Richard Li, the Hong-Kong based internet and telecoms tycoon, made both history and a hefty profit on Thursday by selling Pacific Century Group's landmark building in Tokyo for Y200bn ($1.7bn) - the highest price yet paid for a single property in Japan.

The high prices of recent property transactions in Tokyo have signalled an end to the persistent asset deflation that dragged the nation's economy into recession in the early 1990s. But the valuations have raised concern that the market is overheating.

The buyer of Pacific Century Place, in Tokyo's central business district, was KK daVinci Advisors, which runs Japan's biggest private real estate fund.

The deal, at a yield of 3.5 per cent, comes as property investment markets around the world have seen prices rocket amid an unprecedented level of liquidity.

Not only have rich individuals and property companies been active buyers in recent months but many pension funds have increased their allocations to property, sending a wave of money into the sector. In Japan alone, 47 property vehicles have been launched in the past 18 months.

As yields have fallen, many owners have taken profits. In London, the past week has seen Swiss Re put the iconic Gherkin skyscraper on the market for ¢G600m ($1.13m) and Syrian-born tycoon Simon Halabi seek to offload a ¢G1.8bn portfolio. In New York, Metropolitan Life has put Stuyvesant Town and Peter Cooper Village - a stretch of 110 flats by the East River - on the block for $5bn.

At its peak, PCG owned 23 buildings in Japan. It bought the land that housed its landmark building for Y86.8bn in 1997. Yesterday's sale marks its exit from Japan's property market, though it will continue to own the floors in the building that house the Four Seasons Hotel Tokyo.

This summer, daVinci bought an office building from a Morgan Stanley real estate fund for Y143bn, which was until yesterday the highest price paid in the market.

Most foreign investors have been selling their investments to domestic buyers. "One should be a little concerned about a trend whereby large foreign property investors are taking their profits on big Tokyo developments by selling them to local interests," said Jonathan Allum, strategist at KBC.

Office rents have risen sharply in central Tokyo as the supply-demand balance of office space has improved. Meanwhile, the vacancy rate in the 23 wards of Tokyo decreased to 4 per cent in 2005 from 6 per cent a year earlier.

Merrill Lynch was retained by PCG as an adviser in early January, and provided a mezzanine loan to daVinci.

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