After Bathla: what comes next for development funding in Australia

Bathla Group's collapse has put that model in the spotlight. This article explains how private credit came to play this role, why the sector is under pressure, and what developers and brokers should expect from development funding over the next 12 months.

How private credit became a major development funder

The shift is structural. Banks' appetite for development and commercial real estate has tightened because of greater risk in the sector, which created room for private credit to become a major provider of finance. Industry data from CBRE suggested private credit funds around 26% of residential development, including land subdivisions, while its share of commercial property debt is much smaller, at about 4.2%.

Source: CBRE industry data; RBA; administrators' reporting on Bathla Group, 2026.

RBA research confirms the trend. Between December 2019 and December 2025, the non-bank share of lending increased in most sectors, and most notably in residential construction. The RBA also notes that Australian private credit is especially concentrated in real estate.

Estimates of the sector's total size vary widely. A recent RBA Bulletin noted that one estimate put private credit assets under management at $224 billion in late 2025, while the RBA's own estimate was about $50 billion in credit outstanding as of December 2025, with notable data gaps. Commentary published today describes the market as about $200 billion. Whatever the exact figure, private credit has become a significant part of how Australian housing gets built.

It's worth keeping this in perspective. The RBA has noted that non-bank lenders' share of total credit is still relatively small, and that private credit remains a small part of the overall financial system.

Why the sector is under pressure now

Several pressures are hitting development funding at the same time:

• Rising costs. New dwelling prices rose 5.4% in the year to August as builders passed on higher material and labour costs, according to the ABS.
• Falling values. National home values have fallen for six straight months and are now 5.2% below their March peak, according to Cotality.
• Slower sales. Capital city homes now take a median of 39 days to sell, compared with 23 days a year ago, which slows presales and settlement-based exits.
• Higher rates. The RBA cash rate target is now 4.60%, which increases holding costs and reduces buyers' borrowing capacity.
• Regulatory scrutiny. ASIC has said the sector has three months to lift standards before it begins taking action. See ASIC's private credit crackdown.

Bathla is the clearest example of these pressures coming together. The group entered voluntary administration in late August with about $3.4 billion owed to creditors, most of it to secured lenders. Its remaining construction has since stopped, and lenders are increasingly appointing receivers to individual projects and considering asset sales. See Lessons from Bathla.

What developers and brokers should expect

But the terms on which development funding is available are likely to change in several ways.

1. More equity, lower leverage

In a falling market, lenders will place more weight on how much the developer has invested. Expect closer scrutiny of equity contributions and less willingness to lend at the top of the LVR range, especially for projects that depend on sales.

2. More scrutiny of feasibility

Feasibility studies prepared even six months ago may be outdated. Expect lenders to test cost assumptions against current building contracts, check sales forecasts against current comparable sales, and examine contingency allowances in more detail.

3. A sharper focus on exit strategy

Lenders will want to see a credible primary exit and a fallback. That might be a residual stock facility, a refinance into an investment loan, or the ability to hold and lease completed stock. As rate and price pressures persist, a plan that only works in a rising market will struggle to get funded.

4. More questions about the lender's own funding

Developers and brokers should ask how a lender's construction commitments are funded and whether the full facility is committed at approval. Recent events have shown how much this matters. ASIC has also warned about liquidity mismatches between investor redemptions and loan commitments.

5. Smaller, simpler projects may be favoured

Building approval data shows the market is already moving this way. Approvals for dwellings other than houses fell 21.2% in August, while house approvals rose to their highest level since 2021. Projects with shorter build times, clearer end-buyer demand and simpler structures are likely to find funding more easily than large, complex, sales-dependent schemes.

Why this can be healthy

Tighter standards are not necessarily bad for developers. A funding market where lenders assess risk carefully, commit capital properly and price for actual conditions is more stable than one that lends freely in good times and pulls back sharply in bad times.

For experienced developers with well-prepared projects, the current environment may even create opportunities. Less competition for sites, more realistic vendors and lenders looking for quality projects can all work in their favour.

The Funding Door view

Development finance works when the structure matches the project and the exit is credible. A well-prepared submission sets out the costs, the equity, the realistic end values and a clear repayment plan, including what happens if things take longer than expected. Projects presented this way are far more likely to receive a fast, clear decision in any market.