**SECURITIES AND EXCHANGECOMMISSION** Washington, D.C. 20549

**Form 20 F/A**

**o****REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**OR**

**x****ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**For the fiscal year ended December 31, 2005**

**OR**

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**for the transition period from       to       **

**OR**

**o****SHELLCOMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

**Date of event requiring this shell companyreport:  N/A**

**CommissionFile Number:  1-32229**

**DesarrolladoraHomex, S.A.B. de C.V.**

**(Exact name of Registrant asspecified in its charter)**

| **Homex Development Corp.**                           |   | **United  Mexican States**                       |
|-------------------------------------------------------|--------|--------------------------------------------------|
| (Translation of  Registrant’s name into English) |   | (Jurisdiction of  incorporation or organization) |

 

**Boulevard AlfonsoZaragoza M. 2204 Norte**

**80020 Culiacán Sinaloa,México**

**Telephone: (52667) 758-5800**

**(Address of principal executive offices)**

**Securitiesregistered or to be registered pursuant to Section 12(b) of the Act:**
| **Title of each class:**                                                             | ** ** | **Name of exchange on which registered:** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------|
|                                                                                 |       |                                      |
| Common Shares, without par value                                                     |       | New York Stock  Exchange                  |
|                                                                                 |       |                                      |
| American Depositary Shares, each  representing six Common  Shares, without par value |       | New York Stock  Exchange                  |

 

**Securities registered or to beregistered pursuant to Section 12(g) of the Act:**

**None**

**Securities for which there is a reporting obligationpursuant to Section 15(d) of the Act:**

**7.50% SeniorGuaranteed Exchange Notes due September 28, 2015**

**Indicatethe number of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by the annual report:**

**335,869,550Common Shares, without par value**

**Indicate by check mark whether the registrant is awell known seasoned issue as defined in Rule 405 of the Securities Act.**

**Yes  ****x     No  ****o**

**If this report is an annual ortransition report, indicate by check mark if the registrant is not required tofile reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934.**

**Yes  ****o     No  ****x**

**Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports) and (2) has been subjectto such filing requirements for the past 90 days.**

**Yes  ****x     No  ****o**

**Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of accelerated filer and large accelerated filer in Rule 12b-2 ofthe Exchange Act. (Check one):**

**Largeaccelerated filer ****x                     AcceleratedFiler****o                      Nonaccelerated filer****o**

**Indicate by checkmark which financial statement item the registrant has elected to follow:**

**Item 17  ****o     Item18  ****x**

**If this is an annual report, indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).**

**Yes  ****o     No  ****x**

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*              Not fortrading but only in connection with the registration of American DepositaryShares, pursuant to the requirements of the Securities and Exchange Commission.

 

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| **EXPLANATORY NOTEX** |                                                                          |
|-----------------------|-------------------------------------------------------------------------------|
| **PART I**            |                                                                          |
| ITEM 1.               | IDENTITY OF  DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                        |   |
| ITEM 2.               | OFFER  STATISTICS AND EXPECTED TIMETABLE                                      |   |
| ITEM 3.               | KEY INFORMATION                                                               |   |
| ITEM 4.               | INFORMATION ON  THE COMPANY                                                   |   |
| ITEM 4A.              | UNRESOLVED  STAFF COMMENTS                                                    |   |
| ITEM 5.               | OPERATING  AND FINANCIAL REVIEW AND PROSPECTS                                 |   |
| ITEM 6.               | DIRECTORS,  SENIOR MANAGEMENT AND EMPLOYEES                                   |   |
| ITEM 7.               | MAJOR  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            |   |
| ITEM 8.               | FINANCIAL  INFORMATION                                                        |   |
| ITEM 9.               | THE OFFER AND  LISTING                                                        |   |
| ITEM 10.              | ADDITIONAL  INFORMATION                                                       |   |
| ITEM 11.              | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |   |
| ITEM 12.              | DESCRIPTION  OF SECURITIES OTHER THAN EQUITY SECURITIES                       |   |
| **PART II**           |                                                                          |
| ITEM 13.              | DEFAULTS,  DIVIDEND ARREARAGES AND DELINQUENCIES                              |   |
| ITEM 14.              | MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |   |
| ITEM 15.              | CONTROLS AND  PROCEDURES                                                      |   |
| ITEM 16A.             | FINANCIAL EXPERT                                                              |   |
| ITEM 16B.             | CODE OF ETHICS                                                                |   |
| ITEM 16C.             | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                       |   |
| ITEM 16D.             | EXEMPTIONS  FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |   |
| ITEM 16E.             | PURCHASES  OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       |   |
| **PART III**          |                                                                          |
| ITEM 17.              | FINANCIAL  STATEMENTS                                                         |   |
| ITEM 18.              | FINANCIAL  STATEMENTS                                                         |   |
| ITEM  19.             | EXHIBITS                                                                      |   |

 

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**EXPLANATORY NOTE**

This Annual Report on Form20-F/A is being filed as an amendment to our Annual Report on Form 20-F for thefiscal year ended December 31, 2005, to incorporate various changes andadditional disclosures not previously contained in our original Annual Reporton Form 20-F filed on June 29, 2006.   Wehave filed this amendment in order to reflect the restatement of our auditedconsolidated financial statements as of and for the year ended December 31, 2005.  We undertook the restatement of our financialstatements after we identified several differences in the purchase priceallocation process relating to the acquisition of Controladora Casas Beta, S.A.de C.V. (“Beta”), which occurred on July 1, 2005. 

The differences we identified, which have had an impact on our restatedfinancial statements are as follows: 

(1)           the addition of the previouslyunrecognized deferred income tax liability associated with the intangible assetfor the Beta trademark. 

(2)           the addition of the previouslyunidentified intangible asset related to the value of the backlog of housesunder construction as of the date of the Beta acquisition and the addition ofthe deferred income tax liability associated with this backlog. 

(3)           the addition of the previouslyunrecognized amortization of the intangible assets related to the Betatrademark and the backlog of houses under construction from the date of theBeta acquisition to December 31, 2005 and their related deferred income taxeffects. 

(4)           an adjustment to the U.S. GAAP reconciliationassociated with the effect of the additional deferred tax liability on theadjustment related to the recognition of revenues between Mexican GAAP and USGAAP. This adjustment is related to aninterpretation of a change in the applicable tax law beginning in 2005.

Additionally, we restatedour statements of cash flows for the years ended December 31, 2005 and 2004 toproperly present restricted cash and the acquisition of Beta. 

As a result of therestatement, we have made several corresponding changes to our disclosure inthe following sections: “Item 3. Key Information,” “Item 5. Operating andFinancial Review and Prospects.”  OurChief Executive Officer and Chief Financial Officer have also reevaluated theeffectiveness of our disclosure controls within “Item 15. Controls andProcedures.”   In addition, our ChiefExecutive Officer and Chief Financial Officer have updated their certificatesincluded in Item 19. 

Exceptas expressly set forth herein, this amendment to our Annual Report on Form 20-Fdoes not reflect events occurring after June 29, 2006.  This amendment should be read in conjunctionwith our Annual Report on Form 20-F as filed on June 29, 2006. 

