Source: International Financing Review
Author: Luke Williams
Date: 3 July 2026
Some parts of Australia’s real estate sector may struggle to attract funding as private credit lenders become increasingly selective amid tougher market conditions and heightened regulatory scrutiny.
Real estate makes up approximately half of Australia’s private credit lending market of around A$200bn (US$138bn), according to the Australian Securities and Investments Commission’s estimates and looks like it is headed for its first period of genuine credit differentiation. Industry sources are divided over whether the higher construction costs, forced revaluations and changes in underwriting will cause a slowdown in some real estate projects or just significant repricing of risk.
The spotlight on the real estate sector has intensified as the ASIC said it has put fund managers in the nation’s rapidly growing private credit sector “on notice” ahead of the June 30 reporting cycle, warning that asset valuations must be “current, accurate and grounded in realistic assumptions”.
Will Hamilton, founder of Hamilton Wealth Partners, said he is aware of private credit investments in which “the return wasn’t matching the risk clients were taking in many real estate transactions”.
He said the private credit market for real estate assets will continue to grow despite rising constructive costs and weaker sales, but investors will demand wider spreads, higher returns for risk and more selective deployment of capital.
“I think what we are seeing in the repricing is more than projects not getting funded,” he said.
According to Bob Sahota, co-founder and managing director of Revolution Asset Management, rising property prices had previously concealed weaker underwriting in parts of the market because developers could rely on capital growth to offset project delays or cost overruns.
Those conditions have changed – and with residential and commercial property increasingly leaning on non-bank lenders, the impact may well stop or dramatically reprice many real estate development finance ventures.
Sahota said construction inflation, higher funding costs and slower apartment sales are placing pressure on project economics, with some developers now struggling to reach breakeven outcomes.
In some cases, some borrowers had amended the terms of their loans and capitalised the interest rather than paying it in cash, causing the loan balance to swell as projects ran over time, he said.
“The market was increasingly splitting between higher and lower-quality assets rather than experiencing broad-based deterioration,” said Tom Cranfield, executive director, risk & execution, member credit risk & investment risk committees at Zagga, a private credit fund specialising in Australian real estate.
A class of real estate assets in Australia may struggle to get any credit finance – meaning many will fail to be built – as governance scrutiny grows and the economic conditions change.
Second-grade commercial real estate assets pose serious problems for funds or asset owners with exposure to them as they have “low occupancy levels, spec fit-outs and high incentives”, said Cranfield.
While he supports better underwriting, Cranfield said it was not “as simple as saying private credit or loans are going to be problematic because of what managers have done”.
ASIC has repeatedly stressed that Australian private credit is not inherently problematic, under current widespread stress and continues to provide an important source of funding for businesses and developers. Industry sources said there is no sign of capital withdrawal and debt funding will continue to grow strongly over the next five years.
Facing pressure
Conditions in the US and Europe are already driving rising defaults, valuation uncertainty and redemption pressures, ASIC said on June 18. Australia’s market has some structural differences, including greater exposure to real asset-backed loans in construction and property.
ASIC has repeatedly stressed that Australian private credit is not inherently problematic or under widespread stress and continues to provide an important source of funding for businesses and developers. Industry sources said there is no sign of capital withdrawal and debt funding will continue to grow strongly over the next five years.
It is facing pressure from some quarters, however. An ASIC survey found pockets of deteriorating credit quality, loan amendments, tighter liquidity buffers and softer investor inflows.
Through the voluntary survey conducted between March 26 to May 14, ASIC targeted surveillance, and engagement with expert panels and market participants, collecting responses from 22 managers covering 52 funds and around A$76bn in assets under management.
“Asset descriptions sometimes fail to include clear information that would help investors understand the risks of the assets held by a fund, such as a clear disclosure that loans will fund higher-risk real estate and development financing,” the authors wrote.
The report raised concerns that some funds were not collecting up-to-date information relating to the loan-to-value ratios and added that one retail fund “only conducted valuations on the collateral (real estate) very infrequently: once every 42 months in ordinary circumstances”.
It also said a fund manager “may be incentivised to invest in higher-risk and/or shorter-term loans, or to delay the impairment of a loan asset, so the manager receives a higher monthly management fee”.
The warning comes after years of rapid growth in Australia’s private credit market as investors sought higher returns outside traditional fixed-income markets.
Law firm Herbert Smith Freehills produced a report called ‘A Pulse on Private Credit Investment in Australia 2025’ that found more than 90% of respondents expect “continued growth in the share of the corporate debt market provided by private credit over the next decade, with 50% anticipating significant growth”.
In November, the Australian Prudential Regulation Authority estimated the domestic private credit industry at around roughly 3% of the Australian banking system – and said this relatively small scale limits immediate system-wide concerns.
