Private Credit Surge in Asia: The New Frontier for Real Estate Funding
Asia’s Private Credit Boom and Real Estate Focus
Asia’s private credit market has witnessed a remarkable surge in recent years, rapidly emerging as a key alternative source of funding. Private credit assets under management (AUM) in Asia-Pacific roughly doubled to about $120 billion by the end of 2023, up from roughly $60 billion a few years prior. This growth has been driven in large part by demand from real estate and infrastructure sectors, as businesses seek flexible financing beyond traditional banks. Notably, real estate has become a cornerstone of Asian private credit: in markets like India, real estate now receives the most attention from credit funds, outpacing other sectors. Despite the swift expansion, Asia’s private credit industry remains nascent compared to the West – it accounts for only about 6–7% of global private credit activity and 4% of Asia’s alternative assets (versus ~15% in the U.S. and Europe). This points to significant headroom for further growth in the region.
Global investors have taken notice of Asia’s rising direct lending market. Private credit funds have boomed into a $2 trillion industry globally, and Asia is now catching up. Fundraising targeting Asia hit a record $11.2 billion in 2022, a 76% jump from the prior year, as firms launched Asia-focused credit funds to deploy capital in the region. Even though 2024 saw some cooling (Asia-Pacific private debt fundraising fell to ~$5.4 billion amid China’s slowdown), the long-term trajectory remains strongly upward. Moody’s and other analysts forecast ongoing expansion of Asia’s private credit market, propelled by the region’s rising financing needs, especially in large economies like India and China. Real estate financing is at the forefront of this trend, as private credit has quickly become “more than just an alternative option for funding” – it is establishing itself as a new frontier for real estate capital across Asia.
Key Market Snapshots: China, India, Singapore, Hong Kong, Japan, South Korea
China: In the wake of China’s property downturn and tighter credit conditions, demand for alternative financing is high – but the market for private credit in China remains challenging. A wave of defaults and a “destabilising property crisis” in mainland China has made traditional lenders cautious. While China still accounted for about 20% of Asia’s private credit deployment in 2024 (roughly $1 billion), it is no longer the main growth driver as investors shy away from the troubled real estate sector. Many global funds have pulled back from Chinese property deals in recent years due to heightened risks and regulatory uncertainty; for example, PAG, a major Asia-focused investment firm, has not invested in China’s real estate since 2019 amid concerns over supply-demand imbalances. Nonetheless, the financing gap left by China’s credit crunch presents a potential opportunity. If legal and regulatory frameworks improve, private credit could gradually step in to fill funding needs for select Chinese projects (likely via structured or offshore transactions). For now, however, caution prevails – Asia’s private credit boom is centered more on other markets while China’s real estate sector works through its challenges.
India: India has quickly become one of Asia’s most important private credit markets, emerging as a major engine of growth. The country’s economic expansion and infrastructure push have created huge financing needs that banks alone cannot meet. As a result, private credit has flourished in India, with both global and domestic players active. Global alternative lenders such as Oaktree Capital have deployed about $4 billion in India’s private credit market since 2018, often targeting real estate and special situations. In just the first half of 2024, India saw approximately $6 billion of private credit deals, a jump from ~$5.9 billion in H1 2022. Real estate is a prime beneficiary – recent deals included large financings like $283 million for Prestige Group and significant funding for developers such as Puravankara, Kalpataru, and Shapoorji Pallonji. These infusions helped developers acquire land, refinance debt, or complete projects that might have stalled due to lack of bank funding. Private credit in India is facilitated by regulatory support for alternative investment funds (AIFs), which allow domestic pooling of capital for credit strategies. Many mid-sized and growth-stage companies – especially in real estate, infrastructure, and manufacturing – now turn to private credit as a viable funding source. This trend is bridging a critical financing gap for Indian borrowers that struggle to secure traditional bank loans. With stronger bankruptcy laws and investor-friendly reforms, India’s private debt market is expected to keep expanding. Industry surveys indicate roughly 60% of fund managers see real estate as one of the top sectors for deal flow going forward. In short, India stands out as a thriving frontier for private credit in real estate and beyond.