**PRESENTATION OF FINANCIAL INFORMATION**

Throughout this annual report, unless the context otherwiserequires, the terms “we,” “us,” “our,” “the Company” and “Homex” refer toDesarrolladora Homex, S.A.B. de C.V. and its subsidiaries, includingControladora Casas Beta, S.A. de C.V. and its subsidiaries, which we acquiredthrough a merger on July 1, 2005. In this annual report, Controladora CasasBeta, S.A. de C.V. is sometimes referred to as “Beta.”  Effective June 28, 2006, our name isDesarrolladora Homex, S.A.B. de C.V. to reflect a change in corporate form. See“Item 10. Additional Information.”

**Financial Information**

This annual report includes our audited consolidatedfinancial statements as of December 31, 2004 and 2005 (as restated) and for each of the three years ended December 31, 2003, 2004 and 2005 (as restated). Our consolidated financial statements and other financialinformation included in this annual report, unless otherwise specified, arerestated in constant pesos as of December 31, 2005. 

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We prepare our financial statements in constant pesos andin accordance with accounting principles generally accepted in Mexico, referredto as Mexican GAAP, which differ in certain significant respects fromaccounting principles generally accepted in the United States, referred to asU.S. GAAP. See Notes 24 and 25 to our audited consolidated financial statementsfor information relating to the nature and effect of such differences and for aquantitative reconciliation of our majority net income and majoritystockholders’ equity according to Mexican GAAP to consolidated net income and consolidatedstockholders’ equity according to U.S. GAAP.

Under Bulletin B-10, issued by the Mexican Instituteof Public Accountants, we are required to present our respective financialinformation in inflation-adjusted monetary units to allow for more accuratecomparisons of financial line items over time and to mitigate the distortiveeffects of inflation on our financial statements. Unless otherwise indicated,all financial information in this annual report has been restated in pesos ofconstant purchasing power as of December 31, 2005. The Mexican NationalConsumer Price Index, or NCPI, increased 3.4% from December 31, 2004 toDecember 31, 2005.

We are also required to determine any gain or loss in ourrespective monetary positions to reflect the effect of inflation on monetaryassets and liabilities under Mexican GAAP. This is done by subtracting monetaryliabilities from monetary assets and then adjusting net monetary position bythe appropriate inflation rate for the period with the resulting monetary gainor loss reflected in earnings.

Pursuant to Mexican GAAP, we recognize revenues from thesale of homes based on the percentage -of -completion method of accounting, which requires us to recognizerevenues as we incur the cost of construction. In this annual report, we use“sell” and refer to homes “sold” in connection with homes where: 

·                  the home buyerhas submitted all required documents in order to obtain financing from themortgage lender;

·                  we establishthat the home buyer will obtain the required financing from the mortgagelender;

·                  the home buyerhas signed a purchase application; and

·                  the home buyerhas made a down payment, where down payments are required.

We use “deliver” and refer to homes “delivered” inconnection with homes for which title has passed to the buyer and for which wehave received the sale proceeds.

***Currency Information***

Unless otherwise specified, references to “US$,” “U.S.dollars” and “dollars” are to the lawful currency of the United States.References to “Ps.” and “pesos” are to the lawful currency of Mexico.References to “UDI” and “UDIs” are to Unidades de Inversion, units of accountwhose value in pesos is indexed to inflation on a daily basis by Banco deMexico, Mexico’s central bank and published periodically.

This annual report contains translations of various pesoamounts into U.S. dollars at specified rates solely for the convenience of thereader. You should not understand these translations as representations thatthe peso amounts actually represent these U.S. dollar amounts or could beconverted into U.S. dollars at the rate indicated. Unless otherwise indicated,we have translated U.S. dollar amounts in this annual report at the exchangerate of Ps. 10.63 to US$1.00, which was the noon buying rate for cable transfersin pesos published by the Federal Reserve Bank of New York, expressed in pesosper U.S. dollar, on December 31, 2005. On June 23, 2006, such noon buying ratewas Ps.11.44 to US$1.00.

Unless otherwise indicated, references to UDIs are to UDIsat the Banco de Mexico UDI conversion rate of Ps.3.64 to UDI 1.00 on December31, 2005. On June 23, 2006, Banco de Mexico’s UDI conversion rate was Ps.3.67to US$1.00. Industry And Market Data

Market data and other statistical information usedthroughout this annual report are based on independent industry publications,government publications, reports by market research firms or other publishedindependent sources. Some data are also based on our estimates, which arederived from our review of internal surveys, as well as independent sources. 

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Although we believe these sources are reliable, we have notindependently verified the information and cannot guarantee its accuracy orcompleteness.

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**MARKET SHARE AND OTHER INFORMATION**

***Other Information Presented***

The standard measure of area in the real estate market inMexico is the square meter (m2). Unless otherwise specified, all units of areashown in this annual report are expressed in terms of square meters, acres orhectares. One square meter is equal to approximately 10.764 square feet.Approximately 4,047 square meters (or 43,562 square feet) are equal to one acreand one hectare is equal to 10,000 square meters (or approximately 2.5 acres).

**FORWARD LOOKING STATEMENTS**

This annual report and the documents incorporated byreference into this annual report contain forward-looking statements. We mayfrom time to time make forward-looking statements in our  periodic reports to the SEC on Form 6-K,in our annual report to shareholders, in prospectuses, press releases and otherwritten materials and in oral statements made by our officers, directors oremployees to analysts, institutional investors, representatives of the mediaand others. Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,”“target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “should”and similar expressions are intended to identify forward-looking statements,but are not the exclusive means of identifying these statements. Examples ofthese forward-looking statements include:

·                  projections ofrevenues, net income (loss), earnings per share, capital expenditures,dividends, capital structure or other financial items or ratios;

·                  statements ofour plans, objectives or goals, including those relating to anticipated trends,competition, regulation, government housing policy and rates;

·                  statementsabout our future economic performance or that of Mexico; and

·                  statements ofassumptions underlying these statements.

You should not place undue reliance on forward-lookingstatements, which are based on current expectations. Forward-looking statementsare not guarantees of performance. They involve risks, uncertainties andassumptions. Our future results may differ materially from those expressed inforward-looking statements. Many of the factors that will determine theseresults and values are beyond our ability to control or predict. Allforward-looking statements and risk factors included in this annual report aremade as of the date on the front cover of this annual report, based on informationavailable to us as of such date, and we assume no obligation to update anyforward-looking statement or risk factor.

# **PART I**

**ITEM 1.**                    Identity ofDirectors, Senior Management and Advisors.

Not Applicable.

**ITEM 2.**                    OfferStatistics and Expected Timetable.

Not Applicable.

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**ITEM 3.       KeyInformation.**

**SELECTED FINANCIAL DATA**

The followingtables present our selected consolidated financial information as of and forthe periods indicated. Certain information presented in these tables does notinclude our Beta subsidiary which we acquired on July 1, 2005. Information asof December 31, 2004 and 2005 (as restated) and for each ofthe three years ended December 31, 2003, 2004 and 2005 (as restated) are derived from and should be read together with our auditedconsolidated financial statements provided in this annual report beginning onpage F-1. Our consolidated financial statements and other financialinformation included in this annual report, unless otherwise specified, arerestated in constant pesos as of December 31, 2005. As discussed in theexplanatory paragraph included within the forepart of this document, theconsolidated financial information as of and for the year ended December 31,2005 has been restated for certain differences found in its purchase price allocationfor the purchase of Beta and its deferred income taxes. 

