Australia’s SMSF sector has always had a deep affinity with property. Today, SMSF investors have approximately $139 billion invested in the property market, accounting for ~13 percent of total SMSF assets1. Yet, with property prices at record highs and traditional income assets under pressure, SMSF trustees are increasingly looking beyond direct ownership to access the strength of Australian real estate. For many, the answer lies in real estate private credit – a segment once seen as niche, now emerging as a critical source of income, diversification, and stability for SMSF portfolios.
Australian real estate has enjoyed 20 years of sustained growth, with the residential market now surging past $12 trillion in value2. In the last quarter alone, national dwelling prices rose by 2 – 3 percent3. While property undoubtedly remains a compelling opportunity, accessing it is becoming increasingly costly.
As a capital-intensive investment, direct property ownership can limit diversification, constrain liquidity, heighten concentration risk, and add significant operational and compliance burdens. Yet, fuelled by significant tailwinds, SMSFs understandably want to be invested in this fast-growing, resilient asset class, which is now valued at three times the ASX4.
This dynamic has prompted SMSFs to consider if there is another way to gain investment exposure to Australian real estate, while mitigating the risks and challenges of direct ownership. In this hunt for risk-adjusted returns, real estate private credit has rightly captured attention.
Australia’s private credit market is now valued at $224 billion, growing nine percent year-on-year. Real estate private credit, in particular, is forecast to nearly double to $90 billion by 20295. At Zagga, we believe this trajectory will see private credit on track to account for 30 percent of the commercial real estate debt market in the coming years, presenting compelling investment opportunities.
Private credit is no longer a niche – it’s become a strategic allocation for sophisticated investors and a core part of well-diversified portfolios. Zagga’s growth in funds under management (FUM) from SMSF investors highlights this trend. In FY25, Zagga saw SMSF allocations grow by almost 25 percent year-on-year, while IFA-advised SMSFs grew FUM by a staggering 130 percent over this period.
Private credit has become an established asset class in Australia, on track to be larger than our domestic public bond market. However, the real question is whether this growth can continue, as it has done in other major global markets, with the investment fundamentals to ensure its sustainability. Is real estate private credit really a $90 billion investment opportunity or merely an overhyped niche investment?
Where momentum meets opportunity
As the world grapples with heightened political and economic uncertainty, income generation and portfolio construction have become increasingly complex, even for the most experienced investors.
Private credit has gained recognition as a stabilising force — delivering consistent income and enhanced portfolio diversification, independent of market noise and without over-reliance on public market performance.
As momentum builds, Australia has earned a reputation as the Goldilocks Opportunity, emerging as an investment destination of choice. Renowned for its stable regulatory environment, transparent legal system, resilient, demand-driven economy, and sophisticated financial services and pension sector.
Tailwinds in Australia’s property market mean there is further significant growth potential. Today, real estate private credit accounts for less than 20 percent of Australia’s commercial real estate lending market6, compared to more established markets like the US, where it represents 50 percent of funding.
As Australia’s real estate private credit market comes of age, global investors and institutional capital is flowing in, with offshore capital now accounting for almost 30 percent of Zagga’s FUM. Diverse pools of incoming capital from sovereign wealth funds, super funds, family offices, and high-net-worth investors will see private credit continue to be a growing part of the Australian economy.
Property is the linchpin
As Australia’s population expands by more than 400,000 people annually, housing construction is failing to keep pace. We are facing a chronic, nationwide housing shortage of 100,000 dwellings by 20277.
Exacerbating the issue, regulatory and capital constraints have caused traditional lenders, like the Big 4 Banks, to pullback from construction projects and property developments. This is especially apparent in the mid-market, where deals often fall outside of the banks’ strict, black-and-white criteria yet are too niche for institutional capital.
For experienced, specialist real estate private credit investment managers, this creates opportunity. There has never been a better time to access investment-grade transactions with strong sponsors and counterparties.
The latest research from Alvarez & Marsal highlights this, noting residential development is a standout segment where private credit has become a critical investment channel and concentrated growth opportunity. Today, ~26 percent of residential development finance is funded by private credit. This is forecast to continue as housing demand intensifies and banks remain cautious8.
At Zagga, this is where we specialise. We believe mid-market, residential developments along Australia’s eastern seaboard, particularly NSW, are the deepest and most liquid part of Australia’s real estate market, seeing the strongest demand and market tailwinds.
In practice, this means loans ranging from $5 million to $100 million, and development values up to $200 million. The type of property can vary immensely, from boutique residential apartments to high-end retirement living and Australia’s most sustainable luxury home. For us, the most important factors are conservative risk management, robust due diligence, quality assets, and strong counterparties.
As the dominance, and prominence, of private credit grows, borrowers are also realising the benefits and fuelling momentum. The industry is overcoming historic misconceptions that private credit is merely a ‘lender of last resort’ with many borrowers now proactively choosing private credit over traditional sources of funding.