Singapore: Singapore plays a dual role in Asia’s private credit surge: it is both a target market and a key investment hub. On one hand, Singapore’s real estate sector has seen private credit deals complementing traditional finance – for example, developers and property owners have used private debt for bridge loans and mezzanine financing, benefiting from quicker execution and tailored terms. On the other hand, Singapore serves as a launchpad for regional private credit funds. The city-state’s robust financial ecosystem and investor base have enabled firms to raise capital earmarked for deals across Asia. In 2023, Singapore’s state-backed fund manager SeaTown (a Temasek unit) launched a $1.5 billion fund focusing on Asian private credit opportunities. This reflects growing appetite among Singaporean investors to deploy credit into opportunities in India, Southeast Asia and beyond. Singapore itself has a relatively well-banked market, so private credit often offers more flexible or higher-leverage financing for niche situations – such as value-add real estate projects, refinancing of ageing commercial properties, or funding for REIT take-private deals. Recent trends also show Singapore-based family offices and high-net-worth individuals allocating to private credit deals (both locally and overseas) in search of higher yields. Overall, Singapore is leveraging its financial hub status to become a centre for private credit investment in Asia, funnelling global and regional capital into real estate debt and corporate lending strategies across the continent.
Hong Kong: Hong Kong has emerged as a case study in private credit stepping up when banks step back. With the city’s property market under pressure – values have fallen and banks have pared back lending – alternative lenders are moving in to fill the void. Private credit funds are targeting large commercial properties and developer financing in Hong Kong, one of the world’s most expensive real estate markets. For example, Hong Kong-based Blue Mountain Bridge Capital recently raised a $250 million fund to lend on local property deals, calling this “the best time to be a private credit investor in Hong Kong”. In January 2025, Blue Mountain closed a one-year senior loan of $33.4 million secured by a newly converted office building, with a hefty 15% annual coupon. The fund also provided a $64 million refinancing loan to a developer, earning a 15% internal rate of return. These high-yield deals illustrate how private credit is offering lifelines to Hong Kong developers anxious about refinancing in a tight credit market. Even large firms are joining the fray: real estate investment giant Gaw Capital is launching a new $2 billion fund for Asia that will invest in private credit deals in Hong Kong and other tier-1 cities, alongside equity investments. The shift is already visible in lending data – Hong Kong’s outstanding bank loans for property development and investment dropped 12.6% year-on-year by end-2024 , as banks pulled back amid falling prices and record commercial vacancies. Private credit funds are picking up some of this slack, providing much-needed capital to viable projects. However, competition is growing: family offices and wealthy investors are also entering Hong Kong’s private debt space, attracted by yields higher than direct property ownership. Hong Kong’s experience highlights how private credit can act as timely relief and financing innovation in a stressed real estate market – albeit with careful attention to risk (funds are enforcing lower loan-to-values and tighter covenants to protect themselves).
Japan: Japan’s private credit and real estate debt market is unique in Asia. Unlike many of its neighbours, Japan has had ultra-low interest rates for years, and its banks remain highly liquid – meaning the credit gap is less about scarcity and more about opportunity. Global investors view Japan as an attractive, relatively low-risk play for real estate credit given its stable economy and recent policy shifts. In 2024, Japan became a magnet for property investment as it was the only major country that hadn’t sharply raised rates. This led to a surge of capital into Japanese real estate. Financial sponsors invested $5.4 billion in Japan’s real estate in 2024 – more than three times the 2023 amount, marking a record high. A share of this capital has come in as private credit or debt-like strategies. For instance, PAG (a leading Asia investment firm) closed a $4 billion opportunistic real estate fund in early 2025, with a mandate to invest in both hard assets and property debt across developed Asia. The fund will focus ~60–70% on Japan and plans to deploy up to 30% into Japanese data-centre investments, including debt financing for those projects. Japan’s appeal lies in its ample liquidity and improving corporate governance, which create scenarios for private debt funds to participate in corporate real estate acquisitions, development loans, and distressed debt purchases. While domestic banks in Japan are active lenders, private credit funds can carve out a niche by providing more flexible, higher-yield financing for complex deals (e.g. mezzanine loans for property portfolios or bridge loans in corporate carve-outs). Japan’s large economy and recent end of negative interest rates also suggest that demand for alternative credit could grow, especially if banks gradually tighten standards. In summary, Japan represents a mature but opportunity-rich market where private credit is supplementing traditional finance in the real estate sector, often in specialised segments like data centres, logistics facilities, and value-add projects.