The informationin the following tables should also be read together with “Item 5. Operatingand Financial Review and Prospects”

Our consolidatedfinancial statements are prepared in accordance with Mexican GAAP, whichdiffers in certain significant respects from U.S. GAAP. Notes 24 and 25 to ouraudited consolidated financial statements provide information relating to thenature and effect of such differences as they relate to us and provide areconciliation to U.S. GAAP of consolidated net income and consolidatedstockholders’ equity.

Pursuant toMexican GAAP, our consolidated financial statements and the selectedconsolidated financial data set forth below restate the components of stockholders’equity using NCPI factors and record gains and losses in purchasing power fromholding monetary assets or liabilities. Under Mexican GAAP, non-monetaryassets, with the exception of inventories and fixed assets of non-Mexicanorigin, are restated using the NCPI factors. Inventories are restated atcurrent replacement costs while fixed assets of foreign origin are restated bythe inflation rate of the country of origin prior to translation to pesos atthe period-end exchange rate. Mexican GAAP also requires restatement of allfinancial statements to pesos of constant purchasing power as of the date ofthe most recent balance sheet presented, and accordingly all data in theconsolidated financial statements and in the selected consolidated financial dataset forth below have been restated in pesos of constant purchasing power as ofDecember 31, 2005. The effects of inflation accounting under Mexican GAAP,other than for the use of a specific index for the restatement of fixed assetsof foreign origin, have not been reversed in the reconciliation to U.S. GAAP.See Notes 24 and 25 to our consolidated financial statements.

On May 15, 2004,one of our affiliates, Econoblock, S.A. de C.V., merged with one of oursubsidiaries, Desarrolladora de Casas del Noroeste, S.A. de C.V., or DECANO,with DECANO assuming all the rights and obligations of the merged company.Because the companies were under common control, the merger was recorded byrecognizing the assets and liabilities transferred at their carrying amounts inthe accounts of the transferring entity at the date of transfer, in a mannersimilar to a pooling of interests, based on the guidance provided by Statementof Financial Accounting Standards No. 141, “Business Combinations,” issued bythe Financial Accounting Standards Board, and in accordance with Bulletin A-8,“Supplemental Application of International Accounting Standards” issued by theMexican Institute of Public Accountants. Therefore, the accompanying financialstatements of the merged company are included as if the merger had taken placeas of the beginning of the earliest period presented. See Note 2 to ourconsolidated financial statements.

Except forratios, percentages, share, per share, per ADS, and operating data, all amountsare presented in thousands of constant pesos.

For additionalinformation regarding financial information presented in this annual report,see “Presentation of Financial and Other Information.”

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**Homex Selected Consolidated Financial Information**.
| ** **                                                               | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                               | ** ** | **As restated**                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                               | ** ** | **2005  (Ps.)**                            | ** ** | **2004  (Ps.)** | ** ** | **2003  (Ps.)** | ** ** | **2002  (Ps.)** | ** ** | **2001  (Ps.)** | ** ** |
| Statement of  operations data:                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Mexican GAAP:                                                            |       |                                       |       |   |   |   |   |   |   |   |   |
| Revenues (2)                                                             |       | 8,536,162                                  |       | 5,491,294 |   | 3,008,841 |   | 1,403,255 |   | 839,447 |   |
| Costs                                                                    |       | 5,945,061                                  |       | 3,823,572 |   | 2,152,170 |   | 983,408 |   | 588,860 |   |
| Gross profit                                                             |       | 2,591,101                                  |       | 1,667,722 |   | 856,671 |   | 419,846 |   | 250,587 |   |
| Selling and  administrative expenses                                     |       | 845,799                                    |       | 447,901 |   | 275,643 |   | 173,173 |   | 127,830 |   |
| Income from  operations                                                  |       | 1,745,302                                  |       | 1,219,821 |   | 581,028 |   | 246,673 |   | 122,757 |   |
| Other income  (expense)                                                  |       | 23,443                                     |       | 44,473 |   | 80,454 |   | (1,826 | ) | 10,911 |   |
| Net  comprehensive financing cost (3)                                    |       | 457,561                                    |       | 164,948 |   | 131,834 |   | 154,304 |   | 134,899 |   |
| Income (loss)  before income taxes and employee statutory profit sharing |       | 1,311,184                                  |       | 1,099,346 |   | 529,648 |   | 90,543 |   | (1,228 | ) |
| Income tax  expense                                                      |       | 425,048                                    |       | 350,945 |   | 189,474 |   | 55,415 |   | 17,397 |   |
| Employee  statutory profit-sharing expense                               |       | 9,590                                      |       | 8,806 |   | 285 |   | 1,616 |   | 198 |   |
| Consolidated net  income (loss)                                          |       | 876,546                                    |       | 739,595 |   | 339,889 |   | 33,514 |   | (18,824 | ) |
| Net income  (loss) of majority stockholders                              |       | 883,262                                    |       | 730,227 |   | 334,410 |   | 32,102 |   | (18,824 | ) |
| Net income  (loss) of minority stockholders                              |       | (6,716                                     | )          | 9,368 |   | 5,479 |   | 1,411 |   | — |   |
| Weighted average  shares outstanding                                     |       | 324,953                                    |       | 281,997 |   | 241,521 |   | 191,896 |   | 147,637 |   |
| Basic and  diluted earnings (loss) per share                             |       | 2.72                                       |       | 2.59 |   | 1.38 |   | 0.16 |   | (0.12 | ) |
| Basic and  diluted earnings (loss) per ADS (4)                           |       | 16.32                                      |       | 15.54 |   | 8.28 |   | 0.98 |   | (0.74 | ) |
| U.S. GAAP:                                                               |       |                                       |       |   |   |   |   |   |   |   |   |
| Revenues (2)                                                             |       | 7,607,045                                  |       | 4,077,639 |   | 2,815,304 |   | 1,258,571 |   |   |   |
| Costs                                                                    |       | 5,697,063                                  |       | 3,073,788 |   | 2,159,223 |   | 995,928 |   |   |   |
| Gross profit                                                             |       | 1,909,982                                  |       | 1,003,851 |   | 656,080 |   | 262,643 |   |   |   |
| Operating income  (5) (6)                                                |       | 1,058,048                                  |       | 539,636 |   | 380,105 |   | 89,084 |   |   |   |
| Net income                                                               |       | 779,692                                    |       | 436,311 |   | 254,567 |   | 66,475 |   |   |   |
| Weighted average  shares outstanding                                     |       | 324,953                                    |       | 281,997 |   | 241,521 |   | 191,896 |   |   |   |
| Basic and  diluted earnings per share                                    |       | 2.40                                       |       | 1.55 |   | 1.05 |   | 0.35 |   |   |   |
| Basic and diluted  earnings per ADS (4)                                  |       | 14.40                                      |       | 9.28 |   | 6.32 |   | 2.08 |   |   |   |

 

