Ares Management has warned that rising interest rates could intensify pressure on Australia’s AUD$200bn private credit market, particularly among lenders exposed to the country’s struggling property sector, according to a report by Bloomberg.
Peter Graf, partner and head of Asia direct lending at Ares, said higher borrowing costs were increasing risks for real estate borrowers, with Australia’s central bank having raised interest rates four times this year to 4.6%.
Speaking at the Citi Australia & New Zealand Investment Conference in Sydney, Graf warned that lenders would need to scrutinise underlying asset quality and borrowers’ financial positions as credit stress becomes more apparent.
The pressure is particularly acute in property-backed lending, which accounts for a significant proportion of Australia’s private credit market. Persistent inflation and higher interest rates have increased construction and financing costs, while residential property prices have weakened.
Graf reportedly said senior real estate loans that were priced at 8–9% six months ago could now command yields of 11–12%, reflecting tighter financing conditions.
The warnings follow the collapse of Sydney property developer Bathla Group in August, which entered insolvency owing approximately A$3.4bn, primarily to private debt funds.
Several Australian private credit funds have subsequently restricted investor redemptions, while lenders including Goldman Sachs and UBS have become more selective in providing financing to specialist credit funds.
Despite the mounting pressure, Graf reportedly does not anticipate a systemic credit squeeze.
Also speaking at the event, Mark Glengarry, head of APAC Private Credit Strategies for Blackstone Credit and Insurance, said some projects may have received financing that would not have been available under more stringent lending conditions, but expects the market to work through these exposures.
Meanwhile, Anne Moal, head of direct debt and illiquid credit at Australian pension fund Cbus Super, said the fund had maintained its underwriting standards but was finding fewer attractive construction financing opportunities.
