Heightened geopolitical tension, persistent inflation and rising interest rates have combined to create one of the more challenging investment environments in recent memory. Traditional risk assets have repriced sharply, while even historically defensive allocations such as government bonds have exhibited unexpected volatility.
In this context, investors, particularly self-managed super funds, family offices and sophisticated allocators, are reassessing portfolio construction with a renewed focus on capital preservation and dependable income.
Periods of market dislocation typically prompt a rotation towards cash and near-cash instruments. The objective is clear: minimise volatility while maintaining liquidity and income visibility. However, today’s environment has exposed limitations in conventional defensive assets. Bond markets, traditionally viewed as countercyclical stabilisers, have experienced significant price volatility as yields adjust to higher rate expectations.
Similarly, the phasing out of hybrid securities in Australia has removed a key income-generating instrument from investor portfolios, leaving a gap between low-yielding cash deposits and more volatile listed markets.
It is within this context that real estate private credit is increasingly being considered as a complementary defensive allocation.
Beyond Traditional Fixed Income
At its core, real estate private credit offers exposure to asset-backed lending secured against tangible property. Unlike corporate private credit markets – particularly in the United States, where exposures are often linked to leveraged balance sheets and cyclical sectors – Australia’s market is predominantly underpinned by real assets with conservative loan-to-value ratios and established legal frameworks.
This structural distinction is critical.
While offshore markets are currently grappling with rising defaults and credit deterioration in certain segments, Australia’s private credit landscape remains more closely aligned with real asset fundamentals. The security of underlying collateral, combined with disciplined underwriting, provides a different risk profile – one that is less reliant on corporate earnings cycles and more anchored in property valuations and borrower equity.
A Structural Demand Backdrop
Importantly, the Australian real estate market continues to be supported by powerful structural drivers that differentiate it from many global peers.
Population growth remains robust, with net migration of roughly 400,000 people per year[1] contributing to sustained demand for housing and accommodation. At the same time, the country faces a significant supply shortfall between 200,000 and 300,000 dwellings[2] continuing to add pressure to supply.
This imbalance is not cyclical – it is structural.
Even in a higher interest rate environment, the need to deliver new housing persists. While affordability pressures and construction costs may impact project timelines and feasibility, the underlying demand for well-located, appropriately structured developments remains intact.
For lenders operating within real estate private credit, this creates a consistent pipeline of opportunities, particularly when combined with the continued retreat of traditional banks from segments of the market due to regulatory capital constraints and more stringent lending requirements.
Income, Not Speculation
In uncertain markets, the distinction between income generation and capital appreciation becomes more pronounced.
Real estate private credit strategies are typically designed to deliver regular, predictable income through contractual interest payments, rather than relying on asset price appreciation. In many cases, these loans are structured on a floating-rate basis, allowing investors to benefit from higher base rates as monetary policy tightens.
This contrasts with listed markets, where returns are often driven by sentiment and subject to short-term volatility.
For investors seeking to reduce portfolio variability while maintaining income, this can be a compelling characteristic – provided that the underlying credit quality, asset selection and risk management processes are robust.
Access and Investor Considerations
Despite its growing profile, real estate private credit remains less accessible than traditional asset classes, particularly at the institutional end of the market.
Large allocations are typically dominated by superannuation funds, banks and family offices, which approach the asset class with a longer-term horizon and a focus on portfolio construction rather than short-term liquidity.
For investors considering exposure, it is essential to recognise that not all private credit strategies are equal. Manager selection, underwriting discipline, portfolio diversification and governance frameworks are critical differentiators, particularly in a more complex and evolving market environment.
Regulatory scrutiny is also increasing, particularly in relation to retail access and liquidity management, reinforcing the importance of transparency and alignment.
A Measured Allocation
Real estate private credit is not a universal solution, nor should it be viewed in isolation.
However, in an environment characterised by volatility, constrained traditional income options and ongoing structural demand for real assets, it is increasingly being incorporated as part of a broader, diversified portfolio.
For sophisticated investors, the appeal lies not in outsized returns, but in its ability to provide a more stable income stream, supported by tangible collateral and disciplined risk management.
As market conditions continue to evolve, the focus remains clear: allocations that prioritise resilience, transparency and capital preservation are likely to remain front of mind.
About Zagga
Zagga is a leading Australian alternative real estate investment manager founded in 2016. Headquartered in Sydney, and with offices in Melbourne and Singapore, Zagga is committed to delivering attractive, risk-adjusted investor returns, and tailored private credit solutions, across the capital stack.
A leader in their chosen niche of mid-market loan sizes ranging from $5 million to $100 million, the firm serves a growing base of wholesale investors, including HNW individuals, family offices, and quasi-institutional funders from Australia, Asia, Europe, the UK, and the USA.
Since inception in 2017, they have repaid over $1.5 billion in principal and interest, across more than 300 successful exits.
Why zig when you can Zagga?
[1] Australian Bureau of Statistics, National Population Statistics, 2025.
[2] National Housing Supply and Affordability Council (NHSAC), State of the Housing System 2025; various industry estimates placing the current cumulative shortfall in the 200,000–300,000 range.
