Private credit tipped to play a $90bn role in Australian real estate funding by 2029

The amount of private credit funding Australian real estate could grow by 80% over the next five years, largely fueled by increased residential development lending.

That’s the forecast from CBRE in its newly issued Private Credit in Australian Real Estate report, which tips that certain commercial property sub-segments could also be on the radar following changes to regulatory capital requirements and increased borrower requirements for flexibility on terms.

CBRE’s Pacific Head of Research Sameer Chopra noted, “CBRE estimate that Australian real estate is funded by circa $50 billion of private credit and that this could grow to approximately $90 billion by 2029. Private credit already provides funding for over a quarter of all residential construction in Australia, including land subdivisions, and some funds also have exposure to recent office and industrial acquisitions.”

Commercial debt $bn and private credit penetration

Source: CBRE Research

CBRE’s report highlights that Australia’s real estate sector is worth $12,350 billion and is currently financed by $2,740 billion of bank/ADI lending, alongside current $50 billion pool of private credit.

The current private credit penetration is 0.3% residential mortgage; 26% residential development; and 4.2% commercial.

Mr Chopra noted that institutional capital was playing an increasingly active role in providing finance for credit funds, which was helping to fuel the sector’s growth.

“Circa $8 billion to $10 billion of additional capital could be raised each year to 2029, with lower RBA cash rates expected to increase the relative attraction of private credit returns,” Mr Chopra said.

CBRE’s report also highlights scope for consolidation in the private credit sector, where the Top 10 providers currently have an 85% market share.