargo near the residential area, which is located at a major transportation hub,” an additional source based in Pyongsong said.
Full article:
Pyongsong prime real estate prices are skyrocketing
Seol Song Ah
Daily NK
2017-01-07
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DPRK reports tens of thousands of new houses constructed this year

Thursday, December 15th, 2016

Institute for Far Eastern Studies (IFES)
2016-12-15

The Korean Central News Agency (KCNA), North Korea’s official wire service, reported on December 3 that tens of thousands of new houses had been built this year. The KCNA report stated that six counties/cities in areas damaged by floods in North Hamgyong Province had seen 19,000 new apartments constructed with families then moving in.

In imitation of the city of Kimchaek, hundreds of housing units have been built in Puryong and Hwadae counties, while hundreds more were constructed in Kangryong county, and 200 multistory houses in Paechon county. Eighty (80) apartments were built at Ryongjon Fruit Farm in Pukchon county, 150 at Chawi Cooperative Farm, and 200 at Sujin, Uiju County.

With flood damage in late August, the Party central committee announced on September 10 that the ‘200 day speed battle’s goal’ would be to restore damaged areas, and reconstruction of housing in those areas finished on November 11. People have now begun moving in.

Unlike on Ryomyong Street in Pyongyang — extolled as a personal achievement of Kim Jong Un — construction outside the capital is said to not be progressing properly. Housing construction in Yokjon, Hoeryong, North Hamgyong that began in 2010, as part of a campaign celebrating the personality cult of Kim Jong Suk (the wife of Kim Il Sung), has yet to be completed. There is talk that completion is slated for 2017, but people living there do not believe that will happen.

However, sources indicate that the North Korean authorities have invited individuals to get involved in construction, and thus the project in Hoeryong has resumed. It seems that because construction was part of the campaign to build the personality cult of Kim Jong Suk, there was a fear that stopping the construction would badly influence internal unity.

With the state lacking funds but deeming the continuation of the construction necessary, individuals were eventually allowed to take over. Apparently investors were induced by promises that they would get 50 percent of the proceeds generated from the new housing stock.

Sources say that construction began again in March, and construction materials continue to be brought in. Individual investors have hired workers separately and are managing on-site operations.

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North Korea training experts in special economic zones and development

Wednesday, August 10th, 2016

Institute for Far Eastern Studies (IFES)

North Korean universities have begun programs to train specialists in matters related to special economic zones (SEZs) and their development.

On August 1, 2016, the North Korean website Naenara (lit: ‘My Country’) revealed this, saying “One of the most important matters with respect to development of Special Economic Zones (SEZs) is the training of a large number of specialists. Hence, the government of the republic [DPRK] has established and implemented an educational program that aims to train specialists in this field.”

According to the website, the training of specialists in the development of SEZs has begun at Kim Il Sung University, the University of the People’s Economy, and Jong Jun Taek University of Economics (also known as Wonsan University of Economics).

These universities have departments specializing in the management of SEZs, real estate, tourism, and international investment. The curricula are based upon the developmental experiences of Rason Economic Investment Zone, the Hwanggumpyong-Wihwado Economic Zones, along with the law, regulations, and the experience of other countries.

These departments train specialists on the economic principles and effects of special economic development zones, theories on the form zones take and how development occurs, as well as how developmental strategy is devised. They also deal with issues like the creation of comprehensive development plans, the designation of companies for participation in development projects, the conclusion of development-related contracts, the conferring of development rights, the conclusion of land-usage contracts, the sale of land usage rights and the operation of sub-structural operations, and management of investment by foreign companies.

Naenara’s post also indicated that “the government of the republic has organized the investigation of the success of other countries in the development of special economic zones, this is being undertaken by university staff and researchers. A number of the country’s universities, research institutions, persons of repute, and public forums are engaged in these tasks.”

It also underscored the aim of “in future, scientific research dealing with special economic zones (SEZs) should be deepened, and education programs strengthened. Moreover, multifaceted cooperation and exchanges should be expanded with all countries that respect the sovereignty of the country [DPRK].”

The North Korean magazine ‘Mount Kumgang’ — which targets a foreign audience — for the last two months has also printed a series entitled ‘Regarding plans to expand foreign investment relations’. The series publicizes the variety of government policies designed to attract investment.