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| ** **                        | ** ** | **As of and for Year Ended December 31,** | ** ** |
|-----------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **As restated**                                                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **2005  (Ps.)**                                                              | ** ** | **2004  (Ps.)** | ** ** | **2003  (Ps.)** | ** ** | **2002  (Ps.)** | ** ** | **2001  (Ps.)** | ** ** |
| ** **                        |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Balance sheet data:               |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Mexican GAAP:                     |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Cash and temporary investments    |       | 1,318,776                                                                    |       | 528,223 |   | 227,507 |   | 71,202 |   | 49,009 |   |
| Trade accounts receivable         |       | 5,557,198                                                                    |       | 3,276,464 |   | 1,906,560 |   | 1,312,165 |   | 1,128,870 |   |
| Total current assets              |       | 10,571,234                                                                   |       | 6,088,519 |   | 3,213,769 |   | 1,763,720 |   | 1,291,246 |   |
| Land held for future development  |       | 1,785,044                                                                    |       | 520,853 |   | 247,946 |   | 90,756 |   | 144,997 |   |
| Property and equipment            |       | 460,831                                                                      |       | 259,838 |   | 59,176 |   | 28,007 |   | 19,008 |   |
| Total assets                      |       | 14,109,422                                                                   |       | 7,001,043 |   | 3,567,491 |   | 1,893,120 |   | 1,467,130 |   |
| Current portion of long-term debt |       | 17,386                                                                       |       | 410,384 |   | 694,491 |   | 430,954 |   | 500,597 |   |
| Total current liabilities         |       | 3,610,946                                                                    |       | 2,257,502 |   | 1,789,066 |   | 719,903 |   | 689,927 |   |
| Long-term debt                    |       | 3,336,150                                                                    |       | 165,472 |   | — |   | — |   | — |   |
| Land purchases — long-term   |       | 11,029                                                                       |       | 20,761 |   | — |   | — |   | — |   |
| Total long-term liabilities       |       | 4,808,357                                                                    |       | 840,652 |   | 367,328 |   | 205,275 |   | 176,242 |   |
| Total liabilities                 |       | 8,419,303                                                                    |       | 3,098,154 |   | 2,156,394 |   | 925,178 |   | 866,170 |   |
| Common stock                      |       | 489,059                                                                      |       | 224,378 |   | 179,070 |   | 172,989 |   | 137,077 |   |
| Total stockholders’ equity   |       | 5,690,119                                                                    |       | 3,902,889 |   | 1,411,098 |   | 967,941 |   | 600,961 |   |
| U.S. GAAP:                        |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents         |       | 1,318,776                                                                    |       | 528,223 |   | 227,507 |   | 71,202 |   |   |   |
| Restricted cash                   |       | 311                                                                          |       | 21,162 |   | — |   | — |   |   |   |
| Accounts receivable               |       | 1,139,218                                                                    |       | 743,288 |   | 600,931 |   | 193,241 |   |   |   |
| Total current assets              |       | 9,805,414                                                                    |       | 5,731,857 |   | 2,940,963 |   | 1,585,083 |   |   |   |
| Land held for future development  |       | 1,785,044                                                                    |       | 520,853 |   | 244,100 |   | 90,755 |   |   |   |
| Property and equipment            |       | 460,831                                                                      |       | 259,838 |   | 59,176 |   | 28,007 |   |   |   |

 

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| ** **                                                              | ** ** | **As of and for Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **As restated**                                                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                              | ** ** | **2005  (Ps.)**                                                              | ** ** | **2004  (Ps.)** | ** ** | **2003  (Ps.)** | ** ** | **2002  (Ps.)** | ** ** | **2001  (Ps.)** | ** ** |
| Total assets                                                            |       | 13,550,357                                                                   |       | 6,644,382 |   | 3,282,997 |   | 1,714,484 |   |   |   |
| Total current  liabilities                                              |       | 5,023,444                                                                    |       | 3,056,803 |   | 2,079,525 |   | 874,326 |   |   |   |
| Total  stockholders’ equity                                        |       | 5,102,848                                                                    |       | 3,338,895 |   | 1,155,909 |   | 834,792 |   |   |   |
| Other financial  data:                                                  |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Mexican GAAP:                                                           |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Depreciation                                                            |       | 61,711                                                                       |       | 25,054 |   | 11,436 |   | 6,998 |   | 7,571 |   |
| Gross margin (7)                                                        |       | 30.4                                                                         | %          | 30.4 | % | 28.5 | % | 30.0 | % | 30.0 | % |
| Operating margin  (8)                                                   |       | 20.4                                                                         | %          | 22.2 | % | 19.3 | % | 17.6 | % | 14.6 | % |
| Net margin (9)                                                          |       | 10.3                                                                         | %          | 13.5 | % | 11.3 | % | 2.4 | % | (2.2 | )% |
| Other financial  data computed from Mexican GAAP financial information: |       |                                                                         |       |   |   |   |   |   |   |   |   |
| EBITDA (10)                                                             |       | 1,992,510                                                                    |       | 1,289,348 |   | 672,918 |   | 251,847 |   | 141,241 |   |
| Net debt (11)                                                           |       | 2,045,789                                                                    |       | 67,734 |   | 466,984 |   | 359,752 |   | 451,588 |   |
| Ratio of total  debt to total stockholders’ equity                 |       | 58.0                                                                         | %          | 15.3 | % | 49.2 | % | 44.5 | % | 83.3 | % |
| Ratio of total  debt to total assets                                    |       | 23.9                                                                         | %          | 8.5 | % | 19.5 | % | 22.8 | % | 34.1 | % |
| U.S. GAAP:                                                              |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Gross margin (7)                                                        |       | 25.1                                                                         | %          | 24.6 | % | 23.3 | % | 20.9 | % |   |   |
| Operating margin  (8)                                                   |       | 13.9                                                                         | %          | 13.2 | % | 13.5 | % | 7.1 | % |   |   |
| Net margin (9)                                                          |       | 10.2                                                                         | %          | 10.7 | % | 33.1 | % | 5.3 | % |   |   |
| Other financial  data derived from U.S. GAAP financial information:     |       |                                                                         |       |   |   |   |   |   |   |   |   |
| EBITDA (10)                                                             |       | 1,428,456                                                                    |       | 644,402 |   | 453,010 |   | 94,127 |   |   |   |

 

 

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(1)               The financialinformation as of and for the years ended December 31, 2003, 2004 and 2005 (as restated) have been derived fromour audited consolidated financial statements. 

(2)               For U.S. GAAPpurposes, sales are recognized when title passes to the home buyer, as opposedto the percentage-of-completion method of accounting used for Mexican GAAPpurposes, under which we recognize income from homes we sell as we incur thecost of their construction.

(3)               Representsinterest income, interest expense, monetary position gains and losses, andforeign exchange gains and losses.

(4)               Assumes allcommon shares are represented by ADSs. Each ADS represents six common shares.Any discrepancies between per share and per ADS amounts in the table are due torounding.

(5)               Employeestatutory profit-sharing expense is classified as an operating expense underU.S. GAAP.

(6)               Interestcapitalized as part of the cost of inventories is included in operating expenseunder U.S. GAAP.

(7)               Representsgross profit divided by total revenues.

(8)               Representsoperating income divided by total revenues.

(9)               Represents netincome divided by total revenues.

(10)         EBITDA is not afinancial measure computed under Mexican or U.S. GAAP. EBITDA derived from ourMexican GAAP financial information means Mexican GAAP net income (loss)excluding (i) depreciation, (ii) net comprehensive financing costs (which iscomposed of net interest expense, foreign exchange gain or loss and monetaryposition gain or loss), and (iii) income tax expense and employee statutoryprofit-sharing expense.

