Borrowers are turning to private credit for faster execution and more tailored solutions amid tighter financial conditions and regulatory constraints, finds a report by CapitaLand Investment (CLI).
The team at CLI consisting of Tran Hanh Lin, Wayne Teo, Joshua Pua, Arjun Pandit, Rohan Ghosh and Abby Jie note in their report, titled ‘The rising tide of Asia-Pacific (APAC) real estate private credit’, that real estate (RE) private credit within the APAC is emerging as a key growth segment supported by the region’s rapid urbanisation, rising refinancing needs, and evolving capital requirements.
Although RE private credit in the APAC remains at an early stage when compared to the US and Europe, the report finds that there is “significant headroom” for growth. With fundraising accelerating in recent years, a funding gap has appeared, driven by the refinancing of low-cost debt and more selective bank lending. This fuels demand for non-bank capital across core-plus, value-add and transitional strategies.
Presently, APAC stands as the world’s largest credit market, valued at an estimated US$63 trillion ($80.9 trillion), which is “on par” with the combined size of North America and Europe, delivering a compound annual growth rate (CAGR) of 6% over the past decade.
Despite this, nearly 80% of total credit in the region is extended through traditional banking channels, creating “systemic inefficiencies” and limiting access to flexible capital for businesses, from refinancing to growth-stage funding.
With this, the APAC’s private credit market remains at a nascent stage compared to other regions. This is due to the region being long “associated” with distressed debt and opportunistic lending, a legacy stemming from its origins during the Asian Financial Crisis (AFC) in the late 1990s, finds the report.
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This is evident from private credit activity between 2010 and 2019, where more than half of private credit fundraising in the region targeted “special situations” and distressed debts. This is also evident in return levels — median net internal rate of returns (IRRs) for APAC private credit funds have historically outperformed North American and European credit funds.
Should just 1% of borrowers in the APAC move from traditional lending to non-bank channels, the report finds that this would translate into an additional US$500 billion in the private financing sector.
Interest rates staying high despite numerous rate cuts since 2024 also helps sustain private credit’s appeal. Central banks across the region, with the exception of China and Japan, have tightened policy aggressively since mid-2022, reversing years of accommodative conditions following the GFC and Covid-19, which saw interest rates average just 1.5% across key APAC economies such as Australia, Singapore and South Korea.
While closed-end fund structures continue to dominate private credit fundraising, open-ended vehicles are
emerging as a potential evolution in APAC. However, sophisticated liquidity tools, such as redemption gates, swing pricing, and queue management mechanisms are required to ensure stability.
Still, more are turning to the asset class. Between 2020 and 2024, around US$11.2 billion was raised for RE private credit strategies, a 42% increase from 2015-2019. Average fund sizes have also surpassed the US$100 million mark since 20229.
Australia took the lion’s share of capital raised, followed by India, South Korea and Japan. Interest has also been accelerating among Asian family finances and high-net-worth investors, especially in wealth hubs like Singapore and Hong Kong.
Similar to the larger private credit markets in the US and Europe, recent regulatory developments across APAC are accelerating further institutionalisation of RE private credit. The gradual roll out of Basel III (including Basel III Endgame) capital rules, an internationally agreed set of measures developed by the Basel Committee on Banking Supervision, have reduced banks’ RE exposure.
The report adds that APAC RE private credit presents an “early mover advantage” from both a structural standpoint and a tactical position. Despite recent momentum, private credit still accounts for only 6% of RE financing in APAC as of mid-2024, significantly below levels seen in more developed regions.
“Tactically, in this early phase of APAC RE price recovery, private credit investors can still access attractive entry points with downside protection from potential asset appreciation,” notes the report.
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Although interest rates have declined from 2022 highs, they remain elevated relative to historical norms, sustaining favourable, “though somewhat compressed”, risk-adjusted returns.
As rates continue to decline gradually, a rebound in RE investment activity is expected to boost demand for private credit in acquisitions, refinancings, and development projects.
Three markets
The report points to RE as amongst the most attractive sectors for private credit investment in Australia. As of end 2024, Australia’s commercial RE private credit market was estimated at approximately A$85 billion ($71.3 billion) and is expected to almost double to A$153 billion by 202815
Lending practices in the country remain “highly conservative”, favouring borrowers with simple balance sheets and stable, recurring cash flows. As a result, developers and sponsors with more complex financing needs or faster execution requirements are increasingly seeking alternative sources of capital.
Borrowers are also drawn to private lenders for one-stop solutions and more tailored terms, such as higher loan-to-value (LTV) ratio, more flexible construction stage, despite higher interest margins.
From a macro perspective, Australia’s economic backdrop remains broadly resilient, supported by a stabilising inflation outlook, a tight labour market, and the ongoing resurgence in inbound migration. Gross domestic product (GDP) growth is expected to accelerate, reaching 2.1% in 2025 and 2.5% in 2026.
With inflation expected to gradually ease towards the target range of 2% to 3%, the report notes that the Reserve Bank of Australia is positioned to loosen policy further in the 2H2025. Expectations of policy easing, combined with a relatively transparent legal system and real asset demand from institutional capital, position Australia favourably for increased inbound fund flows, especially into alternative and RE credit strategies.
South Korea, with its evolving regulatory landscape has played a critical role in both enabling and accelerating the growth of private credit.
While domestic banks have significantly curtailed lending to RE project finance, driven by policy initiatives aimed at cooling the property market and reinforcing financial system resilience. On the other hand, state-linked allocators such as Korea Post and local insurers have issued mandates to increase exposure to private credit.
The recent interest rate cycle, coupled with the typical high leverage and sticky rent levels of the Korean RE market, has created compelling opportunities for asset recapitalisation, especially where traditional financing channels have contracted.
As of end 2024, non-bank’s exposure to RE project financing stood at approximately US$118 billion, reflecting a CAGR of 24% since 2020.
From a macro perspective, South Korea’s economy remains subdued, with GDP growth forecast to average 0.8% in 2025, weighed down by weak exports and lacklustre investment.
“Commercial RE transaction volumes are likely to match or exceed 2024 levels, and together with expectations of stricter bank loan reviews, could potentially drive increased allocations to the RE private credit space,” finds the report.
Finally, in Singapore, the private credit market remains relatively small as local banks dominate commercial RE lending.
Private credit RE strategy is “mostly opportunistic in nature” in Singapore, with a focus on event-driven situations such as mergers and acquisitions, distressed recapitalisations, shareholder restructurings and value-add initiatives.
The report notes: “As such, activity is concentrated in small, pure mezzanine plays and holding company lending, where capital is typically deployed to meet liquidity-driven needs, an area banks are less likely to support across the full capital structure. Asset managers could also leverage relationships with these local banks for collaborative deals.”
From a macro perspective, Singapore's economy experienced stable growth, driven by key sectors like wholesale trade, finance and insurance, and manufacturing. GDP is expected to grow by 0.0 to 2.0% in 2025 amidst low inflation and a deterioration in Singapore’s external demand outlook.
The country's strong fundamentals, status as a global trade and financial hub, and proactive policy measures are expected to cushion economic shocks, bolster resilience, and sustain foreign investment inflows.
“Investors who were sitting on the sidelines are likely to return and be more selective in allocating capital to specific sectors or strategies. RE investment volumes in 2025 are projected to grow 10% from 2024’s volumes ($28.6 billion), with a focus on core-plus to value-add strategies for higher yields,” sums up the team at CLI.