In one of these pieces, Cho Chang Jun (a professor of the University of the People’s Economy) explains that “with the importance of our government’s efforts to expand and develop foreign investment relations lies a number of legal measures, implemented in a way that is stronger than ever before, and which give foreign investors in our country a guarantee, in the government’s name, for a return of the principal invested and the payment of profits.”

The Rason SEZ (Rason Economic and Trade Zone) was created in the 1990s. In 2013, SEZs were also announced in each of the country’s provinces. At present there are 26 SEZs in North Korea.

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KCNA reports on cost of Mirae Scientists Street?

Thursday, October 22nd, 2015

Mirae-Scientists-street

Pictured above (Google Earth): The Mirae Scientists Street under construction (2015-5-20)

According to the Korea Times:

North Korea has invested about 10 billion won in North Korean currency creating a big housing precinct for scientists in Pyongyang, Yonhap reported Thursday.

The Korean Central News Agency said the communist regime had spent about 9.9 billion won on 19 buildings to house 2,584 households and commercial and public facilities.

The first phase was completed on April 15, the birthday of late North Korean leader Kim Il-sung. Phase two was finished on the 70th anniversary of the founding of the North Korean Workers’ Party on Oct. 10.

Leader Kim Jong-un was quoted as saying the new street reflects the “love for people, respect for people and politics that puts people first” of the North Korean Workers’ Party.

For what it is worth KPW9.9 billion is approximately US$1.237 million on the black market, which comes to just $478/household assuming they each got an individual unit.

However, I would not get to hung up on these numbers, I cannot find any story in KCNA on the cost of Mirae Scientists Street, so until I hear an official estimate, I am going to put an * next to these numbers.

Here is what KCNA had to say about Kim Jong-un’s tour of the recently completed Mirae Scientists Street:

Pyongyang, October 21 (KCNA) — Kim Jong Un, first secretary of the Workers’ Party of Korea, first chairman of the National Defence Commission of the DPRK and supreme commander of the Korean People’s Army, went round Mirae Scientists Street, which was successfully completed as a model of Juche-oriented architecture and fairy street in the era of the Workers’ Party.
Feasting his eyes on the street, he said the longer one watches it, the more magnificent and spectacular it looks. He noted with pleasure that it proves visually the idea of the Workers’ Party of Korea of attaching importance to science and talents, it is a fashionable street of perfect combination of the Juche character, national identity, originality and formative art and unique one of our style which appeared in the capital city of Pyongyang as an icon of cultural efflorescence.

He said it is something unimaginable to build a street with flats for thousands of families and more than 150 public catering outlets in a matter of just one year by the existing method of construction. He noted with excitement that the completion of Mirae Scientists Street convinces everybody that the appearance of the country would undergo beyond recognition a decade later as everything is done in just one year instead of ten years.

Going round different places of the street, he learned in detail about the construction.

He said that it is fantastic, indeed, to watch the tower symbolic of the 53-storied skyscraper which has been built like an electronic track so that one may know it is Mirae Scientists Street even from distance, adding that formative art was applied to all the buildings at a very high level.

He was pleased that the flats have been constructed at the best quality and teachers and researchers would need to bring with them only hand luggage as their drawing rooms, parents’ rooms, rooms for couples, children’s rooms, kitchens, etc. are fitted with high-quality furniture and fixtures,

Hearing officials say foreigners will hardly believe that ordinary educators and scientists of the country will live free of charge in such deluxe apartment houses in the street on the picturesque bank of the Taedong River, he said that it is the advantages of the socialist system in the DPRK which capitalist countries can neither imitate nor build.

He praised the builders for having built all kinds of public catering and cultural and welfare establishments on the ground floors of the buildings in an impeccable manner to meet requirements of settlers.

He noted with appreciation that resting places and sporting parks have been built in a peculiar style so that residents might have good rest and do sports and greening in the residential area and the project for reinforcing banks of the river were done very well.

It is the steadfast will of our party to consolidate the foundation of socialism by dint of science and advance socialism with the power of the engine of science, he said, stressing the need to steadily increase substantial investment in the scientific researches on the basis of the successes and experience gained in the work for consolidating the material and technical foundations of different scientific research bases and improving the living standard of the scientists and researchers in recent years.