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EBITDA derived from our U.S. GAAPfinancial information means U.S. GAAP net income excluding (i) depreciation,(ii) interest expense and monetary position gain or loss, and (iii) income taxexpense.

We believe that EBITDA can be useful tofacilitate comparisons of operating performance between periods and with othercompanies in our industry because it excludes the effect of (i) depreciation,which represents a

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non-cash chargeto earnings, (ii) certain financing costs, which are significantly affected byexternal factors, including interest rates, foreign currency exchange rates,and inflation rates, which have little or no bearing on our operatingperformance, and (iii) income tax expense and, for EBITDA derived from ourMexican GAAP financial information, employee statutory profit-sharing expense.

EBITDA is also a useful basis ofcomparing our results with those of other companies because it presentsoperating results on a basis unaffected by capital structure. You should reviewEBITDA, along with net income (loss) and cash flow from operating activities,investing activities and financing activities, when trying to understand ouroperating performance. While EBITDA may provide a useful basis for comparison,our computation of EBITDA is not necessarily comparable to EBITDA as reportedby other companies, as each is calculated in its own way and must be read inconjunction with the explanations that accompany it. While EBITDA is a relevantand widely used measure of operating performance, it does not represent cashgenerated from operating activities in accordance with Mexican or U.S. GAAP andshould not be considered as an alternative to net income (loss), determined inaccordance with Mexican or U.S. GAAP, as an indication of our financialperformance, or to cash flow from operating activities, determined inaccordance with Mexican or U.S. GAAP, as a measure of our liquidity, nor is itindicative of funds available to fund our cash needs.

EBITDA has certain material limitationsas follows:  (i) it does not includeinterest expense, which, because we have borrowed money to finance some of ouroperations, is a necessary and ongoing part of our costs and assisted us ingenerating revenue; (ii) it does not include taxes, which are a necessary andongoing part of our operations; and (iii) it does not include depreciation,which, because we must utilize property and equipment in order to generaterevenues in our operations, is a necessary and ongoing part of our costs.Therefore, any measure that excludes any or all of interest expense, taxes anddepreciation has material limitations.

***Reconciliationof Net Income (Loss) to EBITDA Computed from Our Mexican GAAP FinancialInformation.***
| ** **                                                        | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                        | ** ** | **As restated**                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| Net income  (loss)                                                |       | Ps.                                        | 876,546    |   | Ps. | 739,595 |   | Ps. | 339,889 |   | Ps. | 33,514 |   | Ps. | (18,824 | ) |
| Depreciation                                                      |       | 61,711                                     |       | 25,054 |   | 11,436 |   | 6,998 |   | 7,571 |   |
| Net  comprehensive financing cost                                 |       | 457,561                                    |       | 164,948 |   | 131,834 |   | 154,304 |   | 134,899 |   |
| Amortization of Backlog intangible                                |       | 116,527                                    |       |   |   |   |   |   |   |   |   |
| Amortization of Beta Trademark                                    |       | 45,527                                     |       |   |   |   |   |   |   |   |   |
| Income tax  expense and employee statutory profit sharing expense |       | 434,638                                    |       | 359,751 |   | 189,759 |   | 57,031 |   | 17,595 |   |
| EBITDA                                                            |       | Ps.                                        | 1,992,510  |   | Ps. | 1,289,348 |   | Ps. | 672,918 |   | Ps. | 251,847 |   | Ps. | 141,241 |   |
|                                                                   |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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***Reconciliationof Net Income to EBITDA Computed from Our U.S. GAAP Financial Information.***
| ** **                         | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------|------------|--------------------------------------------|------------|
| ** **                         | ** ** | **As restated**                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net income                         |       | Ps.                                        | 779,692    |   | Ps. | 436,311 |   | Ps. | 254,567 |   | Ps. | 66,475 |   |
| Depreciation                       |       | 61,711                                     |       | 25,054 |   | 11,436 |   | 6,998 |   |
| Interest expense                   |       | (101,865                                   | )          | (29,269 | ) | 24,135 |   | (18,140 | ) |
| Amortization of backlog intangible |       | 274,576                                    |       |   |   |   |   |   |   |
| Amortization of Beta trademark     |       | 45,527                                     |       |   |   |   |   |   |   |
| Income tax  expense                |       | 368,815                                    |       | 212,306 |   | 162,872 |   | 38,794 |   |
| EBITDA                             |       | Ps.                                        | 1,428,456  |   | Ps. | 644,402 |   | Ps. | 453,010 |   | Ps. | 94,127 |   |

 

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(11)         Net debt is nota financial measure computed under Mexican GAAP. We compute net debt as the sumof all debt less cash and temporary investments, each of which is computed inaccordance with Mexican GAAP. Management uses net debt as a measure of ourtotal amount of leverage, as it gives effect to cash accumulated on our balancesheets. Management believes net debt provides useful information to investorsbecause it reflects our actual debt as well as our available cash and temporaryinvestments that could be used to reduce this debt. Net debt has certainmaterial limitations in that it assumes the use of our cash and temporaryinvestments to repay debt that is actually still outstanding and not to fund operatingactivities or for investment.

***Reconciliation of Total Debt to NetDebt Derived from Our Mexican GAAP Financial Information.***
| ** **                         | ** ** | **As of December 31,** | ** ** |
|------------------------------------|------------|---------------------------------------|------------|
| ** **                         | ** ** | **2005**                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| Current portion  of long-term debt |       | Ps.                                   | 17,386     |   | Ps. | 410,384 |   | Ps. | 694,491 |   | Ps. | 430,954 |   | Ps. | 500,597 |   |
| Long-term debt                     |       | 3,347,179                             |       | 186,233 |   | — |   | — |   | — |   |
| Total debt                         |       | 3,364,565                             |       | 596,617 |   | 694,491 |   | 430,954 |   | 500,597 |   |
| Cash and  temporary investments    |       | 1,318,776                             |       | 528,223 |   | 227,507 |   | 71,202 |   | 49,009 |   |
| Net debt                           |       | Ps.                                   | 2,045,789  |   | Ps. | 68,394 |   | Ps. | 466,984 |   | Ps. | 359,752 |   | Ps. | 451,588 |   |

 

**DIVIDENDS**

A vote by the majority of our shareholders present at ashareholders’ meeting determines the declaration, amount, and payment ofdividends. Under Mexican law, dividends may only be paid from retained earningsand if losses for prior fiscal years have been paid.

We have not paid dividends since we were formed in 1989 and we do not currently expect to pay dividends. We intend todevote a substantial portion of our future cash flow to funding working capitalrequirements and purchasing land. We may consider adopting a dividend policy inthe future based on a number of factors, including our results of operations,financial condition, cash requirements, tax considerations, future prospects,and other factors that our board of directors and our shareholders may deemrelevant, including the terms and conditions of future debt instruments thatmay limit our ability to pay dividends. We may also consider instituting ashare repurchase program.

