Lending in Australia outpaces regional peers as alternative finance grows
Australia has emerged as the leading force in Asia-Pacific’s real estate private credit market, accounting for 40% of the US$11.2 billion ($17.8 billion) raised across the region between 2020 and 2024, according to a report from Knight Frank.
Private credit now makes up an estimated US$50 billion ($76.6 billion), or 16% of all commercial real estate lending in Australia, as borrowers increasingly turn to non-bank lenders amid tighter bank lending standards.
India followed Australia with 36% of regional fundraising, while South Korea and Japan attracted 11% and 5% respectively. The remaining 8% was distributed among other Asia-Pacific markets.
Knight Frank projects that private credit in Australia, Hong Kong SAR, India and South Korea will expand by US$90 to US$110 billion ($138 to $168.6 billion) over the next three years. Australia is expected to drive nearly half of this growth, with India contributing 20-25%, reflecting forecasts for real estate debt expansion and the rising market share of private credit through to 2028.
Although Asia-Pacific currently represents just 5% of global private credit fundraising, institutional investors and family offices are increasingly attracted by the region’s risk-adjusted returns and diverse opportunities, indicating further growth potential.
Average fund sizes in Asia-Pacific have consistently exceeded US$100 million ($153.3 million) since 2022, signalling larger capital commitments and rising demand for real estate project funding.
“Private credit is becoming an increasingly prevalent financing option for developers and investors across Asia-Pacific, offering speed, flexibility, and solutions, in place of or complementing traditional lending sources,” said Simon Mathews (pictured right), director of capital advisory, global capital markets at Knight Frank.
“Our research shows that while banking relationships continue to anchor the market for core investments, non-bank lenders are increasing their market share for opportunistic business plans, in markets such as Australia, India, Hong Kong SAR and South Korea.”
For Michael Kwok, partner, head of capital markets at Knight Frank Australia, the country presents as one of the most attractive markets for global real estate private credit as a significant opportunity exists for lenders to step in where traditional financing is less competitive, particularly in development, value-add projects, and higher-leverage solutions, most notably in the living and commercial sectors.
“For investors, this creates access to scalable opportunities targeting net returns of 9-12%, supported by a transparent legal framework and a stable market environment,” Kwok said.
“Australia’s private credit market has expanded significantly over the past decade, driven by both global capital shifts and structural changes in the local lending market,” added Ben Burston, chief economist at Knight Frank. “Globally, institutional investors have rotated into private credit to capture strong risk-adjusted returns and diversify their traditional equity investment strategies. Locally, the major Australian banks have pared back their exposure to commercial real estate in response to the implementation of Basel III, which altered the risk weights applying to different forms of lending.
“Looking ahead, private credit strategies will continue to be a key part of the investment landscape. Falling interest rates and stabilising asset values are expected to support a rebound in transaction activity, generating more opportunities for credit funds to work with developers and investors and reducing the risk of loan impairments as the market shifts to a recovery phase.
“In addition, easing construction cost inflation should enable higher levels of apartment construction across all major cities in both traditional build-to-sell and build-to-rent formats, while easing funding conditions should strengthen origination pipelines.
“Over the longer term, the Australian market continues to offer the potential for significant growth. With the market penetration of private credit within total CRE lending at substantially higher levels in the US, the Australian market is not yet fully mature, and the share is likely to rise further. As this occurs, greater market depth will enable providers to offer larger and more sophisticated loans and achieve greater diversification across sectors.”
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