IN THE last decade of his rule, Stalin ordered the construction of seven high-rise skyscrapers to symbolise the strength of the Soviet Union. Fifty years later, a new wave of skyscrapers is being constructed in Moscow, vaunting Russia’s rising petro-power.

The most noteworthy project nearing completion is the Federation Tower, which will have a spire taking it to 448 metres (1,470ft), making it the tallest building in Europe.

However, the building may not hold the title of Europe’s tallest for long. In the same construction complex, plans are under way to construct a 660-metre tower, called the Russia Tower. Designed by Lord Foster of Thames Bank, and estimated to cost £1 billion, the tower will have a unique natural ventilation system, with recycled rain and snow supplying 30 per cent of the building’s water. Construction should be completed by 2010.

Lord Foster has also been appointed to design the £500 million replacement for the famously ugly Rossiya Hotel next to the Kremlin. Both projects are being developed by the Moscow oligarch Shalva Chigirinsky, who also owns the AIM-listed Sibir Energy.

In the next 12 months, the Moscow city government is to hold auctions for the tender to develop a further 24 skyscrapers on the city outskirts.

The majority of Moscow’s development projects are won by local firms. However, Western financiers and investors are also getting involved in projects. For example, constructors will next month finish a new five-star Ritz-Carlton hotel, close to Red Square. The project was refinanced in July in a £100 million deal done by Merrill Lynch and Aareal Bank.

Other Western banks are lining up to lend money to Russian property developers. Markus Leininger, head of Eastern Europe for the German bank Eurohypo, says: “We’ve loaned around €200 million (£135 million) so far this year to real estate projects, and plan to lend another €800 million by the end of the year.”

Some Russian property developers are tapping Western equity markets to raise finance. Open Investments, the real estate company of the oligarch Vladimir Potanin, issued a $880 million secondary offering last week, in a deal lead-managed by ING and Renaissance Capital. Sergei Bachin, the company’s chief executive, says: “Western investors have a lot of belief in us. Our shares have tripled in value since we first listed in 2004.”

Western real estate funds are also looking to enter the market. A few, such as Fleming Family & Partners, the Quinn Group and AIM-listed Raven Russia, are already present, while other funds are planning their entry route.

However, foreign funds face stiff competition from local developers, many of them financed by oligarchs, such as Roman Abramovich or the Daghestani billionaire Suleiman Kerimov.

Steven Shone, the head of Eastern European real estate for the law firm CMS Cameron McKenna, said: “Because of high oil prices, there are a lot of Russian investors with serious amounts of capital, and they have a completely different perception of risk to foreign funds.”

Not everyone welcomes Moscow’s construction boom. Marina Khrustalyova, the director of MAPS, a Russian non-governmental organisation that works to protect the city’s historic buildings, said: “The main problem is that there is too much money in Moscow, and many investors, who don’t come from the city, want to get a quick return on their capital.”

Ms Khrustalyova says that the city’s authorities make noises about protecting its heritage, but the fact that all new projects must give a percentage of each new building to the city makes any new construction very profitable for the city. The mayor’s wife also heads one of the largest construction groups.

Some foreign developers have highlighted potential safety risks in the new high-rise buildings. Moscow has no permanent regulations governing buildings more than 75 metres high.