**EXCHANGE RATEINFORMATION**

The following table sets forth, for the periods indicated,the period-end, average, high and low exchange rate between the peso and U.S.dollar. The average annual rates presented in the following table werecalculated by using the average of the exchange rates on the last day ‘ of eachmonth during the relevant period. The data provided in this table is based onnoon buying rates published by the Federal Reserve Bank of New York for cabletransfers in Mexican pesos. All amounts are stated in pesos, and we have notrestated the rates in constant currency units. We make no representation thatthe Mexican peso amounts referred to in this annual report could have been orcould be converted into U.S. dollars at any particular rate or at all.

 
| ** **                                 | ** ** | **Noon Buying Rate (Ps. Per US$)** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------------------|------------|
| **Year Ended December 31,** | ** ** | **Low (1)**                                            | ** ** | **High (1)** | ** ** | **Average (2)** | ** ** | **Period End** | ** ** |
| 2001                                       |       | 8.95                                                        |       | 9.97 |   | 9.34 |   | 9.16 |   |
| 2002                                       |       | 9.00                                                        |       | 10.43 |   | 9.66 |   | 10.43 |   |
| 2003                                       |       | 10.11                                                       |       | 11.41 |   | 10.80 |   | 11.24 |   |
| 2004                                       |       | 10.81                                                       |       | 11.64 |   | 11.29 |   | 11.15 |   |
| 2005                                       |       | 10.41                                                       |       | 11.42 |   | 10.89 |   | 10.63 |   |

 

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| **Month Ended** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| December 31,  2005   |       | 10.41      |       | 10.77      |       | 10.63      |       | 10.63      |       |
| January 31, 2006     |       | 10.44      |       | 10.64      |       | 10.54      |       | 10.44      |       |
| February 31,  2006   |       | 10.43      |       | 10.53      |       | 10.48      |       | 10.45      |       |
| March 31, 2006       |       | 10.46      |       | 10.95      |       | 10.75      |       | 10.90      |       |
| April 30, 2006       |       | 10.86      |       | 11.16      |       | 11.05      |       | 11.09      |       |
| May 31, 2006         |       | 10.84      |       | 11.31      |       | 11.09      |       | 11.29      |       |
| June 23, 2006        |       | 11.28      |       | 11.46      |       | 11.40      |       | 11.44      |       |

 

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(1)               Rates shown arethe actual low and high, on a day-by-day basis for each period.

(2)               Average ofmonth-end rates.

On June 23, 2006, the noon buying rate for pesos wasPs.11.44 to US$1.00. On June 23, 2006 the Banco de Mexico UDI conversion ratewas Ps.3.67 to UDI 1.00.

Except during a liquidity crisis lasting from Septemberthrough December 1982, Banco de Mexico has consistently made foreign currencyavailable to Mexican private sector entities (such as us) to meet their foreigncurrency obligations. Nevertheless, in the event of renewed shortages offoreign currency, it is possible that foreign currency will not continue to beavailable to private sector companies or that foreign currency that we may needto service foreign currency obligations or to import goods will not beavailable for purchase in the open market without substantial additional cost.

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**RISK FACTORS**

***Risk Factors Related to Our Business***

***Decreases in the Amount ofMortgage Financing Provided by Mexican Government-Sponsored Agencies on whichWe Depend, or Disbursement Delays, Could Result in a Decrease in Our Sales andRevenues***

The home building industry in Mexico has been characterizedby a significant shortage of mortgage financing. Historically, the limitedavailability of financing has restricted home building and contributed to thecurrent shortage of affordable entry-level housing. Substantially all financingfor affordable entry-level housing in Mexico is provided bygovernment-administrated housing funds such as:

·                  the NationalWorkers’ Housing Fund Institute, or INFONAVIT (Instituto del Fondo Nacionalpara la Vivienda de los Trabajadores), which is financed primarily throughmandatory contributions from the gross wages of private sector workers, andsecuritization of mortgages in the capital markets;

·                  the SocialSecurity and Services Institute Public Sector Workers’ Housing Fund, orFOVISSSTE (Fondo para la Vivienda y la Seguridad y Servicios Sociales para losTrabajadores del Estado), which is financed primarily through mandatorycontributions from the gross wages of public sector workers; and

·                  public mortgageproviders such as the Federal Mortgage Society, or SHF (Sociedad HipotecariaFederal, S.N.C., Institucion de Banca de Desarrollo), which is financed throughits own funds as well as funds provided by the World Bank and a trust managedby Banco de Mexico.

See “Business—The Mexican HousingMarket.”

The amount of funding available and the level of mortgagefinancing from these sources is limited and may vary from year to year.

These government-sponsored entities have significantdiscretion in terms of the allocation and timing of disbursement of mortgagefunds. We depend on the availability of mortgage financing provided by thesegovernment-sponsored entities for substantially all of our sales of affordableentry-level housing, which sales represented 78.1% of our revenues and 72.1% ofour operating income for 2005, and 78.2% of our revenues and 67.6% of ouroperating income for 2004.

Accordingly, our financial results are affected by policiesand administrative procedures of INFONAVIT, FOVISSSTE, and SHF, as well as bythe Mexican government’s housing policy. The availability of mortgage financinggranted by INFONAVIT AND FOVISSSTE has increased significantly during the pastfive years as compared to historical levels while financing from the SHF hasdecreased due to a change in policy at SHF in 2005. From 2001 through 2005, theamount of mortgage financing granted in terms of number of homes by thesegovernment-sponsored entities increased by 81.5% according to Softec, S.C.(“Softec”). However, future Mexican government housing finance policy may limitor delay the availability of mortgage financing provided by these agencies orotherwise institute changes, including changes in the methods by which theseagencies grant mortgages and, in the case of INFONAVIT, the geographicallocation of mortgage financing, that could result in a decrease in our salesand revenues.

Additionally, in 2001 we experienced delays of up to threemonths in the disbursement of mortgage funds for homes that were financed byINFONAVIT. Due to the change in the presidential administration following the2000 elections in Mexico and the resulting change in the administration ofINFONAVIT, the agency suspended processing mortgages pending the appointment ofits new general director. Although we have not experienced delays of thismagnitude since 2001, there is a possibility of delays at the end of 2006 andin early 2007 as a result of the upcoming 2006 presidential election.Disruptions in the operations of government-sponsored lenders, for any reason,may occur and result in a decrease in our sales and revenues.

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Decreases ordelays in the amount of funds available from INFONAVIT, FOVISSSTE, SHF or othersources, or substantially increased competition for these funds, could resultin a decrease in our sales and revenues. These funds may not continue to beallocated at their current levels or in regions in which we have or can quicklyestablish a significant presence.

***A Slowdown in the MexicanEconomy Could Limit the Availability of Private-Sector Financing in Mexico, onwhich We Depend for Our Sales of Middle-Income Housing, which Could Result in aDecrease in Our Sales and Revenues***

One of our principal strategies is to expand our operationsin the middle-income housing sector while maintaining our margins and withoutadverse affecting our financial condition. Our expansion into this marketdepends on private sector lenders, such as commercial banks and Limited PurposeFinancial Companies (Sociedades Financieras de Objeto Limitado, or “sofoles”),which provide a substantial majority of mortgage financing for themiddle-income sector. The availability of private sector mortgage financing inMexico has been severely constrained in the past as a result of volatileeconomic conditions in Mexico, the level of liquidity and stability of theMexican banking system, and the resulting adoption of more stringent lendingcriteria and bank regulations. From 1995 through 2001, commercial bank mortgagelending was generally unavailable in Mexico. However, during the same period anumber of sofoles were formed, serving the mostly middle-income market. Since2002, private sector lenders have gradually increased their mortgage financingactivities as a result of improved economic conditions and increasing consumerdemand. However, it is possible that the amount of mortgage financing providedby private sector entities for the middle-income housing market will notincrease or be maintained at current levels.