South Korea: South Korea is joining the private credit wave with a growing focus on real estate debt. South Korea’s banks have historically dominated corporate and property lending, but recently they have become more conservative (partly due to rising interest rates and regulatory curbs). This pullback is creating a funding gap that private lenders are eager to fill. A notable development came in early 2025 when CapitaLand Investment (CLI) – a major Singaporean real assets manager – closed its maiden South Korea private credit fund with KRW 180 billion (~$130 million) in equity commitments. The fund is targeting construction loans and mortgage-backed financing across asset classes like data centres, offices, lodging and residential projects in key Korean cities. In fact, the fund’s first deal is a KRW 40 billion loan to finance a new data centre development in Seoul. This kind of project-specific lending by an alternative fund was virtually unheard of in Korea a few years ago. Now, with institutions like the Abu Dhabi Investment Authority (ADIA) committing capital to Korean private credit strategies, the market is set to deepen. South Korean corporations and developers can benefit from private credit for deals that require quicker execution or sit outside typical bank criteria. As in other markets, real estate is a prime target: private credit can support developers in completing projects or refinancing debt, especially as local banks reduce their exposure to real estate loans. Industry executives note that as traditional lenders retreat, “the widening funding gap creates opportunities for private lenders” in Korea. While still nascent, South Korea’s private credit scene is expected to scale up rapidly, providing new funding options for property development and investment, and giving global investors another avenue into the Korean real estate market.
Key Drivers of Growth in Asian Private Credit
Several factors are powering the surge of private credit in Asia, particularly in real estate financing:
Bank Lending Constraints: Post-crisis regulations and economic headwinds have made Asian banks more conservative in lending. Stricter capital requirements and risk limits mean banks are often unwilling to finance all but the safest projects, leaving many borrowers searching for alternatives. In markets like Hong Kong and South Korea, banks have actively scaled back real estate loans, creating a vacuum that private credit funds are stepping in to fill. This dynamic is similar to trends seen in the West post-2008, where non-bank lenders grew as banks pulled back. In Asia, as traditional bank lending remains dominant (banks still hold ~79% of total credit in Asia-Pacific), even a slight retreat by banks opens significant room for private credit growth.
Regulatory Shifts and Reforms: Many Asian governments have gradually opened the door for private credit through regulatory changes. India, for example, introduced the AIF framework allowing domestic credit funds, and its Insolvency and Bankruptcy Code has improved debt recovery, encouraging more lending. Elsewhere, jurisdictions like Singapore and Hong Kong have created fund-friendly legal structures (limited partnership funds, etc.) that attract global private debt managers to domicile funds and invest locally. Some countries are also pushing banks to reduce certain exposures (like China’s deleveraging of property or Australia’s bank limits on real estate development loans), indirectly channelling borrowers toward private credit. These shifts, combined with the relative lack of deep bond markets in parts of Asia, make private credit an increasingly viable and accepted financing route.
Investor Appetite for Yield and Diversification: Global institutional investors – including insurance companies, pension funds, and sovereign wealth funds – are pouring capital into private credit strategies in Asia, drawn by the promise of higher returns than traditional fixed income. Many of these investors have a higher risk tolerance and a long-term outlook. Asia’s growth story offers portfolio diversification and the potential for outsized returns in underbanked sectors. In a low-yield environment of the past decade, private credit provided yield-hungry investors an attractive option; even as interest rates rise, the complexity and illiquidity premium in Asia private debt can translate to double-digit returns. For instance, private credit funds in Hong Kong have recently achieved net IRRs around 12–15%, well above public-market debt yields. Large asset managers like KKR, Blackstone, Apollo, and Ares have expanded into Asian private credit, launching multi-billion-dollar funds to capitalise on the opportunity. This influx of capital and expertise is further accelerating the market’s development.
Borrower Demand for Flexibility: Borrowers across Asia – from property developers to mid-sized enterprises – are increasingly drawn to the flexibility of private credit. Unlike bank loans or bonds, private credit deals can be custom-tailored: lenders often offer creative structures (payment-in-kind interest, longer tenors or grace periods, mezzanine tranches, etc.) that suit a project’s specific needs. Disclosure requirements are lighter and execution can be faster, which is vital for entrepreneurs or developers facing time-sensitive opportunities. Private loans may carry higher interest costs, but for many borrowers the trade-off is worthwhile to avoid distress or dilution. For example, Asian startups have turned to private venture debt rather than equity during “down rounds” to preserve valuations. In real estate, developers value how private lenders can offer bespoke financing solutions, often secured against assets, to kick-start projects or bridge financing gaps when presales or cash flows fall short. This borrower appetite for flexible capital has been a fundamental driver of private credit’s rise.
In essence, Asian private credit is growing at the intersection of pull and push factors – the pull of investor capital seeking returns, and the push of borrowers and market conditions seeking new financing avenues. These drivers reinforce each other, suggesting the private credit boom has structural underpinnings rather than being a short-term fad.
