STOCKHEAD & THE AUSTRALIAN
When share prices climb faster than profits, dividend yields naturally shrink. So while stocks look elevated, those once-reliable cheques don’t carry the weight they used to.
For income-hungry investors, the hunt is on for something steadier.
One corner of the market that’s quietly moving into the spotlight is private credit – and in particular, real estate-backed private credit.
Consistent, steady, predictable returns, along with the magic of compounding, are what protect, preserve, and build capital. When it comes to investing for long-term wealth, it pays to be boring. While equity markets rise and fall, real estate private credit has delivered steady, uncorrelated returns.
While this may seem boring to some investors, for us, that very consistency is what makes real estate private credit worthy of consideration in every investor portfolio.
Growing evidence of a recovery in GDP growth, including household spending, has seen the futures market pare back pricing for future interest rate cuts. In effect, one 25 basis point interest rate cut has been ‘taken out’ of market pricing in the past month to the point where just two further cuts are priced between now and the middle of 2026.
STOCKHEAD & THE AUSTRALIAN
The term ‘commercial’ has been synonymous with property for decades. It conjures images of office towers, industrial blocks, and retail precincts. However, in the context of commercial real estate debt (CRED) – part of the broader real estate private credit market – commercial doesn’t describe the building, but rather, the underlying loan transaction. It’s about lending to a commercial borrower, typically a developer, and assessing the quality of the sponsor, the project, risk exposure, and execution. Tom Cranfield, Executive Director of Risk & Execution at Zagga, explains why this distinction matters for investors.
There is a growing list of economic indicators pointing to stronger growth in consumer spending and sentiment, dwelling construction, business confidence and exports. These more favourable trends have been positively influenced by falling inflation and solid wages growth.
STOCKHEAD & THE AUSTRALIAN
SMSFs are turning to private credit, says Zagga, which is focused on showing “commercial” lending is less about skyscrapers and more about strong sponsors, steady margins and projects that actually stack up.
The Reserve Bank of Australia has delivered its third interest rate cut of 2025, trimming the cash rate by another 25 basis points. Since the start of the year, cumulative rate reductions have begun to pack more of a punch — and the RBA hopes this momentum will help bolster economic growth and prevent unemployment from climbing too far.
At the recent Commercial Property & Development Finance Summit, industry leaders came together to discuss one of the most significant shifts in Australia’s commercial real estate finance — the rapid rise of private credit.
SMSF ADVISER
Tax has historically been levied on realised gains – profits made, not valuations. Division 296 breaks that tradition, creating a scenario where investors may owe tax on unrealised gains – values that could just as easily reverse.
This adds complexity for investors: it’s no longer just about selecting asset classes, but about structuring portfolios to manage tax exposure.
STOCKHEAD & THE AUSTRALIAN
While the benefits of CRE debt are increasingly recognised, one fundamental question persists: how should investors access real estate private credit – directly or via a fund?
Both routes can be rewarding. What also needs to be considered is manager selection and doing your research to understand the structure, liquidity terms, and underlying credit processes. Now is the time to be diversified and defensive; in today’s uncertain investment environment, Australian real estate private credit is being duly recognised as an asset class of choice.
We would like to acknowledge the Traditional Custodians of the lands, seas, and communities in which we provide our services. We would also like to pay our respects to the Elders past, present and emerging, and the continuing cultural influence they have on Australia.
Zagga Market Pty Limited (Australian Credit Licence 490904) ACN 611 662 401 acts as the Servicer of loans acting on behalf of the credit provider, Zagga Investments Pty Limited (AFSL 492354) ACN 615 154 786, trustee of the Zagga Investments Lending Trust
All portfolio numbers quoted correct as at 1 October 2025.
*Average investor return across the active portfolio as at 1 October 2025.
**Target return is after expenses and any applicable management fees for the year ended 30 June 2026. OCR = Australian Reserve Bank Official Cash Rate.
Past performance is not a reliable indicator of future performance and investments are subject to investment risk, fees and costs. Returns are not guaranteed.
Prospective investors wishing to invest in a Zagga direct investment or a Zagga Fund should fully consider the Information Memorandum, ZFF Fact Sheet and/or ZWF Brochure, available from Zagga, before applying to invest. Investments are subject to risks.
Articles on this website have been prepared by Zagga Investments Pty Limited (AFSL 492354) ACN 615 154 786 (Zagga) for information purposes only. It doesn’t take into account your objectives, financial situation or needs, nor is it intended as a substitute for any accounting, tax or other professional advice, consultation or service. Nothing in this article shall be construed as a solicitation to buy or sell any financial product, or to engage in or refrain from engaging in any transaction.
Past performance should not be taken as an indication or guarantee of future performance and no representation or warranty, express or implied, is made regarding future performance. Economic conditions may change.
Any analysis provided in this article is based on information obtained from sources believed to be reliable but Zagga does not make any representation or warranty that it is accurate, complete or up to date. Zagga accepts no obligation to correct or update the information or opinions in it. Any opinions expressed in this article are of the author and is subject to change without notice. Readers are reminded to exercise caution and use their own judgment when interpreting and applying the information contained in this article No member of Zagga accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of such information.
