Finding Australia on the Credit Compass

The credit compass points to Australia. In a world with elevated interest rates, the case for real estate credit is looking more compelling, supported in Australia by firm population gains, robust housing demand, higher funding costs and good structural resilience.

From brain drain to brain gain. In an unpredictable and volatile world, Australia remains an open island of stability, increasingly drawing larger volumes of immigrants – particularly the young and the highly educated – which provides a welcome boost to economic demand, at a time of challenging demographic headwinds elsewhere.

More resilient real estate markets. Australian real estate asset prices are structurally more resilient, demonstrated over 40 years of history and again in this global downturn. Importantly, milder asset price swings domestically help to moderate credit investment risks.

Vital lending market features. There are key structural market features that work for the lender in Australia. Full recourse loans mean borrowers cannot simply ‘hand back the keys’ and ‘walk away’, typically resulting in low instances of credit default and losses.

The tailwinds are not this strong everywhere. Altogether, Australia stands out well relative to other developed credit markets, given very different degrees of market resilience. The sharp market distress currently unfolding in Europe and the US looks more muted here.

Australia warrants an outsized credit allocation. In our view, there is a deep A$500 billion market opportunity that warrants a reallocation out of real estate equity (where we see entrenched underperformance for core strategies) and out of global credit (given more elevated risks of disruptive pricing adjustments in Europe, North America and Asia).