Australia’s business and housing credit sectors are experiencing notable growth, driven by robust investments in infrastructure and renewable energy, thus increasing demand for private credit. This expansion is expected to persist into 2025, according to fresh data from the Reserve Bank of Australia (RBA), supporting further development in the private credit market.
Contrary to earlier forecasts predicting a slowdown, credit growth picked up pace throughout 2024, signaling a continued strong trend into the new year.
RBA figures show substantial increases in both business and home lending. Business credit rose by 8.9% in the year ending 31 December 2024, marking its highest growth rate since May 2023. This was up from a previous figure of 8.6% in November.
On the housing front, investor housing credit saw a 5.1% growth in December, a significant rise from 4.7% in November, the strongest since December 2022. For owner-occupiers, mortgage lending maintained its momentum, growing by 5.7% in December, consistent with November’s growth and the highest level since April 2023.
Simon Arraj, managing director of Vado Private, attributes the surge in demand for business and housing credit to several factors, including a robust labor market and rising wages, both of which bolster lending activity. Furthermore, Australian businesses have made substantial investments in housing construction, renewable energy projects, and transportation infrastructure—such as roads and rail—all of which require considerable capital often financed through corporate loans, including private credit.
“There is a significant funding gap between what major banks can offer and the increasing capital demands from corporate borrowers,” Arraj explained.
The RBA acknowledged that business credit growth in Australia has outpaced its average since the global financial crisis. Funding conditions for Australian financial and non-financial corporations remain favorable, further supporting this upward trend.
Arraj also emphasized the growing role of private credit as a lucrative investment opportunity. “Private credit offers investors annual returns of around 10%, more than double the interest rates offered by banks, which were below 4.5% in December 2024,” he noted.
A recent RBA report highlighted the attractive risk-return profile of private credit, noting that it delivers relatively high interest rates, outpacing similar assets like leveraged loans, and has shown low volatility compared to publicly traded assets such as corporate bonds.
“Given the RBA’s stance, Australian investors could benefit from diversifying their portfolios by moving into higher-yielding private debt, shifting away from cash and residential property to achieve better risk-adjusted returns,” Arraj concluded.
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