Private credit is booming. There could be a downside.
Every boom has unintended consequences and this one could be found in the property market.
“There’s a private credit shop on every street corner in Australia at the moment,” says Rixon Capital co-founder and MD Patrick William.
“My concern is if there is a private credit shop on every corner doing property deals, how can they still deliver double-digit returns on property lending that's apparently first ranking and senior secured? The competition should drive the interest rates down."
Private credit is booming, with higher interest rates juicing yields and prompting investors to move away from equities in search of returns, while banks retreat from writing riskier loans. It's a global phenomenon but in Australia and New Zealand alone, private credit is a $500 billion asset class.
But with every boom there are unintended consequences and risks. And in Australia this could be found in the property market, where private credit has emerged as a source of financing for hungry developers looking to capitalise on rising property prices. In some cases these developers are operating their own private credit funds to fund projects.