Challenges and Risks to Consider
Despite its rapid ascent, the private credit market in Asia faces a number of challenges and risks that both lenders and investors must navigate:
Regulatory and Legal Uncertainties: Asia’s diverse regulatory landscape can be a minefield. In some countries, laws around bankruptcy, enforcement of collateral, or foreign lending are still developing. For instance, enforcing creditor rights in certain jurisdictions can be slow or unpredictable, which raises the risk for private lenders extending secured loans. Moreover, regulators in Asia often prioritise stability and bank lending – there is a chance of regulatory pushback if private credit grows too quickly or if high-profile failures occur. Geopolitical tensions (such as U.S.–China relations) and sudden policy shifts (like China’s crackdown on shadow banking) also add uncertainty. Private credit funds must carefully structure deals to mitigate legal risks, sometimes relying on offshore jurisdictions or arbitration to enforce agreements. Regulatory support is growing but remains uneven across markets, requiring astute local knowledge from fund managers.
Asset Quality and Credit Risk: By its nature, private credit often serves borrowers who cannot easily get bank financing, which means higher underlying risk. In the real estate sector, this is a particular concern when property markets soften. We have seen warning signs in markets like China and Hong Kong, where sliding property sales, falling prices, and high vacancies have impaired developers’ ability to service debt. Private lenders risk inheriting these asset-quality problems. A number of Asian real estate developers are highly leveraged; if economic conditions worsen, defaults could spike and recovery on collateral might be difficult (especially if asset values are dropping). Even outside real estate, private loans to mid-sized firms carry credit risks, as many are unrated companies susceptible to business cycle swings. The illiquid nature of private credit (loans are typically held to maturity) means lenders cannot easily exit if credit quality deteriorates. Rigorous due diligence and covenants are essential to manage this risk, but ultimately credit losses are part of the business – especially in a downturn.
Liquidity and Fund Duration Risk: Private credit is an illiquid asset class. Investors commit their money to closed-end funds or long-term vehicles that might lock up capital for 5–7+ years. This lack of liquidity can be risky if investors need to rebalance or redeem (which is generally not possible except in limited secondary sales). For lenders, the inability to trade out of loans means they are fully exposed to a borrower until repayment or default. Additionally, many Asian private credit deals are in local currency and markets that lack deep secondary loan trading, further limiting exit options. Fund managers often incorporate equity-like features (warrants, profit-sharing, board seats) to boost returns and control, partly because they cannot rely on selling the loan if things go awry. This illiquidity also means portfolio valuations are subjective and based on models until actual realisation, introducing valuation uncertainty. Furthermore, if global liquidity tightens (e.g. due to higher interest rates or risk aversion), fundraising for private credit can slow and existing funds might find it harder to roll over or syndicate large exposures. Investors must be comfortable with the long-term, locked-in nature of this asset class and the patience required to see through multi-year real estate projects.
Execution and Competition Risks: As private credit has become more popular, competition among lenders has intensified in top markets. Multiple funds may chase the same deal, which can lead to erosion of lender protections. In Asia, there are concerns that some newer or aggressive lenders might offer looser covenants or higher loan-to-value ratios to win deals, especially as more capital floods in. This race to deploy capital can undermine underwriting standards. There’s also execution risk in terms of finding and structuring good deals – private credit in Asia is still a relationship-driven business where sourcing deals requires strong local networks and expertise in complex transaction structuring. New entrants without on-the-ground experience might struggle. Operationally, managing loans (monitoring construction progress on a project loan, for example) requires active involvement. If a project runs into delays or a borrower underperforms, the lender may need to step in, restructure the loan, or even foreclose on assets – a demanding process in many Asian legal systems. These execution challenges mean that private credit firms must have robust risk management and local insight, or they risk losses and reputational damage.
In summary, while the opportunities are enticing, private credit is not without peril. The confluence of high yields and bespoke deals comes with trade-offs in liquidity and higher credit risk. Both investors and managers in this space must account for these challenges through careful structuring, diversification, and a clear-eyed assessment of macro and micro risks in each market.
Outlook: Future Trajectory and Opportunities
Looking ahead, the trajectory for private credit in Asia’s real estate sector appears broadly positive, albeit with a cautious nuance. Industry experts predict further growth in Asian private debt as the structural drivers remain intact. Moody’s expects the asset class to continue expanding to meet rising financing needs in the region. Many large global investors plan to increase allocations to private credit in Asia, seeing it as a strategic play for yield and diversification. This influx of capital – from North American pensions to Middle Eastern sovereign funds – will provide ample firepower to fund new deals. We can anticipate the launch of more Asia-focused credit funds (some running into billions of dollars) and the entry of new players, including local asset managers spinning up credit strategies.
