This is Part 2 of a white paper by La Trobe Financial’s CEO, Chris Andrews – you can read Part 1 here.
Investors should now be asking more of every private credit manager. I would include these six:
- What does the fund actually own?
Are the assets senior loans, subordinated loans, developments, equity positions, businesses or related-party exposures?
- How concentrated is the portfolio?
What is the largest borrower-group exposure? What proportion of the fund is represented by the ten largest positions?
- What is happening inside the loan book today?
How much of the portfolio, by value, is in arrears, impaired or in default – and how is that changing over time?
- What security supports the loans?
Does the fund hold a first registered mortgage? What is the LVR? Who performed the valuation, and when was it last reviewed?
- Does the manager use investor capital for its own corporate purposes?
Can investor money be used to acquire businesses or support companies in which the manager holds equity?
- Where does liquidity come from?
What resources support withdrawals, and what happens if redemption requests increase significantly?
A good manager will answer all six directly.
How to think about the market from here
Step back from any single borrower, and from any single fund, and the picture is clearer. Much of what is currently being reported as a private credit problem is a property cycle problem, working its way through lenders that built very different levels of protection against it. The cycle is doing what cycles do. What differs is how well each lender prepared for it.
Price corrections are normal – and this one follows an extraordinary run. Between March 2020 and early 2025, home values across combined regional Australia rose 56.3%, and capital city values rose 33.6%. In Queensland and Western Australia, where population growth ran well ahead of new construction, home values more than doubled. South Australia was not far behind, at 90%.9 And the momentum held right up until the market turned: national prices rose nearly 9% across 2025, taking the national median to a record $880,000 by December, with Perth posting monthly gains as high as 2.4% late in the year – an annualised pace above 25%.10
That is extraordinary growth. No market compounds at that rate indefinitely, and this one has now turned. On Cotality’s Home Value Index, national values fell 0.7% in July 2026 and 0.9% in August, a fifth consecutive monthly decline that leaves them 3.6% below their March 2026 peak.11 Commonwealth Bank expects a peak-to-trough fall of around 9% nationally.12 Measured against history, that is unremarkable. National values fell 8.4% from peak to trough between 2017 and 2019, and 8.4% again in 2022–23 – a decline that played out in under nine months and was recovered within a year, with individual cities recording even greater falls.13 In fact, the Australian housing market has corrected roughly every seven to ten years since 1980.
What matters is the buffer underneath. The gains of the past five years have not been unwound; they have been trimmed. This cycle is shaving the top off an unprecedented multi-year run, not wiping out wealth. We have been here before, more than once, and the sky is not falling.
So here is the plain lesson, and it is a warning to everyone lending into this market. If the collapse of one property developer, or the prospect of a double-digit fall in prices, causes a lender angst, that lender has no business being in the credit business. A property cycle is not an unforeseeable event. It is precisely what you are meant to have underwritten for.
Credit is a promise. When someone entrusts you with their capital, safety has to be the first job, not the last. The managers being found out now are the ones who forgot that while markets were rising – and as an investor, you are entitled to know which kind of manager you are dealing with before the cycle answers the question for you.
What about those tax changes?
Given what’s been going on, it is not surprising that many are pointing the finger at the Federal Government’s changes to capital gains tax and negative gearing in the May Budget. But the truth is more complicated. It’s not unreasonable to say that those changes have negatively impacted market sentiment and have perhaps contributed to some acceleration in price falls. But the decline was underway well before May and the market was showing signs of softening towards the end of 2025.
Which is not to say that the tax changes are helpful. In our opinion, they are not. And to understand why, you need to consider the background and objectives of the changes.
The place to start is the myth that property as an asset class has enjoyed unfair tax advantages. Property is already one of the most heavily taxed assets in the country.
Unlike shares and bonds, for example, property transactions are subject to stamp duty and property taxes. The Property Council of Australia puts the national tax take on property at more than $130 billion a year, and estimates that almost 40 cents in every dollar of the cost of a new home is tax, charges and regulatory cost – a burden its chief executive told a Senate economics committee in June 2026 means property is now taxed “like tobacco”.14
The changes will not help – and will probably materially hurt – housing affordability and home ownership rates. The real issue making it hard for our younger people to buy a home is supply, as it has been for decades. Strip away the noise and the imbalance is simple: too many households, too few homes, and a construction pipeline that keeps going backwards. On OECD figures, Australia has around 420 dwellings for every 1,000 people, against an average closer to 470 across member countries.15 This has been building for a generation, and it is the reason Australian property is expensive. As NAB’s chief economist put it recently, affordability will only improve through a sustained increase in supply, and that is a challenge likely to take “the better part of a generation” to resolve.16
To put it bluntly, you do not increase the supply of something by taxing it more heavily. As the Housing Industry Association’s chief economist has put it, “we cannot tax our way out of the housing affordability problem.”17 The gap is stark: Australia needed more than 250,000 new homes last year simply to keep pace with demand, and started around 196,000.18 Former RBA economist Peter Tulip reaches the same conclusion from a different direction – this is a supply problem, and governments keep reaching for the wrong lever.19
This is simply supply and demand, and it applies whether you own property, lend against it or are trying to buy your first home. The fundamentals have not changed. If anything, this cycle is a reminder of how firmly they still hold.
