Insights from Herbert Smith Freehills has found that private credit is emerging as a dominant force in Australian real estate financing, reflecting a global shift toward alternative lending models.
It is playing a pivotal role in financing Australia’s Build to Rent sector. Developers are tapping into these funds to meet growing demand for affordable housing while sidestepping traditional hurdles like pre-sale requirements.
The two most major factors behind the increasing popularity of private credit are speed and the capacity to do higher LVRs. Loans can be approved in as little as three weeks, which is a lot quicker than a bank. Non-bank loans are also getting bigger – the average loan size now sits between $10m and $20m.
Private credit is uniquely positioned to address Australia’s housing crisis by unlocking capital for projects that might otherwise stall under traditional financing constraints. With a significant housing shortfall and demand projected to grow due to increasing immigration and population growth, developers require flexible and responsive funding options to bring new projects to life.
Private credit funds, which often operate with greater agility than banks, enable the rapid deployment of capital to housing developments, including much-needed affordable and Build to Rent projects.
By bridging funding gaps and supporting innovative housing solutions, private credit is directly contributing to the expansion of Australia’s housing stock, alleviating pressure on affordability and availability in a strained market.
Amid tightening lending standards from traditional banks, private credit is filling critical funding caps across the sector. The booming private credit sector will play a crucial role in tackling the housing supply crisis.
Developers, investors, fund managers and brokers are now sourcing loans from non-bank lenders. The rise of private credit in Australian real estate while non-bank loans are more expensive than bank debt, these higher costs are offset by faster decision-making, higher loan-to-value ratios and more flexible terms.
While the growth of private credit is impressive, it is not without challenges. Higher risk profiles, potential project delays, and rising interest rates could pressure lenders and investors.
However, industry experts highlight that robust underwriting standards, diversification, and active risk management are key to navigating these headwinds.
