Asia-Pacific real estate private credit raised US$11.2 billion between 2020 and 2024, marking a 40% increase that signals the region's growing prominence in alternative lending, according to a new study.    

Over the next three years, the sector is expected to expand further to US$90 billion to US$110 billion across Australia, Hong Kong SAR, India, and South Korea. Australia is expected to drive nearly 50% of this growth, with India contributing 20% to 25%, global property consultancy Knight Frank says in its report, Horizon III: The Rise of Real Estate Credit in Asia-Pacific – Bridging the Gap.  

While the Asia-Pacific currently represents 5% of global private credit fundraising, institutional investors and family offices are increasingly recognizing the region’s attractive risk-adjusted returns and diverse opportunity set, creating significant expansion potential.

Knight Frank sees a clear momentum in the sector. Average fund sizes in the region have consistently exceeded US$100 million since 2022, reflecting stronger capital commitments and rising real estate project funding requirements.

Ample bank deposits  

Simon Mathews, director of capital advisory, global capital markets, at Knight Frank, says: "Private credit is becoming an increasingly prevalent financing option for developers and investors across Asia-Pacific, offering speed, flexibility, and solutions, in place of or complementing traditional lending sources. Our research shows that while banking relationships continue to anchor the market for core investments, non-bank lenders are increasing their market share for opportunistic business plans, in markets such as Australia, India, Hong Kong SAR, and South Korea."

Unlike Western markets, where banks face deposit shortfalls and higher regulatory costs, most developed Asia-Pacific economies operate as net savers with ample bank deposits. This fundamental difference means private credit complements rather than replaces traditional banking, the report says.

In Hong Kong SAR and South Korea, non-bank lenders are filling specific gaps left by banks retreating from risk, with family offices and institutional capital providing funding for distressed refinancing and growth-focused projects.

Knight Frank's inaugural survey of family offices finds that 37% of respondents intend to increase indirect real estate exposure over the next 18 months, while a similar survey BlackRock released this year shows that nearly one-third want to increase private credit allocations – the highest of any asset class.

Flexibility edge  

Private credit providers target returns of 3% to 6.5% above benchmark rates in core strategies, with higher-risk approaches potentially delivering double-digit returns, according to Horizon III. In fact, the high-interest-rate environment has strengthened the investment case for private credit as an asset class.

 "The primary advantage of private credit over traditional funding sources is flexibility,” shares Christine Li, head of research, Asia-Pacific, at Knight Frank. “Private credit lenders typically have a higher risk appetite, allowing greater loan-to-value ratios and requiring fewer pre-sales commitments compared with banks. This enables developers to capture higher returns as values often improve closer to project completion."

Investment opportunities in the sector include:

• Development financing: filling gaps left by banks that have reduced appetite for development loans due to regulatory pressures like Basel III, especially in Australia and other advanced markets in the region;
• Bridge and refinancing solutions: increasingly used in markets with valuation corrections or where banks are reluctant to refinance at par, notably in Hong Kong SAR and Australia;
• Value-add strategies: capital for office conversions, ESG upgrades, and scenarios requiring bespoke financing where traditional loans are not easily secured; and
• New economy assets: focusing on emerging segments such as data centres, logistics, and build-to-rent residential, which receive private credit allocations due to strong growth profiles and complex funding requirements.

Positive market outlook

While acknowledging risks including regulatory evolution, liquidity constraints, and concentration exposure, the study suggests that private credit will continue expanding its market share across Asia-Pacific. However, growth patterns will differ from Western markets due to the region's relationship-driven banking culture and strong deposit bases.

Asia-Pacific's private credit market is entering a maturation phase. Opportunities are expected to be selective and driven by cyclical dislocations, market stress, or borrowers' needs for flexible capital solutions.

"With global interest rates remaining higher for longer, the case for private credit has strengthened, as debt funds continue to deliver attractive risk-adjusted returns,” Mathews says. “The last time interest rates were comparable was before the global financial crisis, positioning real estate credit to offer some of the most attractive risk-adjusted returns in over a decade."