Our track record
Amidst all of the noise, La Trobe Financial will continue to construct the same high-quality, ultra-diversified portfolios that we have done for decades. Since first offering investment products to individual investors in 1989, La Trobe Financial has navigated recession, the global financial crisis, COVID-19, the Silicon Valley Bank dislocation and repeated property cycles.
Across that period, including the 2008 episode described above, we have never frozen, gated or restricted redemptions in any of our portfolios. Every withdrawal request has been met on time and in full, in accordance with the terms of the relevant product. And no investor in any of our pooled portfolios has ever lost a single cent of their capital.^
That record reflects choices made long before any particular borrower entered the headlines.
We lend against quality assets, take genuine security, maintain conservative LVRs and diversify across thousands of loans. We keep debt as debt, hold liquidity before it is needed and communicate plainly with investors.
The takeaway
This cycle will produce difficult borrower outcomes. Lending involves risk, and every credit cycle throws up loans that need active management.
A borrower coming under pressure does not, by itself, define the quality of a manager. The real test is whether one problem can determine the outcome for investors.
That answer was settled before the problem arrived: in the size of the exposure, the security taken, the recovery options available, the liquidity framework established and the quality of the reporting.
The cycle does not create those protections. It reveals whether they were ever there.
Read Part 1 here.
Footnotes
9 CoreLogic, five-year review of the pandemic housing cycle, March 2025. National dwelling values rose 38.4% between March 2020 and early 2025, with combined regional values up 56.3% against 33.6% across the capital cities. https://www.abc.net.au/news/2025-03-14/charts-show-how-the-housing-market-has-changed-since-covid/105052772
10 PropTrack Home Price Index, December 2025. National home prices rose 8.8% over the 2025 calendar year to a record median of $880,000. https://www.realestate.com.au/insights/proptrack-home-price-index-december-2025/
11 Cotality (formerly CoreLogic), Home Value Index, August 2026, released 1 September 2026. National dwelling values fell 0.9% in August, a fifth consecutive monthly decline, leaving them 3.6% below their March 2026 peak at a median of $912,885. The July result was subsequently revised from a 0.7% fall to a 1.2% fall. https://www.cotality.com/au/insights/articles/monthly-housing-chart-pack-august-2026
12 Commonwealth Bank of Australia, Economic Insights, September 2026. CBA expects national dwelling prices to fall by around 9% peak to trough this cycle, with declines of around 13% in Sydney, 12% in Melbourne and 8% in Brisbane, Perth and Adelaide. https://www.commbank.com.au/articles/newsroom/2026/09/housing-correction-deepens-commbank-economists.html
13 CoreLogic Daily Home Value Index. National dwelling values fell 8.38% between October 2017 and June 2019, a downturn that ran for 20 months, and 8.40% between 7 May 2022 and 7 January 2023, in under nine months. https://www.yourinvestmentpropertymag.com.au/news/home-values-record-steepest-downturn-in-history
14 Mike Zorbas, Chief Executive, Property Council of Australia, quoted in Property Council: tax package still threatens housing supply, Australian Broker, 19 June 2026: “Between three levels of government that total tax take is north of $130 billion annually and rising.” https://www.brokernews.com.au/news/breaking-news/property-council-tax-package-still-threatens-housing-supply-289545.aspx
15 OECD, Affordable Housing Database, indicator HM1.1: Housing stock and construction. Australia recorded approximately 420 dwellings per 1,000 inhabitants in 2022, against an OECD average of roughly 468. https://webfs.oecd.org/Els-com/Affordable_Housing_Database/HM1-1-Housing-stock-and-construction.pdf
16 Dr Sally Auld, Chief Economist, NAB, opening statement to the Senate Select Committee on Intergenerational Housing Inequity, 3 September 2026. https://www.nab.com.au/news/economy-markets/nab-chief-economist-opening-statement-to-senate-select-committee
17 Tim Reardon, Chief Economist, Housing Industry Association, Housing cannot be made more affordable by increasing taxes, 25 September 2024. https://hia.com.au/our-industry/newsroom/industry-policy/2024/09/housing-cannot-be-made-more-affordable-by-increasing-taxes
18 Housing Industry Association, Australia’s housing shortage to worsen as home building falls behind population growth, 17 June 2026. HIA estimates Australia needed more than 250,000 homes last year to keep pace with demand, against commencements of just 196,000. https://hia.com.au/our-industry/newsroom/economic-research-and-forecasting/2026/06/australias-housing-shortage-to-worsen-as-home-building-falls-behind-population-growth
19 Peter Tulip, Chief Economist, Centre for Independent Studies and former Reserve Bank of Australia economist, submission to the Productivity Commission inquiry into housing supply regulation, June 2026. https://www.petertulip.com/research
