Asia Pacific’s private credit market: Early stages of a different growth story
Private credit in Asia Pacific is emerging as a complement, not a replacement, to traditional bank lending (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Private credit has emerged as a significant financing channel in Western markets over the past two decades. Asia Pacific is now entering this space — but its trajectory will look different.
In 1H2025, based on target fundraise amounts, Asia Pacific accounted for only 5% of global private credit fundraising, underscoring its under-penetration compared with North America (44%) and Europe (29%). This represents a distinct opportunity.
Rapid urbanisation, deep domestic savings, regulatory change, and demand for flexible capital are setting the foundation for a private credit market that will develop along its own path — not as a replica of Western models.
Relationship banking meets market reality
Private credit in Asia Pacific is emerging as a complement, not a replacement, to traditional bank lending. Banks remain competitive in providing straightforward loans, while private credit fills targeted gaps — such as higher-risk developments, refinancing stress, cross-border transactions, or situations requiring additional leverage.
Given the region’s relationship-driven banking culture, private credit is unlikely to systematically displace banks. Instead, opportunities arise selectively from cyclical dislocations, market stress, or borrowers seeking flexible capital. Many private credit funds even rely on bank financing to enhance returns — highlighting how intertwined the two systems remain.
The clearest opportunities are emerging where specific local conditions favour private credit over traditional lending.
Australia: A mature and expanding market
Australia leads the region. Since 2009, banks have halved their commercial real estate exposure from 10% to 5.5% of total assets as Basel III regulations tightened capital requirements. This has created a US$33–56 billion private credit market, with domestic players such as Qualitas, MaxCap, and MA Financial partnering with global investors.
Credit funds typically seek returns of 3–6.5% above the cash rate, with core strategies delivering around 6%, and higher-risk approaches yielding 10–15%.
Despite this growth, private credit still accounts for only 16% of total commercial real estate lending, well below Europe and the US. Falling interest rates and stabilising asset values are expected to spur transaction activity, expanding lending opportunities while reducing default risk.
India: Private credit steps in
India presents a different growth story. Bank credit expanded 11.6% annually between 2015 and 2025 to reach US$2.2 trillion, driven by housing and commercial real estate. Yet tighter monetary conditions and reduced bank risk appetite have constrained traditional funding sources.
Private credit has filled the gap, offering returns of 12–21%, far above those of conventional bank lending. SEBI-regulated Category II Alternative Investment Funds (AIFs) have been pivotal — rising from 143 in 2015 to 1,532 in 2025, with investments growing 52% annually to reach US$117 billion. These AIFs have legitimised private credit as an asset class and broadened investor participation.
Residential projects account for the majority of private credit deals, as flexible lending terms provided vital liquidity when banks pulled back. Office assets represent 17% of investments, warehousing 5%, and retail 2%.
South Korea: A two-way bridge for capital
South Korea has evolved into a two-way bridge for private credit capital. Regulatory reforms in 2021 liberalised the private fund market, accelerating growth. Domestic institutions — including the National Pension Service, insurers, and sovereign wealth funds — are now allocating more to real estate private credit, while international investors establish footholds in local assets.
Nearly half of Korean limited partners plan to increase exposure, favouring stable, yield-focused strategies. Regional developers such as CapitaLand and ESR have launched private credit funds anchored by Korean assets, while sovereign wealth funds target multifamily housing, hospitality, logistics, and data centres.
Core strategies yield about 6%, while higher-risk investments achieve 10–15%. However, Korea’s project finance model poses structural risks: developers often contribute less than 10% equity, relying heavily on debt and guarantees — a structure that amplifies downside exposure during market stress.
Hong Kong SAR: Distress creates opportunity
Hong Kong SAR’s private credit opportunity lies in distressed refinancing. Residential prices remain roughly 30% below 2021 peaks, office vacancy is elevated, and banks have curbed their appetite for new property risk. By end-2024, property development and investment loans had fallen 12.6% y-o-y.
Specialist lenders are stepping in to refinance at current valuations or offer short-tenor senior loans with double-digit coupons. Managers such as Blue Mountain Bridge Capital and Gaw Capital have raised dedicated vehicles targeting Hong Kong SAR, achieving high-teen gross yields as banks focus on trimming legacy exposures.
