SISTEMA DE GESTIÓN DE CALIDAD

Kardan NV operates in the field of entrepreneurial real estate development (construction for residential purposes), particularly in Central and Eastern Europe (through GTC Poland) , in China (through Kardan Asia – see description of the “Real Estate in Asia” activity sector) and, until October 5, 2011, also in Israel (through Kardan Real Estate).

7.16.1 The residential construction market in Central and Eastern Europe

In recent years, until the global economic crisis began, the market for modern real estate construction in several Central-Eastern European nations was typified by substantial growth, since the number of modern residential apartments in that region, relative to the number of residents, was lower than that ratio in Western Europe.

Following the economic crisis that impacted on European nations from the second half of 2008, many international entities stopped purchasing residential apartments for investment purposes. In addition, the reduced availability of mortgages for private individuals and for financing developers and contractors had a negative impact on the residential market (together with reduced demand). As a result of this, in 2008 and 2009, hardly any new projects were developed, and a large number of projects planned by various contractors were put on hold or postponed.

In Poland in 2011 in comparison to 2010, there has been an increase of 7% of sale of residential apartments, which attests to a stable year in comparison with the parallel period the previous year. However, there has been a greadual decrease in the number of new projects and a decrease of approximately 6% in the price of apartments. During 2011, due to the growing competition in the residential construction market, a consistent decrease can by distinguished, in the prices and apartments and an improvement of payment terms, in addition to a decline in the mortgage market and scant available financing which is characterized by negative demand for apartments.

In Romania, the second half of 2011 saw stabilization of prices. However, there is is still a supply of apartments waiting for sale. The effective interest rate of mortgages is continues to be high for potential buyers and has a negative impact on the residential market. The slow rate of sales of completed apartments ready

for transfer and projects under construction, has a financial impact on developers17.

Following the aforementioned economic crisis, the GTC Group modified its activities and development program to accord with the current state of the markets. Concerning the projects that have already begun, the GTC Group is examining and matching the pace of construction and progress of each project to the current state of the market. Concerning the projects whose construction has not yet begun, the GTC group is considering the option of changing the designation of residential projects to office space projects.

7.16.2. Competition in the residential construction market

In the field of residential construction, the GTC Group is exposed to competition from several real estate developers, real estate companies as well as other real estate owners in the regions in which the GTC Group’s properties are located, which, as of the date of the Report, have been significantly reduced due to the global economic crisis.

The following factors contribute greatly to the success of the GTC Group: local management teams, skilled and experienced in real estate; diversifying the real estate portfolio over different countries and cities and over several real estate fields (office, commercial and residential); an educated choice of locations where the GTC Group elects to establish projects and matching the type of project to a specific location; focus on the selection of large projects that are constructed in stages according to demand; considerable attention to the due diligence process before embarking on any project and to meeting predetermined project completion deadlines; and a diverse range of financing sources (banks, equity and debentures).

The following factors contribute to the success of activities in Central-Eastern Europe: in depth familiarity with and experience in the Central-Eastern European real estate market, close working ties with international financing bodies; alliances with international marketers who have longstanding and successful ties and working experience with the GTC Poland Group; proven ability to communicate with a wide range of international or local tenants on long-medium range contracts; the size of the GTC Group and its spread over Central-Eastern Europe.

17

The survey of Polan and Romania is based on information received from Jones Lang LaSalle and relates to markets of propery development. The company believes that the information in this survey included various details about these markets and different assessments regarding the development of these markets,, is reliable information. However the company has not examined the information independently and is unable to guarantee the accuracy and completeness of the information.

7.16.3 The chief entry and exit barriers in the residential construction sector

The entry barriers in the residential construction sector are: (1) reputation, proven experience and quality personnel; (2) availability of land in desirable locations and at desirable prices, economic feasibility and the forecasted rates of return; (3) the need for financing and bank support, and equity requirements; (4) financial robustness.

The exit barriers in the residential construction sector are: (1) long-term contracts with landowners and/or other real estate companies with which Kardan Real Estate has contracted to implement various projects, which restrict the dismantling of the partnership between the parties involved; (2) Kardan Real Estate’s undertaking (contractual and legal) to the purchasers of apartments in projects (including with respect to guaranteeing investments and the making-good period); (3) the length of time it can take to realize real estate assets; and (4) long-term contractual undertakings vis-à-vis government authorities.

7.16.4 Alternatives to products in the activity sector

Secondhand apartments and self-built housing units constitute the main alternative to purchasing new apartments. In addition, renting apartments for various periods constitutes an additional alternative to purchasing apartments.

7.17 Aggregate dataThe following tables include aggregate data concerning construction projects in the residential sector in Europe.