Under the Spotlight: Private Credit Faces Its Biggest Test

Once dismissed as a last-resort option for developers, private credit has cemented itself as a core part of the funding mix—and is now staring down its first major regulatory test. This was the mood in MA Financial’s Sydney boardroom, where developers, funders and industry leaders met to discuss the future of regulated private credit and the implications for both sides of the deal. From “loan sharks” to indispensable partners Metro Property Development and Creation Homes director Luke Hartman has borrowed $2.7 billion in non-bank funding since starting his business 15 years ago. ▲ Industry leaders gather at MA Financial's Sydney boardroom to debate the future of private credit and looming regulation. “Some time back everyone did not want to say they were associated with non-bank lenders,” Hartman said. “Now, if you’re not associated with one, you’re probably grounded somewhere.” Developers around the table pointed to private credit’s speed, flexibility and specialist knowledge as critical advantages over the majors. Decode Group chief financial officer Jeremy McLennan said the appeal was straightforward. “With private credit there’s just a bit more transparency and trust in the person you’re dealing with … they understand, they work with you, whereas with the bank they’re kind of fixed, this is how we do it,” he said. ▲ Decode Group chief financial officer Jeremy McLennan says private credit offers more transparency and flexibility than the banks. Sammut Group chief executive Allan Sammut said he had been hesitant to move away from traditional bank funding but found private credit’s adaptability invaluable once he made the shift. “It was a bit of a fear stepping over that line and going to the private credit side, but … the flexibility and just the ability to assist in this challenging space, especially with cash flow and being able to adapt on a daily basis, is the most valuable part,” he said. In recent years, his business has been focused on delivering a $1.2 billion pipeline before returning to acquisitions in 2024. Sammut added there remains a role for both funding models. ASIC’s eyes on the sector MA Financial real estate credit investment director Erin Clarke outlined how ASIC’s review of private credit was triggered earlier this year by the sector’s rapid growth—from $600 million in 2014 to $2.8 billion in 2024—and the increasing exposure of retail and superannuation investors. ▲ MA Financial's Erin Clarke says ASIC’s review is centred on transparency, liquidity, leverage and ties to private equity. The regulator is focusing on transparency in assessing risk, fee structures, valuations, liquidity, leverage levels in private credit funds versus banks, and links to private equity through leveraged loans. Tim Spencer, general manager at Legacy Property, suggested the driver for regulation was obvious. “I don’t think ASIC is out there to protect us in the development space,” he said. “Is it not you’re raising more out of the retail market and ASIC’s going, ‘Shit, we need to protect the mums and dads in this space’?” Clarke agreed retail protection was a key concern, while MA real estate credit managing director Joseph Cavin pointed to borrower-side issues, including what he described as a “high-profile case” currently before ASIC involving a major non-bank lender. “It is mainly to protect investors, but on the borrower side you’ve got more and more issues like this coming up, and I think ASIC is very conscious of it,” Cavin said. ▲ Source: The Urban Developer Pre-sales—losing the edge? Top Spring Australia managing director Sydney Ma said banks had reduced pre-sale requirements from about 70 per cent to as low as 30 per cent, with some state governments offering guarantees. He questioned how this shift could reshape competition between banks and private credit. “If that’s no longer a competitive edge between the bank and the private credit sector, how is this going to change things?” Ma said. MA Financial real estate credit investment manager Heath Grundy said lower pre-sale requirements could help deals start but warned of potential downsides. “Although you’re eliminating the initial risk, you’re sometimes putting yourself at more risk later in the deal … you need to manage it carefully,” he said. Cavin said banks may occasionally match non-bank lenders on pre-sale terms, but it will never become standard practice. “I don’t think it’s going to be the norm … and I can bet you on the lunch they’ll lower the leverage as well,” Cavin said, adding banks lack the specialist development expertise to compete with private credit. Construction’s two-speed recovery Speakers agreed detached housing and townhouses have returned to normal build times, while higher-density projects remain constrained by labour and trade shortages. “We’ll build a single-storey house in 18 weeks,” Hartman said. ▲ Metro Property Development director Luke Hartman says his companies have borrowed $2.7 billion in non-bank funding since starting 15 years ago. “That’s a massive change … people are seeing a return back to normal speed, which obviously flows on to interest costs and housing costs.” Spencer cautioned Tier 2 and large-scale projects remain under pressure, with Queensland “sucking trades” from other states for the Olympics. “There’s definitely 100 per cent work out there from the subcontractor point of view in the low-density stuff … but then we’re still seeing supply and resource challenges at that bigger scale,” he said. McLennan—whose company Decode Group operates as a builder, developer and contractor—said builders who kept delivering through the downturn now have greater leverage with subcontractors. “We’ve now got a bit of leverage with the trades, they know there’s not a whole lot of builders still going like us,” he said. Diversifying into new asset classes Hyecorp managing director Stephen Abolakian spoke about pivoting into retirement living—a move he said offers stronger sales than traditional build-to-sell, but with entirely different planning, sales and financing processes. “We’ve sold our retirement village project two-and-a-half times over since starting,” Abolakian said. He said accessibility focused design could command a price premium if downsizers were educated on its value. ▲ Stephen Abolakian speaks on Hyecorp’s pivot into retirement living, where sales have outpaced build-to-sell projects. Others at the table also pointed to growth in the seniors living and student accommodation markets, with institutional investors backing long-term residential assets. The developer wish list Beyond private credit, the conversation turned to policy levers able to get more projects moving. Spencer argued for removing foreign buyer stamp duty on new residential projects. “It would automatically help the pre-sale rates … I’m unsure why this is still in place,” he said. Spencer said even a 12-month suspension could give sales a “real sugar hit” and lift projects over pre-sale hurdles. He also pointed to how offshore demand once underpinned project feasibility. ▲ Legacy Property’s Tim Spencer calls for scrapping foreign buyer stamp duty to boost pre-sales. “When Fraser’s was building up, we were selling at least 30 per cent of the stock to China,” Spencer said, noting removal of foreign buyer stamp duty could help restore this channel. Participants also called for targeted changes to the NSW Apartment Design Guide (ADG) to improve project feasibility. Several developers said some sites could deliver thousands of extra apartments if current design requirements—such as minimum apartment sizes—were adjusted for more flexibility. They argued these rules are preventing viable schemes from achieving pre-sale rates needed to start construction, even in locations with demand. One developer estimated modifying the ADG could unlock up to 5000 additional homes.

Under the Spotlight: Private Credit Faces Its Biggest Test

From “loan sharks” to indispensable partners

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