Real estate private credit is expected to continue expanding at an annual rate of about 20 per cent, attracting more investors even as Australia’s major banks rebuild their exposure to the sector, according to non-bank lender MaxCap. Reported by the Australian Financial Review, the outlook comes as interest rate expectations shift higher amid renewed inflation concerns.
MaxCap’s head of research, Bruce Wan, said private credit remains well positioned in an environment where rates are no longer expected to fall further and could even rise as early as February. The sector’s appeal lies in its floating-rate structure, which typically includes a fixed margin above the cash rate, providing a natural hedge against higher borrowing costs.
“In a higher inflation setting, non-bank lending to commercial and residential real estate benefits from rising rates,” Wan said. “When the cash rate increases, these loans reprice automatically, preserving returns for investors.”
While major banks are re-entering commercial real estate (CRE) lending, Wan believes their return will not materially slow the growth of private credit. Australia’s largest banks reduced their share of CRE lending from 84.7 per cent in 2013 to 70.9 per cent in 2024. Although NAB has flagged plans to lift its CRE loan book by 20 per cent over the next five years to $30 billion, that equates to roughly 4 per cent annual growth, broadly in line with economic expansion.
By contrast, the private credit market is expanding far more rapidly. The sector is now estimated to be worth $224 billion, with commercial real estate accounting for about $92 billion, or 41 per cent of the total.
The growth comes as private credit undergoes increased regulatory scrutiny following an ASIC report highlighting concerns around fees, transparency and risk disclosure. High-profile failures, including the collapse of Jon Adgemis’ $1.8 billion hospitality empire, have further sharpened the focus on governance and risk management.
Wan said tighter oversight would ultimately benefit larger, institutional platforms such as MaxCap, which counts US investment giant Apollo Global Management as a 50 per cent shareholder. “Higher standards offer greater protection for investors and favour platforms already operating at institutional-grade levels,” he said.
Higher-for-longer interest rates are also expected to widen the return gap between private credit and real estate equity. While falling rates were previously expected to narrow the spread between average equity returns of about 6 per cent and private credit returns above 9 per cent, revised rate expectations have shifted that outlook.
Despite potential rate hikes, Wan said development activity in residential and commercial property is unlikely to stall, pointing to ongoing supply shortages, particularly in housing, that continue to underpin demand for private credit funding.
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