When Tokyo Sea Property Japan Midtown opens its doors to the public on Friday, the Y37bn multi-function complex will bring some much-needed refinement to a neighbourhood notorious for its sleaze.

Designed by the architectural firm best known for New York’s Freedom Tower, Tokyo Midtown in Roppongi features a 54-storey tower housing a Ritz Carlton hotel, two museums and Y2m ($17,000)-a-month luxury penthouses.

The development, which sits across the street from Roppongi Hills, a complex that has come to symbolise capitalist excess in Japan, is also the latest to transform the Tokyo landscape amid a dizzying property boom.

Two years from now, another 39-storey building is to go up nearby. Huge developments are also under way in Kasumigaseki, the seat of government, and Otemachi, Tokyo’s business district.

Tokyo’s property market is in the midst of an investment boom the likes of which have not been seen since Japan’s asset bubble burst 17 years ago.

Property prices in the capital have been surging upwards in the past two years, with prime plots of land enjoying annual increases of 30-40 per cent, according to a government study released last week.

The rapid increase has caught many by surprise.

“Last year, the maximum price of residential property in Tokyo was thought to be about Y4m per tsubo [3.3 square metres]. But prices quickly climbed to Y6m per tsubo at the end of last year, and in some places have gone up to Y8m per tsubo,” says Akio Fukuda, general manager of the planning and research division of the Real Estate Economic Institute. “Some prime areas are even commanding Y10m per tsubo.”

The rise in commercial property prices has been even more startling.

Land under the Yamano Music Building is now worth Y100m per tsubo, according to the government, a level not seen since 1993 during the “bubble” era, when Japanese asset prices soared to unsustainable levels.

Some of this activity reflects the recovery of the Japanese economy. Corporations are expanding and employing more people and there is a shortage of high-quality properties, explains Toshihiko Okino, real estate analyst at UBS in Tokyo.

But the property boom is also being supported by strong demand from investment funds, particularly foreign funds. ING Real Estate, the world’s biggest property investment firm, with more than $80bn of assets under management, opened a Tokyo office last year to focus on investing in high-end buildings, although its executives say finding strong returns is not as easy as it used to be.

“Japan used to be an investment area where short-term capital was looking for high returns, but this restructuring phase is now largely over,” says Robert Lie, the group’s Asia chief executive.

Hiroyuki Ota, general manager of the real estate investment planning department of Sumitomo Trust and Banking, says Tokyo is also attracting interest from Australians, Singaporeans and other foreign investors.