***We Experience SignificantSeasonality in Our Results of Operations***

The Mexican affordable entry-level housing industryexperiences significant seasonality during the year, principally due to theoperational and lending cycles of INFONAVIT and FOVISSSTE. The programs,budgets, and changes in the authorized policies of these mortgage lenders areapproved during the first quarter of the year. Payment by these lenders forhome deliveries is slow at the beginning of the year and increases graduallythrough the second and third quarters with a rapid acceleration in the fourthquarter. We build and deliver affordable entry-level homes based on theseasonality of this cycle because we do not begin construction of these homesuntil a mortgage provider commits mortgage financing to a qualified home buyerin a particular development. Accordingly, we also tend to recognizesignificantly higher levels of revenue in the third and fourth quarters and ourdebt levels tend to be highest in the first and second quarters. We anticipatethat our quarterly results of operations and our level of indebtedness willcontinue to experience variability from quarter to quarter in the future.

***We May ExperienceDifficulty in Finding Desirable Land Tracts or Increases in the Price of LandMay Increase Our Cost of Sales and Decrease Our Earnings***

Our continued growth depends in large part on our abilityto continue to be able to acquire land and to do so at a reasonable cost. Asmore developers enter or expand their operations in the Mexican home buildingindustry, land prices could rise significantly and suitable land could becomescarce due to increased demand or decreased supply. A resulting rise in landprices may increase our cost of sales and decrease our earnings. We may not beable to continue to acquire suitable land at reasonable prices in the future.

***Increases in the Price of RawMaterials May Increase Our Cost of Sales and Reduce Our Net Earnings***

The basic raw materials used in the construction of ourhomes include concrete, concrete block, steel, bricks, windows, doors, rooftiles and plumbing fixtures. Increases in the price of raw materials, includingincreases that may occur as a result of shortages, duties, restrictions, orfluctuations in exchange rates, could increase our cost of sales and reduce ournet earnings to the extent we are unable to increase our sales prices. It ispossible that the prices of our raw materials will increase in the future.

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***Because We Recognize Income FromSales of Homes Under the Percentage-of-Completion Method of Accounting BeforeReceiving Cash Revenue, Failed Closings Could Result in a Shortfall of ActualCash Received and Require an Adjustment to Revenue Previously Recorded***

In accordance with Mexican GAAP, and consistent withindustry practice in Mexico, we recognize income from the sale of homes basedon the percentage-of-completion method of accounting, which in Mexico requiresus to recognize income as we incur the cost of construction. See Note 3 to ourconsolidated financial statements for a discussion of thepercentage-of-completion method. However, we do not receive the proceeds fromthese sales until the homes are delivered. As a result, there is a risk thatrevenue in respect of the income recognized for accounting purposes will not bereceived due to the failure of a sale to close. 

***Loss of Services of Our KeyManagement Personnel Could Result in Disruptions to Our Business Operations***

Our management and operations are dependent in large partupon the contributions of a small number of key senior management personnel,including Eustaquio Tomas de Nicolas Gutierrez, our chairman, and Gerardo deNicolas Gutierrez, our CEO. We do not have employment or non-compete agreementswith or maintain key-man life insurance in respect of either of theseindividuals. Because of their knowledge of the industry and our operations andtheir experience with Homex, we believe that our future results will dependupon their efforts, and the loss of the services of any of these individualsfor any reason could result in disruptions to our business operations.

***Competition from Other Home BuildersCould Result in a Decrease in Our Sales and Revenues***

The home building industry in Mexico is highly competitive.Our principal competitors include Corporacion GEO, S.A. de C.V., Consorcio ARA,S.A. de C.V., URBI Desarrollos Urbanos, S.A. de C.V., SARE, S.A. de C.V. andGrupo SADASI. Our ability to maintain existing levels of home sales depends tosome extent on competitive conditions, including price competition, competitionfor available mortgage financing, and competition for available land.Competition is likely to continue or intensify. Competitive conditions may preventus from achieving our goal of increasing our volumes of sales, or increasedcompetition may result in a decrease in our sales and revenues.

***Changes in Building and ZoningRegulations to which We Are Subject Could Cause Delays in Construction andResult in Increased Costs***

The Mexican housing industry is subject to extensivebuilding and zoning regulation by various federal, state, and municipalauthorities. These authorities oversee land acquisition, development andconstruction activities, and certain dealings with customers. The costsassociated with obtaining building and zoning permits, paying purchase ordevelopment fees and taxes, securing utility service rights and titling newhomes are substantially higher in Mexico than in other countries and vary significantlyfrom region to region in Mexico. We are required to obtain the approval ofnumerous federal, state, and local governmental authorities for our developmentactivities. Changes in local circumstances or applicable law or regulations ofsuch entities may require modifying or applying for additional approvals orchanging our processes and procedures to comply with them. It is possible thatthese factors could cause delays in construction and result in increased costs.

***Changes to Environmental Laws andRegulations to which We Are Subject Could Cause Delays in Construction andResult in Increased Costs***

Our operations are subject to Mexican federal, state, andmunicipal environmental laws and regulations. Changes to environmental laws andregulations, or stricter interpretation or enforcement of existing laws orregulations, could cause delays in construction and result in increased costs.

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***OurUninsured Housing Developments under Construction Could Suffer UnforeseenCasualties, which Could Result in Significant Losses to Us***

We do not generally obtain liability insurance to coverhousing developments under construction unless it is required by providers ofconstruction financing. In the event that our uninsured housing developmentssuffer unforeseen casualties, we may experience significant losses.

***The Increase in Our Leverage CouldSignificantly Affect Our Growth and Operating Results***

Our level of debt is significantly higher than historicallevels. The increase in the debt service costs could reduce the amount of cashwhich would otherwise be available to invest in land acquisition for new-developments or to meet other obligations. A high level of leverage couldreduce our access to new financing sources on favorable terms and with it,adversely affect our growth prospects, operating results and financialcondition.

***Reduction in distributions from ouroperating subsidiaries could limit our ability to pay dividends and service ourdebt obligations***

We are a holding company with no substantial operations andno significant assets other than the common shares of our majority-ownedsubsidiaries. We depend on receiving sufficient funds from our subsidiaries forvirtually all our internal cash flow, including cash flow to pay dividends andservice our debt obligations. As a result, our cash flow will be affected if wedo not receive dividends and other income from our subsidiaries. The ability ofour subsidiaries to pay dividends and make other transfers to us is limited byrequirements that need to be satisfied under Mexican law. This ability may alsobe limited by credit agreements entered into by our subsidiaries.

**Risk Factors Relatedto the Acquisition of Beta**

***We May Fail to Realize theAnticipated Benefits of Our Merger with Beta which will Present SignificantChallenges-Risks Relating to the ADSs and the Common Shares***

On July 1, 2005 we acquired Controladora Casas Beta, S.A.de C.V., which has now been merged into our Company. The success of the mergerwill depend, in part, on our ability to realize the anticipated growthopportunities and cost savings from combining our business with Beta’sbusiness.

