Moscow: From Soviet capital to the world's most expensive city

The Russian metropolis, once known for queues and drab apartment blocks, has been transformed by oil money and a property boom. But change has a price

When Andrei, a Russian businessman, wanted to talk to a glamorous female celebrity sitting across the room from him in one of Moscow's trendiest restaurants recently, he did what all self-respecting new Russians do: he reached for his wallet. He tipped the waiter $1,000 to get him an introduction, ordered a $500 bottle of wine, and started talking.

When the duo embarked upon a relationship soon afterwards, Andrei sent his new girlfriend 101 red roses. A couple of weeks later he bought her a top-of-the-range Mercedes; a couple of months later he bought her a flat in Moscow for $500,000. A man like Andrei will go through a similar routine several times a year and may support a wife and children at the same time.

Welcome to dating Moscow-style and welcome to a city where money flows like water.

Step aside Oslo, move over Tokyo, and get out of town Zurich. Fifteen years after the collapse of the Soviet Union, Moscow has been crowned the world's most expensive city.

It is an unlikely and dubious honour for a city that was once the capital of world Communism and the epitome of cheap, state-subsidised living.

Yet in an authoritative report that will have die-hard Marxists screaming about the inequities of capitalism, New York-based Mercer Human Resource Consulting claims Moscow is now the world's priciest city.

In a survey of 144 countries based upon a uniform basket of some 200 goods from a cup of coffee to a compact disc, Mercer placed Moscow above Tokyo, Hong Kong, London, Geneva, and New York. Last year the Russian capital was fourth but this year Moscow's booming property market pushed it into first place.

Prices for flats have more than doubled in the past year and the average cost per square metre is about £2,700 and rising by the day. A modest city centre flat is now hard to find for less than £190,000, a big price when you consider that the average national wage is £170 per month and the average monthly Moscow wage about £350.

Ordinary Russians are embracing mortgages (albeit with interest rates well above 10 per cent) in order to get a foot on the property ladder before it is too late and are rushing to put their names down for apartment blocks that have yet to be built in an attempt to avoid seemingly unstoppable inflation.

Cranes labour over Moscow's skyline day and night and immigrant workers from across the former Soviet Union toil on building sites for poverty-line wages as developers try to snap up more and more land to cash in on the boom.

There are not nearly enough good quality flats to go around and prices seem set to rise even higher. Indeed buying a flat in the Russian metropolis is now just a dream for many young Muscovites, who can only rent rooms in rundown flats in the city's concrete suburbs in Soviet-era tower blocks.

People desperate to get a foot on the property ladder resort to desperate measures; the media often carries stories of contract killers hired to bump off flat owners, of elderly people tricked out of their city centre apartments, and of apartment blocks burnt down "accidentally" to force people to sell.

Renting in the centre of Moscow is also too expensive for many. Western companies regularly shell out more than £5,000 per month in rental costs for their employees and it is hard to find anything decent for less than £1,000 per month. Hotel prices in Moscow are also higher than anywhere else in the world.

The average room rate is £165 per night, thanks to the city's bizarre strategy of knocking down large cheaper Soviet-era hotels and replacing them with exorbitantly priced, Western-style four- and five-star hotels, while making no provision for anyone on a more modest budget. Visitors to Moscow are therefore forced to choose between slumming it in a hostel or living it up at the Metropol.

The Mercer's report should be taken with a slight pinch of salt, however. It was primarily drawn up to help multinational companies decide how much to pay their expatriate employees posted abroad.

In other words the prices it quotes reflect the cost of living for foreigners in Moscow leading a Western-style lifestyle, rather than for locals who have often inherited apartments and live more modestly anyway.

That said, Moscow, a city that was once drab, bereft of restaurants, and whose shelves were once infamously empty, has undergone an amazing transformation in the past 15 years that has pushed prices for everything from caviar to coffee to record breaking levels.

It is not unusual to pay £4 for a pint of (Western) beer, to walk out of a restaurant after a modest meal with a bill for £20 a head, to choose the cheapest and most mediocre bottle of wine on the menu and find yourself paying £20, to be asked to pay £30 for a taxi from the airport, and to pay £60 for a pair of shoes that might cost half that in the UK.

Perhaps that is not surprising for a city that boasts 33 billionaires and is awash in oil money as the price of "black gold" hovers at record levels. That has inevitably had a trickle down effect which has seen officials and businessmen grow rich on the back of Russia's oil and gas reserves.

Tasia Kirichenko, 23, a publishing executive, disagrees that Moscow is exceptionally expensive. "London is dearer than Moscow," she told The Independent. "The products here cost the same as they do outside Moscow. We have cheap and expensive restaurants like everywhere else. Transport costs here also are also cheap.

"What is incontrovertible however is that housing and land here is very expensive. Nobody can argue with that."

Indeed there are two Moscows - one for foreigners who don't know what can be a bewildering city and pay a premium for familiarity and one for the locals who have retained their Soviet-style thrift. It is still possible to go anywhere on the famous Moscow Metro for just 15 roubles (30p), to find Russian bars serving beer for £1 a pint, to enjoy a three-course "business lunch" in the centre of Moscow for 150 roubles, to buy a packet of cigarettes for 50 roubles, a bottle of vodka for 200 roubles and to hail an unofficial taxi and go anywhere in the city for a maximum of £4.

The fact is, though, that if Russians have money, and many people in Moscow do, they love to flaunt it. A popular anecdote about two "new Russians", both of whom have recently bought a tie, is a case in point.

"Mine cost 500 roubles," says one man. "That's nothing," says the other man looking at his tie which looks broadly similar to his friend's. "Mine is much better - it cost 2,500 roubles."

The man who can claim much of the credit for Moscow's transformation from grey Soviet metropolis into a neon-lit playground for the rich is the city's mayor, Yuri Luzhkov.

He is a controversial figure, because his wife, Elena Baturina, is one of the property tycoons who has grown rich on Moscow's housing boom. According to Forbes Magazine, Baturina is worth £1.3bn, making her Russia's richest woman.

How prices have changed

* Price of a one-bedroom flat in central Moscow

1996: Less than £15,000

2006: £170,000

Property prices are now closer to those of London and Paris because of the oil price boom, a lack of supply and a realisation that they were originally undervalued. Muscovites are having to take out mortgages to buy property for the first time

* Price of a new but basic four-door family car

1996: £3,000

2006: £9,000

Ten years ago, the best car most Muscovites could hope for was a Lada. Today, Moscow's streets are awash with foreign brands. Not everyone can afford a BMW or a Mercedes, but good quality Japanese cars are popular

* Price of an average supermarket spend for a family of four for a week

1996: £10

2006: £50

A decade ago Moscow was just getting to grips with Western-style supermarkets and there was a poor selection of food products. Today, the capital boasts supermarkets and hypermarkets but many of the products on sale are imported, which means they cost considerably more than in the West

* Price of a meal for two in a decent Moscow restaurant

1996: £5

2006: £40

Few Muscovites dined out 10 years ago but today the restaurants are doing a roaring trade. The cost of a decent meal has risen sharply, with wine being particularly expensive. In many Moscow restaurants the starting price for a bottle is the equivalent of £20