Financial services company Fedgroup has launched a direct-ownership investment model that enables investors to buy a physical asset and benefit regularly from the returns on that asset via an online platform.
While the model can be applied to many assets, the investment offered first is a solar electricity generation product. Investors can buy panels that are installed on buildings and receive monthly returns from the rental of the panels.
The model is the result of a collaboration between Fedgroup and financial technology company GreenSheep Ventures.
Direct ownership of assets and benefiting from the returns on those assets is not a new concept. In this model, buying the asset and receiving the income the asset generates is done through an online platform using financial technology.
“Technology allows for simplification, and as a result, reduced fees. It also allows for complete transparency, which means the asset owner knows exactly how their assets are performing in near-real-time,” Grant Field, the chief executive of Fedgroup, says.
An investor buys one or more solar panels that are installed on a building – an office complex, for example. One of the first buildings earmarked for an installation is the Cresta Junction office park in Gauteng, with a further 50 buildings lined up.
A solar panel costs R5 200, including VAT and fees, and you can choose the building where you want to buy a panel. Panels can be bought via the online platform on Fedgroup’s website. There is a monthly platform fee of R3.42 per panel (including VAT).
You buy the panel and become the legal owner of the panel. Once 70 percent of the panels for a particular building have been sold, the solar facility is installed. Fedgroup, in collaboration with GreenSheep, manages the facility. Before the installation goes ahead, the money received for panels that have been purchased is held in a trust account earning the prevailing interest rate – currently five percent. If the 70-percent threshold is not reached, investors will get their funds back with interest.
The solar facility is rented to the owner of the building. The actual rental income is based on how much electricity the facility generates. Income is collected by Fedgroup and distributed monthly to you if it exceeds R300. Income under this amount is placed in the trust account and earns interest. In this way, bank charges are kept to a minimum, Field says.
Each panel has a unique serial number, and you can see online exactly how much electricity your panel is generating.
A pilot project indicated that panel owners can expect a return of an estimated 11 percent a year over the 20-year lifespan of the project, after costs have been taken into account.
If you want to sell your panel within the 20 years, Field says, a secondary market will be available next year, where existing and first-time buyers will be able to buy panels. Existing owners will, however, be alerted first if panels are for sale.
There are some risks that will be outside your control as an investor:
• The panels will generate less electricity on overcast and rainy days. However, South Africa is generally a sunny country.
• Damage to the panels is a risk, but Fedgroup will insure against such damage, and the panels come with performance warranties. No excess is applicable in the case of a claim.
• The non-payment of rental by landlords is another risk. However, during the selection process, landlords are carefully evaluated for creditworthiness. “FedGroup, in association with GreenSheep, performs due diligence on project sites, validating the creditworthiness of the prospective landlord. In the event of repeated non-payment, FedGroup will assist the solar asset owner in instituting legal recovery proceedings on their behalf, but this will be at the asset owner’s expense,” Field says.
• You also need to be aware that direct ownership is not regulated by the Financial Services Board (FSB). “The FSB governs investments in traditional models and financial services products. Here, the consumer purchases and becomes the legal owner of an incomegenerating asset. Therefore, the legislative framework that regulates financial services does not apply,” Field says.