Real estate private credit market grows in importance

Real estate-backed credit is accounting for an increasing proportion of Australia’s private credit market and could be a significant income-producing asset class for Australia’s self-managed superannuation funds (SMSF).

With 12 month term deposit rates hovering around 3.5% p.a. at the major banks, retiree investors are seeking alternative investment options that offer both resilience and income.

Over the last few years there has been a proliferation of private debt strategies with private debt fund managers now offering investors access to various private loan exposures, including private credit backed by real estate.

According to a recent report from CBRE[1], private credit penetration of real estate debt in Australia funds:

· 0.3% of residential mortgages

· 26% of residential development

· 4.2% of commercial property.

CBRE forecasts the size of private credit funded real estate debt to increase from $50 billion currently to $90 billion by 2029. Higher transaction values and an increased share of residential development and commercial sub-segments should contribute to that growth.

The potential for growth in private credit funded real estate debt is backed by the significant magnitude of the Australian property market and the healthy appetite for development and investment, along with most Australians’ desire to invest in property.

As banks have pulled back from various sectors of real estate lending, private credit funds have become pivotal in financing residential, commercial, and industrial projects.

For SMSF trustees, gaining exposure to this market is now possible through specialist private credit funds, which use investor capital and deploy it across a diversified portfolio of secured loans. These funds often target returns in the range of 7% to 11% per annum, a material premium over term deposits and government bonds. For retirees, this can mean a reliable income stream that supports lifestyle needs without taking on excessive risk.

Real estate backed private credit can provide the following features for portfolios:

• Regular income: These loans typically pay attractive, contractual interest—often monthly or quarterly—providing a reliable cash flow stream to support pension payments.
• Capital preservation: Since the loans are secured by tangible property, there is a built-in equity buffer—if the borrower defaults, the property can be sold to recover capital for investors.
• Diversification: Real estate credit can diversify SMSF portfolios away from shares and cash.
• Higher yield potential: Compared to equities or investment-grade bonds, which carry higher risk, real estate-backed credit often delivers enhanced yield without direct exposure to share market fluctuations.

Education

Don't get burned: how to vet your fund manager

View

Retirees and pre-retirees need defensive assets that can provide a predictable income that outperforms the rate of inflation, to ensure that they maintain their purchasing power in retirement. Private credit has emerged as a strategic alternative investment that provides the most important thing retirees typically need: stable income.