Commercial and residential land prices in Tokyo were below levels last seen in 1977 and 1986, respectively, he said.

'In addition to central Tokyo, foreign reits are increasingly buying properties in regional cities, while major Japanese developers continue to focus on big projects in central Tokyo,' he said.

A growing number of companies were also establishing unlisted real estate funds. Institutional investors, in particular, were interested in investing in these funds to earn capital gains as they expected real estate prices to begin turning up soon, Mr Miyaji said.

'Amid a dearth of high-yield investment instruments, corporate pension programmes are pouring money into the funds. Lower fund-raising costs enable funds to eke out gains even from low yielding properties.'

Tenders for the sale of large buildings attracted bids from several funds. Three rental buildings in the busy commercial district of Akasaka in Tokyo were bought by Lone Star Group for 116.6 billion yen ($8.68 billion) in September last year.

National surveys showed the average price for residential land declined by 4.6 per cent last year, following a 4.8 per cent fall the previous year, the property consultant said.

The margin of decline narrowed in Tokyo's 23 wards for the fifth straight year as land prices in Chiyoda, Vinato and Chuo, and other wards in central Tokyo, went up by an average 0.3 per cent, the first gain in 17 years.

Residential land prices in Chiyoda and Vinato wards rose due to a spate of construction of high-rise condominiums, particularly in areas near JR Shinbashi and Shinagawa stations.

However, Mr Miyaji said land prices would not rise across the nation, as seen during the era of the asset-inflated bubble economy of the 1980s.

Gross domestic product growth in Japan was estimated at 3.9 per cent last year, driven partly by robust export growth on the back of healthy demand for Japanese goods in the United States and China.

He said exports slowed after higher oil prices dampened demand in the US and other countries. A weakening dollar against the yen had a negative impact on the competitiveness of Japanese exports.

Real GDP growth would slow this year, reflecting weaker business investment and slower export growth. Mr Miyaji said the situation now depicted an economic recovery that was slowing rather than a slide back into recession.

The number of luxury apartments is increasing rapidly in central Tokyo. Developers are expanding their operations to luxury apartments and some foreign-affiliated real estate firms are also entering the field.

'Demand for such apartments is expected from expatriates and a growing number of wealthy people who choose to live in rental apartments from which they can easily move to other residences,' he said.

According to Jones Lang LaSalle, new supply of condominiums rose for the first time in four years in the greater Tokyo region, fuelled by the large number of super high-rise and large-scale projects, especially in the Tokyo Bay area.

A Real Estate Economic Institute survey showed that 85,429 new units were launched last year, representing a 2.7 per cent increase from 2003. New supply in Tokyo last year increased by 7.7 per cent to 39,147 units from a year ago, and accounted for 46 per cent of the total supply in greater Tokyo.

Sales activity remained buoyant, indicating robust demand in greater Tokyo. But developers continued to focus on reducing their remaining stock, resulting in a fall in the number of unsold units to 7,900 units at the end of last year - 1,828 units fewer than in 2003. Jones Lang LaSalle forecast prices of condominium units would rise with the steady rise in land prices and construction costs.

The growing interest among buyers seeking homes in central Tokyo drove a rise in condominium prices in the secondary market. The capital value index by Recruit Real Estate Research Institute and Jones Lang LaSalle recorded a 3.3 per cent growth for the final quarter of last year for family units in Minato-ku and Shibuya-ku.

In the sales market, Nippon Residential Investment acquired Apartments Azabu in Nishi-Azabu of Minato-ku area for 7.9 billion yen last year.

The project offers 123 residential units in addition to a small retail portion.