The residential property boom that has engulfed Moscow over the past few years is, by almost any measure, impressive. Buoyed by Russia’s rapidly expanding economy, domestic property buyers spent an estimated $20bn in the capital last year, according to government statistics. FT
Home prices in prime city locations are soaring and estate agency Knight Frank’s Moscow office predicts that appreciation rates could rise a further 18 to 25 per cent through 2008.

Cranes have joined the Russian Orthodox Church cupolas and Stalinist-era spires as permanent fixtures on the skyline. And the mayor has already endorsed plans for 60 skyscrapers to be built in the next few years.

But while the building boom might be good for Moscow’s swelling upper class and its growing expatriate population, it worries preservationists. A number of architectural landmarks, including examples of Russian avant-garde and constructivist architecture of the early 1920s by modernist masters such as Konstantin Melnikov and Moisei Ginzburg, are in danger of being demolished as developers rush to make way for shiny new condominiums.

The Moscow Architectural Preservation Society, a non-governmental organisation that works to protect the city’s historic buildings, estimates that about 2,000,400 of them of historic significance, have been razed since 1992 and many others are crumbling after years of neglect. Even some buildings in Red Square – a Unesco World Heritage site – have been demolished in recent years to make way for a hotel and apartments.

“Moscow’s architectural heritage is at a crisis point,” says David Saarkisyan, head of The Schusev State Museum of Architecture in Moscow. “More and more new buildings are constructed every year and no one seems to be enforcing laws to protect important monuments.”

Marina Khrustalyova, director of the Moscow Architectural Preservation Society, is equally alarmed by the trend. She says today’s wealthy property buyer isn’t concerned with historically significant architecture. “They typically want new apartments in good condition and don’t want to spend the time, money and effort fixing up endangered architecture,” she says.

Notable residences at risk today include the Narkomfin Building, a celebrated example of constructivist architecture and avant-garde interior design that is near the top of Unesco’s endangered buildings list. Designed in 1928 by the architect Moisei Ginzburg, the six-storey concrete residential block influenced Le Corbusier, who studied the building during his visits to the Soviet Union. After decades of neglect, it is now a crumbling relic under threat of demolition. The preservation society is aggressively campaigning for urgent action to save the building, which is increasingly being eyed by big developers because it sits in an area of particularly lucrative real estate near the US embassy.

Also at risk is the three-storey Melnikov House in central Moscow. Restoration attempts were made in the 1990s but it has been deteriorating steadily ever since.

Still, the threat to older buildings has done little to dull buyer enthusiasm for new developments. Kristine Moriskova last year bought a one-bedroom apartment at a new development under construction in the historic Yakimanka district. Moriskova, a 43-year-old fashion designer, says she paid almost $2m for an 81 sq metre home because of its location near Tretyakov Gallery and the House of Artists. But she also wanted amenities such as spas, restaurants and high-level security systems, which her new building has and which many older buildings in the city do not. “In London or Paris you can find older, prewar structures that have updated amenities but it’s much more difficult to find that here.”

Fredrik Constantine and his wife, Natalie, moved to central Moscow from the city’s outskirts late last year. Constantine, 48, a financial services analyst, says he and his wife spent more than a year searching for an apartment. Working with a local agent, the couple’s hunt initially centred on homes in the Krasnopresnenskiy area, a business and residential district near Constantine’s office on the south edge of the Moscow River. The area has a notoriously wide range of properties. But the couple eventually paid about $2.9m for a 103 sq m, two-bedroom apartment in a prewar building in the upmarket Ostozhenka district. Known as the Golden Mile because of its expensive property prices, the two-level flat sits near the Moscow River and overlooks the Cathedral of Christ the Saviour. The building includes a fitness centre, tanning room and home cinema. “We discussed taking something in a new development,” says Constantine, “but Moscow is an old city so we really wanted something with more of a history.”

Though the overall property market in the city levelled off slightly in 2007, prices at the upper end continue to climb. In 2007 prices in prime districts – where homes cost $7m or more – grew by 40.9 per cent, according to Knight Frank, which opened its Moscow office in 2004. The historic Yakimanka district, saw the most dramatic price growth. Housing analysts say average prices in that area were significantly influenced by a flood of new high-end residential developments. In January 2007, 1 sq metre in the district cost $12,060 but by November this had risen to $22,460.

The average cost of a home in prime areas around Red Square, in Ostozhenka and Pluschikha, reached $19,115 per sq metres in the third quarter of 2007. The price increase on newly built apartments – with amenities including spas, concierge services and screening rooms – was 79 per cent, while re-sale prices in the same desired areas were up 62.8 per cent.

A typical three-room apartment, of about 65 sq m, would now go for more than $1.5m. And units in Moscow City Tower, a new 118-storey complex that also includes a hotel, offices and an ice rink – all located about three miles from the Kremlin – are priced as high as $10m, according to brokers.

“The lower ends of the market may be stabilising a bit but the luxury sector is still relatively strong because demand from both Russian and foreign buyers is still quite high,” says Natia Ratishvili at Knight Frank.

Moscow’s soaring appreciation rates have been particularly attractive to foreign buyers, says Frank Chernoza, an independent estate agent who moved to Moscow six year ago after working in the St Petersburg property market. “If foreign investors were smart enough to buy two or three years ago, they would easily be millionaires if they sold their holdings today,” says Chernoza.

Thomas Muenter, a Munich-based IT executive, bought his one-bedroom flat a year ago because he felt prices for Moscow real estate would only appreciate. The apartment, in a red-brick townhouse in central Moscow, is not far from the Kremlin. It was listed for a bit more than $1.5m, Muenter says. “I don’t really think you’ll see a fall in real estate prices for some time,’’ says the 54-year-old. “Demand is still high so I think the timing was perfect to invest.’’

But Saarkisyan, of The Schusev State Museum of Architecture, says the spike in foreign investment is hampering preservation efforts. “Investors from outside the country care very little about preserving Moscow’s architectural history,’’ he says. “They just want to get a quick return on their capital.”