All the buildings of the street spruced up at a speed unprecedented in the history of construction are laudable structures of Songun Korea built by our service personnel and people with the will to create everything dear in their own style by their own efforts at a lightning speed, optimistic about the future, and they are valuable crystal of their patriotism, he said, extending thanks to the units of the Korean People’s Army and other units which participated in the construction, builders and helpers in the name of the Workers’ Party of Korea.

He expressed expectation and belief that all the builders would give fullest play to the inexhaustible mental power displayed in the construction of Mirae Scientists Street and make a positive contribution to turning Pyongyang City into a hub of Songun culture and the most magnificent and fashionable city of the world fame in all aspects and building the socialist country into a highly civilized nation.

He gave an instruction on inaugurating the street.

He was accompanied by Hwang Pyong So, Kim Ki Nam, Kim Yang Gon, O Su Yong, Jo Yong Won and Ma Won Chun.

Read the full story here:
N. Korea pours 10 billion won into street for scientists
Korea Times
2015-10-22

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On the Hyesan and Sinuiju real estate markets

Friday, October 2nd, 2015

According to the Daily NK:

Construction of new apartment buildings is being accelerated in North Pyongan Province’s Sinuiju and Hyesan, Yanggang Province, with low rise apartments fetching the highest price at nearly US $10,000. Unlike Sinuiju, which has high rise buildings, Hyesan is mainly constructing low rise apartments. Apartments at or above the fifth floor are being called “Royal Suites,” and selling for big money, according to inside sources.

In a telephone conversation with the Daily NK on October 1st, a source in Yanggang Province explained, “Hyesan is currently undergoing a makeover. New apartments are going up all over the city. Residents are preferring the high rise apartments despite their relative scarcity, or perhaps because of it. Right now a fifth floor, two room apartment (approximately 80-120 square feet) sells for 60,000-70,000 Yuan (US $10,000- $11,000) is the most expensive.”

Another source in Yanggang Province confirmed this development.

In Hyesan, the lower floors go for much cheaper; apartments in floors 1-3 usually sell for about 20,000 – 25,000 Yuan (US $3,000 – $4,000).

“The prices tend to be tied to the floor level like this,” she explained.

“By the time the Korean Workers’ Party Foundation Day holiday arrives on October 10th, Hyesan will look like a totally new city. But construction is not limited to Hyesan; we also see apartment buildings shooting up in Hyesan’s suburbs and riverside regions, in Tabsongdong near Hyesan Stadium, and in Hyemyeongdong, an area filled with statues of Kim Il Sung and Kim Jong Il.”

Added the source, “Much of the construction is due to investment from the Hwagyo [community of overseas Chinese] residing here. They buy one story houses at a very cheap price and then build up a multi-storied apartment and sell it off. They are making a good amount of money through the sales, but the residents are happy to be enjoying the more modern living spaces, so it’s a win-win.”

When asked why the residents prefer apartments on higher floors, the source said that “people are less worried about theft of furniture and large appliances when they live higher up.” In years past, she asserted, most people preferred to be ground level so that they could have access to the yard for planting vegetables. But now, “ lots of folks are worried about flood damage during the rainy season or the possibility of theft.”

She continued to describe the state of one story homes, saying, “houses near Nongnim University or the Hyesan train station sell for approximately 25,000 Yuan (US $4,000). Homes in Yeonbong Il Dong sell for rather cheap at 5,000 Yuan (~$800). However, there are some pricier places in Yeonbong located near the jangmadang (marketplace) that sell for about 20,000 Yuan (~US $3,000).”

Last week the currency conversion rate in Hyesan was 1 Yuan/1320 KPW. That means that a 60,000 Yuan apartment sells for about 80 million KPW (~US $70,000) and a cheaper home selling for 5,000 Yuan sells for about 6.5 million KPW (~ US $7,000).

Read the full story here:
Hwagyo investors fuel building boom
Daily NK
Kang Mi Jin
2015-10-2

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Real estate and insurance laws adopted for SEZs

Wednesday, July 22nd, 2015

According to KCNA:

Rules of Real Estate and Insurance in EDP Adopted

Rules of real estate and insurance in the economic development parks (EDP) were adopted according to the decision of the Presidium of the Supreme People’s Assembly of the DPRK.

The rule of real estate consists of seven chapters and 59 articles and the rule of insurance four chapters and 52 articles.

The rules deal with possession, registration and employment of real estates, their rent and rate, conclusion of insurance contract, formalities of insurance offices, etc. in the EDP.

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