Following the Reserve Bank’s recent policy easing, Australia may see a substantial increase in housing credit demand this year, according to Simon Arraj (pictured), founder and responsible Manager of Vado Private.
Such trends are expected to contribute to rising property prices throughout 2025.
The latest figures from RBA revealed that business credit surged by 8.8% year-over-year as of January 31, climbing from 6.7% the previous year.
Home lending also showed significant growth, rising from 4.2% to 5.6% over the same period.
The total credit sector grew by 6.5%, marking the highest annual growth since April 2023.
Arraj predicted that these trends, especially in business lending, could drive the private credit market’s total value beyond $200 billion by year’s end.
Globally, the private credit market, characterised by lighter regulations and direct loans from non-bank institutions to businesses, is currently valued at approximately US$1.7 trillion.
According to Arraj, recent interest rate reductions by the RBA are likely to spur further investment in both business and housing sectors.
“Ongoing economic growth is fueling robust business lending in Australia,” he said. “Many companies are capitalising on the favourable economic conditions to invest in capital goods and expand operations.”
Additionally, significant investments in infrastructure, such as roads, housing, technology, and renewable energy projects, are expected to bolster business investment further, potentially stimulating more private credit demand.
Investors are increasingly attracted to private credit due to its appealing yields, especially as returns on cash and house yields remain subdued.
“The volatile global economic climate, underscored by the US election results and decreasing interest rates, is prompting investors to turn towards private credit over more volatile equities and low-yielding property and cash investments,” Arraj said.
The recent cut in interest rates poses challenges for savers, with returns on traditional savings and cash accounts dwindling.
“With current rates on online savings accounts sitting below 2%, and with inflation at approximately 2.5% in January 2025, real returns are dipping into negative territory,” Arraj said.
This environment is leading many nearing retirement to consider transitioning from property investments to more manageable, higher-yielding alternatives like private credit.
“Private credit offers access to regular monthly income at higher yields, providing retirees with a steady and dependable cash flow,” Arraj said.