Real estate will remain a central theme. The funding gap in real estate, especially for development and value-add projects, is not going away. In fact, as Asian cities continue to grow and redevelop, demand for construction financing, bridge loans, and restructuring capital will be significant. Private credit is well-positioned to provide this capital. For investors, this offers an opportunity to participate in Asia’s urban growth story through debt instruments that can deliver equity-like returns. Markets like India and Southeast Asia (e.g. Vietnam, Indonesia) may offer especially high growth potential, as they have huge infrastructure and housing needs but relatively shallow banking sectors. Even in developed markets, opportunities abound: for instance, Japan’s commercial real estate might see more debt recapitalisations as properties change hands, and Australia (not a focus of this article but part of Asia-Pac) is seeing private lenders finance commercial real estate as banks tighten lending to developers.
We also expect innovation and specialisation in private credit. Lenders are likely to craft products tailored to specific opportunities – from green loans for sustainable real estate (renewable energy projects are cited as a new frontier for private credit dominance), to mezzanine debt for logistics and data centres. The case of CapitaLand’s Korea fund focusing on data centres is a harbinger of how sector-specific strategies can thrive. Similarly, distressed debt funds may target non-performing loans in China or other markets when the timing is right, providing turnaround capital with real estate as collateral. As private equity and private credit increasingly work in tandem, we might see hybrid deals – for example, credit funds partnering with equity investors to take over and reposition troubled real estate assets, an approach that can yield both lending returns and upside from asset recovery.
That said, the pace of growth may not be linear. In the near term, 2025 brings a mixed outlook: the recent fundraising slump due to China’s slowdown could moderate expansion in the very short run. But this is likely a temporary adjustment. Should China stabilise and if Asian economies continue to grow, investor confidence will improve. Moreover, a potential pickup in mergers and acquisitions in the region could spur more direct lending opportunities (as acquirers seek private loans to finance deals). In essence, any tightening by banks – whether due to economic cycles or regulatory changes – could act as a catalyst for private credit’s next leg up.
For investors, Asia’s private credit surge presents promising opportunities but also calls for discernment. The best opportunities may lie in sectors and markets where the imbalance between capital demand and supply is greatest, and where lenders can secure robust protections. For example, well-structured loans to quality real estate projects in India or Vietnam might offer high returns with acceptable risk, especially if backed by hard assets. Investors with the capability to assess local market conditions (or partner with experienced regional managers) stand to benefit the most. Many are already seizing the moment – as one law firm partner observed, large sponsors are investing in Asia-focused credit funds to “fill the chasm” left by more constrained traditional funding channels. This trend suggests confidence that Asia’s private credit market is maturing and will deliver competitive returns.
In conclusion, Asia’s private credit boom looks set to continue its upward trajectory, firmly establishing itself as a new frontier for real estate funding. The asset class is transitioning from niche alternative to a mainstream component of Asia’s financial landscape. As long as economic growth and urban development drive financing needs, and as long as investors seek yield and diversification, private credit will play an expanding role in funding Asia’s future. Stakeholders – be it developers in Mumbai, tech startups in Singapore, or commercial landlords in Hong Kong – will increasingly view private credit as a go-to solution for their capital needs. Managing the attendant risks will be crucial, but if done prudently, the synergy between private credit and Asia’s real estate sector can unlock substantial value for years to come.
Sources:
Preqin Asia-Pacific Private Debt Report 2024 – market size, fundraising data, investor trends
Moody’s Analytics (2024) – private credit outlook and Asia real estate lending analysis
Bloomberg (January 2025) – private credit fund launches and Hong Kong commercial lending
Reuters (February 2025) – India real estate private debt deal volume and fund manager quotes
EY Asia Private Credit Report 2024 – sector allocations and growth drivers
PAG (2025) – fund strategy announcement for real estate credit in Japan and Korea
CapitaLand Investment (2025) – launch of South Korea private credit real estate fund
Global Wellness Institute – private credit comparisons to wellness investment risk-reward
S&P Global Market Intelligence (2024) – Asia banking sector lending constraints
CBRE Asia Pacific Capital Markets Update (2025) – private lenders vs traditional real estate debt
Gulf News Business (2024) – family offices and HNWIs in Asia moving into private credit
The Business Times Singapore (2024) – SeaTown $1.5 billion Asia private credit fund launch
Financial Times (2024) – insights on global capital inflows and private credit IRR targets
The National (Nick Webster, 2025) – regional private credit deployment by country
Skift Investment Briefing (2024) – real estate debt recovery strategies and credit outlook
ResearchAndMarkets via GlobeNewswire – Asia Pacific alternative assets allocation trend
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