This is due to the bespoke loan terms, specialist capabilities, and commerciality that specialist investment managers can offer. Today, more than 50 percent of Zagga’s loan book is repeat borrowers, with many on their 6th or 7th transaction.
Australia’s housing supply-demand imbalance is the most critical social issue facing our nation in decades. Real estate private credit has an increasingly important role in solving for this challenge and is becoming recognised by both borrowers and investors as a credible, specialist funding source that can deliver benefits for all stakeholders.
Making the investment case
The demand is clear, but does real estate private credit really play a meaningful role in SMSF portfolios?
Real estate private credit suits those who know a steady return of 9 percent today is worth more than a theoretical 14 percent tomorrow. It offers predictability amidst a world of persistent uncertainty.
With equity markets increasingly volatile, this predictability is a noteworthy benefit. Furthermore, traditional defensive, fixed income assets, like bonds, are becoming correlated with equities, dampening their ability to act as a hedge in portfolios.
In contrast, real estate private credit sits outside of this cycle, independent of public market noise and uncorrelated to market moves. Investors also hold security over physical property assets, receive contractual monthly interest payments, and can invest across the capital stack, either directly or through a fund.
The floating rate nature of private credit means returns move with the prevailing cash rate. This offers a natural hedge against rate changes, unlike traditional fixed income securities, which can experience mark-to-market volatility as interest rates shift. While fixed-rate bonds may see capital value erosion when rates rise, private credit maintains its income margin – helping smooth returns across cycles and offering a defensive buffer in uncertain markets.
In practice, this means the margin above the RBA cash rate remains constant. For example, The Zagga flagship Feeder Fund targets a return of 500 basis points above the cash rate, regardless of the interest rate cycle, and returned 8.61% to investors as at end-October 20259.
For SMSF investors, this stable and predictable income is in demand. Trustees need reliable income streams to meet minimum pension drawdowns, manage sequencing risk, and smooth portfolio volatility as they transition into or remain in retirement. The ability to generate contractual, floating-rate monthly income – backed by real property assets – is particularly valuable in an environment where share dividends are no longer reliable, yields are compressed on brick-and-mortar property investments, and the hybrid market has completely disappeared.
In a structurally different investment environment, many SMSF investors are realising the traditional 60/40 portfolio is no longer fit-for-purpose. There is a shift towards a more modern framework: 25/25/25/25 — an equal allocation across equities, fixed income, alternatives, and private markets.
Incorporating alternative, uncorrelated assets can build more resilient portfolios, without sacrificing returns, income, or exposure to proven asset classes, like real estate.
A risk-off approach
Like any fast-growing asset class, private credit is now receiving greater regulatory attention – that scrutiny is both expected and healthy. ASIC’s recent review highlights a clear need for more consistency across the sector, including disclosure, governance, and risk management standards. As an industry, we should welcome this. A stronger, more transparent framework will support investor confidence and ensure growth is underpinned by discipline, rather than exuberance.
However, it is equally important to recognise that private credit is not a monolith. Applying a one-size-fits-all lens risks overlooking the diversity of investment managers, asset types, and risk profiles across the market. The most experienced managers already operate to a higher benchmark – rigorous due diligence, conservative underwriting, independent oversight, and proactive portfolio monitoring. These are not regulatory obligations, but core to preserving capital and protecting investor outcomes.
For investors, the real differentiator in this environment is manager experience across credit cycles. Every private credit manager will face a default – but a default doesn’t have to mean a loss. The important part is how you respond to secure the best outcome for both investors and the borrower.
A cycle-tested manager understands recovery processes, maintains strong counterparty relationships, and can act decisively to protect investor capital. This is where governance and discipline translate directly into returns.
For SMSF investors, the message is clear: choose managers who are not only delivering returns today, but who have demonstrated ability to navigate uncertainty, operate with transparency, and act with integrity when conditions tighten.
A $90 billion opportunity
No longer an alternative, real estate private credit has become an increasingly strategic part of a well-balanced SMSF portfolio. In a world of persistent uncertainty and volatility, it can generate reliable income and provide true diversification.
In Australia, we are yet to realise the full potential of this asset class. With growth set to nearly double in the coming years, backed by significant tailwinds, it is clear real estate private credit is here to stay. For sophisticated investors, this $90 billion opportunity offers attractive risk-adjusted returns and a compelling alternative pathway to property.
For SMSF investors looking to build resilient, income-generating portfolios, real estate private credit is no longer an alternative – it’s essential.
- Australian Taxation Office, June 2025
- Cotality, November 2025
- Cotality, October 2025
- Cotality, July 2025
- Alvarez & Marsal, Australian Private Debt Market Review, November 2025
- Alvarez & Marsal, Australian Private Debt Market Review, November 2025
- National Housing Finance and Investment Corporation
- Alvarez & Marsal, Australian Private Debt Market Review, November 2025
- Past performance is not a reliable indicator of future performance and investments are subject to investment risk, fees and costs.
