How private credit is reshaping Australia's property scene

The private credit market in Australia has seen impressive growth, transforming into a pivotal financing source for various sectors, especially real estate.

SQM Research’s analysis from 2016 to 2024 has provided detailed insights into the expansion of private credit and its consequent effects on the property market.

Significant growth in private credit

Data from the Australian Prudential Regulation Authority (APRA) and leading financial institutions showed that private credit in Australia surged from $33 billion in 2016 to an estimated $205bn in 2024.

This represents a compound annual growth rate (CAGR) of about 15%, propelled by stricter banking regulations and a diversification of funding sources.

“One key driver is the increased participation of institutional investors, who are drawn to private credit for its higher returns than traditional fixed-income investments,” said Smita Bhakat (pictured above), a senior investment analyst at SQM Research.

“Simultaneously, businesses have turned to private lenders as banks adopt more stringent lending requirements post-global financial crisis.”

Real estate investments powered by private credit

Private credit has significantly funded the real estate sector, focusing on residential, commercial, industrial, and retail sub-sectors.

Here’s how private credit is shaping these areas, according to the SQM Research analysis:

• Residential: Investments driven by urbanisation and the demand for housing in major cities like Sydney and Melbourne.
• Commercial: Funding focusing on office and mixed-use developments in high-demand areas.
• Industrial: Boosted by the e-commerce boom, investments are flowing into logistics and warehousing.
• Retail: Despite online competition, strategic investments are revitalising urban retail spaces.

Transformative impact on the property market

The growth of private credit has revolutionised property development and investment by providing more flexible financing options. This shift has enabled:

• Enhanced development opportunities in emerging regions.
• Increased support for small-scale developers lacking traditional banking relationships.
• A surge in residential investments, addressing housing shortages in metropolitan areas.

SQM Research on key trends and future opportunities

Looking ahead, Bhakat said several trends are shaping the private credit landscape in real estate:

• Diversified lending structures: The rise of mezzanine debt and preferred equity solutions offers flexible, tailored financing options for complex projects.
• Sustainability focus: Increased funding for green and energy-efficient projects aligns with global sustainability trends.
• Geographic expansion: Funding is expanding into emerging regions, addressing housing needs and providing opportunities for higher returns.

A robust market with continued potential

Despite challenges like economic uncertainty and regulatory scrutiny, private credit is poised to keep transforming the Australian property market.

Its ability to bridge funding gaps and offer customised lending solutions presents ongoing opportunities for innovation and growth in the sector.

With strategic regulation and risk management, private credit can continue to play a crucial role in diversifying and driving the Australian property market forward.

See the SQM Research report on LinkedIn.