Real Estate Debt Capital Markets Survey 2025: Australia
In 2025, the Australian real estate debt capital markets are in a state of transformation. The re-entry of banks into the lending space has reinvigorated the market, creating a highly competitive environment. This competition is driving down margins and improving borrower conditions, while also prompting private credit providers to adapt quickly. Rate cuts are once again on the table, and the liquidity landscape is evolving in a borrower-friendly direction. However, challenges in the construction sector, particularly in labour and regulatory stability, have increased lenders' risk sensitivity, particularly in due diligence processes. This report expands on the major shifts, risks, and opportunities shaping Australia’s debt capital markets.
1. Market Overview
1.1 Lending Landscape
Australia's debt capital markets have experienced robust growth in 2025. Total debt issuance reached $199.3 billion over the 12 months to June, representing an 11.4% increase from the previous year. This surge is largely driven by a broad mix of instruments including corporate bonds, government bonds, and structured debt products.
Banks, which had previously scaled back lending due to capital constraints and regulatory pressures, are now aggressively competing in the market. Their re-entry has been supported by a stable economic outlook, anticipated interest rate cuts, and a favourable liquidity environment. The increased bank participation has intensified competition, particularly in core commercial real estate lending and construction financing.
Lenders are now more willing to consider mid-tier projects and regional developments, previously dominated by non-bank lenders. While competition benefits borrowers through better terms, it compresses margins, requiring lenders to maintain discipline in credit assessment.
1.2 Bank Lending Resurgence
Australian banks have repositioned themselves as major players in the real estate debt sector. This is due in part to the easing of APRA-imposed capital buffers, a more favourable regulatory environment, and declining bond yields.
The re-engagement of banks has meant a sharp increase in investment and construction finance approvals. Traditional lenders are offering more flexible covenants, extended interest-only periods, and competitive fixed-rate options. This has prompted private lenders to reassess their value propositions and seek niches where they can add unique value, such as bespoke structuring or bridging finance.
However, this resurgence also introduces new risks. The tendency to compete on pricing rather than risk management can lead to relaxed credit standards. Therefore, risk officers and credit teams are being urged to remain vigilant, even in a bullish market.
2. Private Credit Expansion
2.1 Growth and Market Share
Private credit has become a permanent fixture in the Australian lending landscape. Since the global financial crisis, non-bank lenders have filled the gap left by cautious banks. In 2024, private credit assets under management reached $148.6 billion, a significant leap from $57.1 billion a decade earlier.
Private lenders have been instrumental in supporting developments in emerging sectors such as build-to-rent, co-living spaces, and alternative commercial real estate assets. Their ability to move quickly and structure loans outside of traditional banking frameworks makes them attractive to developers needing rapid funding or who lack traditional documentation.
Private credit now comprises approximately 17% of all commercial real estate lending in Australia. However, as banks return, private lenders are being squeezed. Many are evolving by increasing their capital sources—tapping into institutional investors and overseas capital pools.
2.2 Regulatory Concerns
With rapid growth comes regulatory scrutiny. In the latest lender sentiment survey, 67% of respondents expressed concern about the unchecked rise of private credit. The lack of uniform regulation across the sector is seen as a potential systemic risk, particularly in a downturn.
There is an emerging push from some corners of the financial system for ASIC and APRA to implement clearer oversight and reporting frameworks for private credit providers. Calls for transparency and borrower protection are growing, especially as more retail and SMSF investors enter the space.
Regulatory reform may eventually create a two-tiered system, with licensed institutional-grade lenders operating under stricter rules, and smaller unregulated players relegated to niche deals.
3. Construction Sector Challenges
3.1 Due Diligence Intensification
The construction sector remains one of the most volatile parts of the Australian economy in 2025. Labour shortages, fluctuating materials costs, and numerous insolvencies have made lenders more cautious.
A key response has been intensified due diligence. Lenders are investing more time in assessing developer experience, project feasibility, contractor reputation, and cash flow contingencies. Legal and valuation teams are now involved earlier in the process to identify red flags.
According to industry data, average due diligence time has increased by over 50% since 2022. This means longer settlement periods and more negotiation over conditions precedent to drawdown. Developers are now expected to present robust contingency plans, fixed-price construction contracts, and independent cost reports.
3.2 Builder Reputation and iCIRT Ratings
In response to builder insolvencies and quality issues, reputation has become a central metric. The introduction of iCIRT (Independent Construction Industry Rating Tool) in New South Wales has been a game-changer. These ratings assess the reliability, solvency, and project delivery history of builders and developers.
Lenders, especially institutional ones, are now mandating minimum iCIRT scores for construction finance eligibility. This has shifted the balance of power toward experienced builders with strong balance sheets and clean legal histories.
The effect of this change is two-fold: better risk mitigation for lenders, and increased pressure on new market entrants to professionalise operations and build reputational capital.
4. Interest Rate Environment
The Reserve Bank of Australia (RBA) has held the cash rate at 3.85% throughout 2025, contrary to earlier market expectations of rate cuts. This decision reflects a cautious balancing act: while inflation has come under control, wage growth and global economic uncertainty have prompted a measured approach.
Despite the hold, sentiment across debt capital markets is optimistic. Many lenders have already begun pricing loans as if rates will fall, leading to competitive fixed-rate offers and refinancing activity. Borrowers are seeking to lock in favourable terms ahead of any potential rate movement.
The broader economic narrative remains mixed. Consumer confidence is tepid, business investment is uneven, and retail conditions are soft. However, the real estate sector—particularly industrial and residential—continues to attract strong demand, buoyed by migration, infrastructure investment, and constrained housing supply.
5. Outlook
Looking ahead, the Australian debt capital markets are poised for cautious optimism. Bank dominance is likely to persist in the short term, but private credit will continue to play a critical role in niche and opportunistic transactions. The construction sector will remain a key risk area, demanding elevated due diligence and a focus on execution.
Borrowers should prepare for increased scrutiny, even as competition among lenders provides attractive terms. Developers, in particular, must focus on reputational strength, operational efficiency, and transparent risk management to secure funding in a more cautious environment.
Policy makers and regulators will need to strike a balance between encouraging innovation in private credit and ensuring system-wide stability. Calls for transparency, standardisation, and investor protection will only intensify as the market matures.
Ultimately, 2025 marks a year of recalibration. The interplay between banks, private lenders, regulators, and developers will shape not only the immediate lending climate but the future architecture of Australia’s real estate finance sector.
Sources:
Stamford Capital 2025 Debt Capital Markets Survey
Property Markets News
MPA Magazine
Broker News Australia
The Australian Business Review
Reserve Bank of Australia Monetary Policy Statements