Over the next 12–24 months, the market is expected to remain refinancing-driven rather than growth-oriented, favouring funds with disciplined structuring and strong underwriting capabilities.
Singapore: Selective and relationship-driven
Singapore’s private credit activity remains opportunistic and event-driven, focusing on M&A, distressed recapitalisations, special situations, and value-add projects. Local banks still dominate traditional commercial real estate lending, so private credit often operates in mezzanine or secondary positions to address liquidity-driven needs.
Private credit managers may also collaborate with banks on suitable deals, providing alternative funding when shareholder equity is insufficient.
With one of the world’s highest concentrations of family offices, a strong regulatory framework, and an efficient property market, Singapore is well-placed to attract private credit activity, albeit with a smaller pool of suitable transactions compared with its regional peers.
Rise in participation of high-net-worth investors
A key development is the rising participation of family offices and high-net-worth investors (HNWIs). With global family office assets estimated at US$3.1 trillion, interest in private credit is growing as private equity distributions slow and public market volatility drives demand for yield-oriented private assets.
Knight Frank’s Family Office Survey 2025 found that 37% of global respondents plan to increase indirect real estate exposure within 18 months, while BlackRock’s Family Office Survey 2025 revealed nearly one-third intend to expand private credit allocations — the highest across all asset classes.
In Asia Pacific, family offices seeking capital preservation and intergenerational stability view private credit as a stabilising anchor. In Australia, private credit funds have long tapped wealth-advisory networks for capital, while in South Korea, family offices are emerging as important limited partners amid tighter institutional liquidity.
Risks that matter
Private credit in Asia Pacific carries distinct risks. Regulatory frameworks are still evolving across fund governance, lending norms, and insolvency laws, posing compliance challenges. Secondary markets remain thin, making these investments illiquid for five to seven years or more.
Growing competition may also erode discipline — through looser covenants and higher loan-to-value ratios — while geographic and sector concentration magnifies vulnerability to localised downturns. Cross-border capital flows introduce currency risk, and divergent monetary policies heighten refinancing pressures.
Each market has its own structural weaknesses:
• South Korea: Developers contribute minimal equity — often under 10% — and transfer losses to guarantors and lenders when projects fail.
• India: Regulatory complexity and inconsistent creditor protections across states require careful navigation.
• Hong Kong SAR: Distressed market favours disciplined structuring and realistic cash flow projections over historical valuations.
What this means for investors
Knight Frank projects US$90 billion to US$110 billion in private credit growth across Australia, Hong Kong SAR, India, and South Korea over the next three years — with Australia driving nearly half and India contributing 20–25%.
The common thread across these markets is not uniform growth, but specific structural friction: regulatory capital constraints in Australia, institutional capacity gaps in India, infrastructure funding shortfalls in South Korea, and asset repricing dynamics in Hong Kong SAR.
Opportunities exist where these frictions are most acute and where private capital can extract a premium for solving problems that traditional lenders cannot — or will not — address.
Asia Pacific’s private credit market will develop more gradually and selectively than Western equivalents. However, this measured growth trajectory creates potential for premium, risk-adjusted returns among investors who accurately access where regulatory constraints bind banks and where borrower requirements exceed what traditional lending frameworks can accommodate.
Yield compression
Yield compression is inevitable as interest rates moderate from 2023 peaks. Private credit should nonetheless maintain a premium over public debt, with senior loans delivering mid-single-digit returns and opportunistic strategies achieving low double-digit yields. These spreads reflect structural advantages rather than cyclical dislocations.
The region’s private credit market remains in its formative stages. Successful deployment will require differentiated analysis that accounts for Asia Pacific’s relationship-driven banking culture, heterogeneous regulatory environments, and the discrete nature of opportunities that emerge when established financing channels prove insufficient. Scale alone will not determine outcomes, as precision in market selection and strategy execution will separate performance across managers.
Simon Mathews is the director of capital advisory, global capital markets, Knight Frank Asia Pacific
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