In a report released on Oct 2 on private credit in real estate, Knight Frank believes Apac is ripe for a take-off in private credit.
“Markets (in Apac) that have traditionally been secure and core over the long term but are now facing a lack of funding for refinancing or new developments present an ideal scenario for private credit. Hong Kong is a clear example of where the availability of real estate credit has contracted as asset values have been rebased,” notes Simon Mathews, a Director in Knight Frank’s Capital Advisory business, covering Asia-Pacific.
Although so-called dry powder in private credit has expanded, Apac lags significantly in private credit deals. As of June 2025, Apac accounted for only 5% of the global total, based on target fundraise amount compared to North America . Developed Apac’s private debt accounted for only 3% of all real estate debt (Australia has also emerged as APAC’s leading private credit market), compared to 12% for North America and 10% for Europe.
Most developed Apac economies (i.e. Singapore, Australia and Japan) are net savers. Many such markets operate with ample deposits and low loan-to-deposit ratios, leaving banks in a position of actively seeking lending opportunities rather than retreating from them.
“By contrast, banks in the US and Europe often face deposit shortfalls and higher regulatory capital costs, making them more inclined to shift real estate and other capital-intensive exposures into the institutional market,” Knight Frank indicates.
As a result, private credit in Apac does not displace banks in the same systemic way it does in the West. Instead, banks remain competitive providers of real estate loans, while private credit fills targeted gaps where banks are less active such as higher-risk developments, refinancing stress, cross-border transactions, or cases requiring additional leverage.
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“Many private credit funds in the region rely on bank financing themselves to achieve ‘an extra turn’ on returns, highlighting how closely the two systems remain intertwined,” Knight Frank adds. The opportunities for private credit are therefore expected to be selective – arising from cyclical dislocations, market stress, or borrower’s needs for more flexible capital, the report says.
Around 94% of lending in Apac is conducted through banks, compared with 79% in Europe and only 38% in the US. As a case in point, Basel III and Basel III final or endgame have not impacted banks in Singapore,- which instead, have benefitted from the new regulations.
In addition, banks in Asia are funded by deposits rather than wholesale funding. “A key distinction is that people and organisations in the region save more, leaving banks with ample deposits and less pressure to push real estate lending to private credit providers,” Knight Frank says.
See also: Private credit is on course for biggest year in emerging markets
Nonetheless, Knight Frank believes that large Apac banks must follow Basel III, which forces them to hold more equity capital when lending to real estate because some real estate loans such as commercial property may require higher risk-weights.
New rules on the trading book may also require banks to put up more capital. “Buying real estate bonds under the trading book attracts very heavy capital charges. Even when the real estate collateral is strong, these exposures consume more capital than straightforward senior loans. This pushes banks to focus on standardised, lower-risk weighted loans and away from private credit-like risk. As such, non-bank lenders then fill the gap with more flexible forms of real estate finance,” Knight Frank suggests.
According to Mathews the primary advantage of private credit over traditional funding sources is the flexibility it offers. For instance, loan-to-value and interest coverage ratios for private credit funds are flexible. They don’t adhere to bank or REIT regulations. Even residential pre-sales levels are likely to be flexible. The same applies to office or logistics developments, where no pre-leasing conditions may be set.
Whatever the case, private credit in the region is unlikely to grow to levels in the US and Europe. “In the short-term, given the prominence of bank lending in the region, it is unlikely to grow to the same degree unless there's a significant shift in regulations across banking practices,” Mathews says.
