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Moscow One of the World's Most Expensive Cities

Moscow is seeing an unprecedented growth in construction. Residential property prices have almost doubled in the past year and office space in the center of the city is now more expensive than in New York. And while much of the boom is due to oil revenues flooding the Russian marketplace, experts say the bubble won't burst anytime soon. The rising prices mean that fewer and fewer people are able to afford new housing.

Modern Moscow resembles little of what the city looked like in Soviet times.

Cranes, swanky new buildings, skyscrapers -- the city is getting it all. The average price for a square meter in Moscow is now over $4,000, and in the city center, it sometimes exceeds $20,000. These prices make the Russian capital among the most expensive property markets in the world.

Oleg Repchenko is head of IRN.RU, a real estate analysis firm. He says unusually high demand is responsible for the rapid price growth. "Clearly it doesn't cost $4,000 per square meter to build these properties, in fact it's four to five times lower. But these places sell for such high prices because of high demand and a lack of supply. There's been a housing shortage in Moscow since Soviet times.

One of the most sophisticated buildings in the city, the 54-story Triumph Palace, was completed last year. Apartments here, as in many other buildings in Moscow, were on sale even before the foundation was laid five years ago. Since then, their value has increased five-fold.

And while most of the flats here have already sold, the luxury penthouse, worth over three and a half million dollars, is still on the market.

But Ekaterina Kukanova, who works for one of Moscow's largest real estate companies, "Don Stroy", is confident there will be no lack of willing buyers. "During the first part of the year, the growth in sales was so huge that by the middle of the year we started to worry that we will have nothing to sell."

But who is buying all that luxury? Experts say the oil boom, which fuels the economy, means more Russians have money to buy a Moscow apartment as an investment -- especially since other investment options in Russia are still both risky and scarce. These experts say that after the financial crisis of 1998 and some unsuccessful post-Soviet reforms, Russians do not trust anything that is not literally set in stone.

Oleg Repchenko tells us, "Trust in banks and securities is minimal. And if you take a larger part of the population, for many of them buying an apartment is the only clear and reliable way to keep and invest their money."

But many in modern Moscow simply are not able to afford to buy an apartment.

Irina and Sergei Konyashkins live in an apartment belonging to Sergei's parents. Before their son was born, they looked into buying their own home, but gave up as prices rose almost daily. Sergei, who is a computer specialist, earns a decent salary, but believes the state must do something to help young families like theirs.

"Since the president keeps saying that Russians need to have more children, they have to do something about this,” says Sergei. “Otherwise, it's just words."

The Kremlin has put the issue of providing low-cost mortgages at the top of its political agenda to help families like the Konyashkins. Last year, Russian banks issued one billion dollars worth of home loans, up from zero in the year 2000. But paradoxically, analysts say the mortgages only increase the real estate prices in Moscow -- causing the fevered demand for property to become even hotter.