A swanky new property Japan development, complete with penthouses and plush offices; the first rise in national land prices in 16 years; and a pledge by the central bank to monitor prices for signs of overheating. Is Japan's real estate market partying like it's 1989?

National commercial land prices rose by about 2 per cent last year and are still well below the peak in the early 1990s. But the numbers are racier in the big cities, jumping by up to 40 per cent in central Tokyo. The rises reflect economic recovery and the influx of foreign companies expanding or setting up shop. International and start-up companies are staple fodder for the landlords of Tokyo's Roppongi district, where a new 54-storey Midtown complex opened its doors on Friday.

Alas, signing a tenancy contract is as close as many international investors can get to Japan's property. A handful, including Morgan Stanley, have built up reasonable-sized portfolios, initially through snapping up distressed assets. The real estate investment trust market has mushroomed in recent years, but, at about $50bn, is still a fraction of the size of the $400bn-odd US market.

It is also one of the least institutionalised in the developed world; on JPMorgan's calculations, Reits own less than 4 per cent of the floor space in Tokyo's central five wards, the districts which account for 60 per cent of their investment. Commercial mortgage-backed securitisation (CMBS) raises only about $1.2bn-$1.4bn a year, according to Standard & Poor's.

If the dynamics of the underlying market look good – supply is constrained due to the fragmented nature of land ownership – the investment outlook is less so. Japan's financial regulator is clamping down on bank lending to Reits, possibly to nip signs of overheating in the property market in the bud. One result is an increase in issuance of offshore CMBS. Investors should be wary of joining any party that regulators want to stop.