**Risk Factors Relatedto Mexico**

***Adverse Economic Conditions inMexico May Result in a Decrease in Our Sales and Revenues***

We are a Mexican company with substantially all of ourassets located in Mexico and all of our revenues derived from operations inMexico. As such, our business may be significantly affected by the generalconditions of the Mexican economy.

Mexico experienced a period of slow growth from 2001 through2003 primarily as a result of the downturn in the U.S. economy. In 2001,Mexico’s gross domestic product, or GDP, declined by 0.3%, while inflationreached 4.4%. In 2002, GDP grew by 0.9% and inflation reached 5.7%. In 2003,GDP grew by 1.2% and inflation declined to 4.0%. In 2004, GDP grew by 4.2% andinflation increased to 5.2%. During 2005, GDP grew by 3% and inflationdecreased to 3.3%.

Mexico also has, and is expected to continue to have, highreal and nominal interest rates. The interest rates on 28-day Mexicangovernment treasury securities (Certificados de la Tesoreria de la Federacion)averaged approximately 11.3%, 7.1%, 6.2%, 6.8%, and 9.2% for 2001, 2002, 2003,2004 and 2005, respectively. Accordingly, to the extent that we incurpeso-denominated debt in the future, it could be at high interest rates.

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If the Mexican economy falls into a recession or ifinflation and interest rates increase significantly, consumer purchasing powerwill be decreased and demand for housing may decrease. In addition, a recessioncould affect our operations to the extent that we are unable to reduce ourcosts and expenses in response to falling demand. These factors could result ina decrease in our sales and revenues.

***Fluctuations of the Peso Relative tothe U.S. Dollar Could Result in an Increase in Our Cost of Financing and LimitOur Ability to Make Timely Payments on Foreign Currency Denominated Debt***

Because substantially all of our revenues are and willcontinue to be denominated in pesos, if the value of the peso decreases againstthe U.S. dollar, our cost of financing will increase. Severe depreciation ofthe peso may also result in disruption of the international foreign exchangemarkets. This may limit our ability to transfer or convert pesos into U.S. dollarsand other currencies for the purpose of making timely payments of interest andprincipal on our securities and any U.S. dollar-denominated debt that we mayincur in the future. While the Mexican government has not restricted the rightor ability of Mexican or foreign individuals to convert pesos into U.S. dollarsor to transfer other currencies out of Mexico since 1982, the Mexicangovernment could institute restrictive exchange rate policies in the future.

***Political Events in Mexico MayResult in Disruptions to Our Business Operations and Decreases in Our Sales andRevenues***

The Mexican government exercises significant influence overmany aspects of the Mexican economy. In addition, we depend on Mexicangovernment housing policy, especially with regard to the operation ofgovernment-sponsored mortgage providers, for a large portion of our business.As a result, the actions of the Mexican government concerning the economy andregulating certain industries could have a significant effect on Mexican privatesector entities, including Homex, and on market conditions, prices, and returnson Mexican securities.

The Mexican national elections held on July 2, 2000 ended71 years of rule by the Institutional Revolutionary Party (PartidoRevolucionario Institucional) with the election of President Vicente FoxQuesada, a member of the National Action Party (Partido Accion Nacional), andresulted in the increased representation of opposition parties in the Mexicannational congress and in municipal and gubernatorial positions. As a result ofthese elections and legislative elections held on July 6, 2003, no politicalparty has a majority in the Mexican national congress. This shift in politicalpower has transformed Mexico from a one-party state to a multi-party democracy.

Although there have not yet been any material adverserepercussions resulting from this political change, multi-party rule is stillrelatively new in Mexico and could result in economic or political conditionsthat could cause disruptions to our business operations. The lack of a majorityparty in the legislature and the lack of alignment between the legislature andthe executive branch could result in gridlock and prevent the timelyimplementation of economic reforms or other necessary actions, which in turncould have a material adverse effect on the Mexican economy and causedisruptions to our business operations and decreases in our sales and revenues.

On July 2, 2006 the Mexican presidential and congressionalelections will be held. We cannot assure you that the next administration willcontinue to support the current housing policies, although all of the threemain candidates have emphasized that these policies will remain. Any change insuch policies could have a significant effect on Mexican homebuilders,including Homex, as well as on housing finance, demand for housing, marketconditions, and the prices of and returns on Mexican securities or that resultsof the 2006 presidential elections and presidential succession will notadversely affect the Mexican economy, including the stability of its currency,which in turn could have a material adverse effect on our business, financialcondition and results of operations, as well as market conditions and pricesfor our securities. These and other future developments in the Mexicanpolitical or social environment may cause disruptions to our businessoperations and decreases in our sales and revenues. In the past, mostpresidential and congressional elections have resulted in significantdisruptions in the business community.

***Developments in Other Countries MayResult in Decreases in the Price of Our Securities***

As is the case with respect to securities of issuers fromother emerging markets, the market value of securities of Mexican companies is,to varying degrees, affected by economic and market conditions in otheremerging market countries. Although economic conditions in these countries maydiffer significantly from economic conditions in Mexico, investors’ 

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reactions to developments in any of these other countriesmay have an adverse effect on the market value of securities of Mexicanissuers. In recent years, for example, prices of both Mexican debt securitiesand Mexican equity securities dropped substantially as a result of developmentsin Russia, Asia, and Brazil.

In addition, the direct correlation between economicconditions in Mexico and the United States has sharpened in recent years as aresult of the North American Free Trade Agreement and increased economicactivity between the two countries. As a result, economic downturns in theUnited States could have a significant adverse effect on the Mexican economy,which, in turn, could affect our financial condition and results of operations.

***We Are Subject to DifferentCorporate Disclosure and Accounting Standards than U.S. Companies***

A principal objective of the securities laws of the UnitedStates, Mexico, and other countries is to promote full and fair disclosure ofall material corporate information. However, there may be less or differentpublicly available information about foreign issuers of securities than isregularly published by or about U.S. issuers of listed securities.

**Risk Factors Relatedto Our Common Shares and ADSs**

***Future Issuances of Shares MayResult in a Decrease of the Market Price of the ADSs and Common Shares***

In the future, we may issue additional equity securitiesfor financing and other general corporate purposes, although there is nopresent intention to do so. Any such sales or the prospect of any such salescould result in a decrease of the market price of the ADSs and common shares.

***Future Sales of Our Shares by OurPrincipal Shareholders May Result in a Decrease of the Share Price of OurSecurities***

Our principal shareholders, including the de Nicolas familyand Equity International Properties, hold 54% of our outstanding share capital.Actions by these shareholders with respect to the disposition of the sharesthey beneficially own, or the perception that such actions might occur, maydecrease the trading price of our shares on the Mexican Stock Exchange and theprice of the ADSs on the New York Stock Exchange. None of our principalshareholders is subject to any contractual restrictions that limit their rightto dispose of their common shares.

***Preemptive Rights May be Unavailableto Holders of Our ADSs, Which May Result in a Dilution of ADS Holders’ EquityInterest in Our Company***

Under Mexican law if we issue new shares for cash as partof a capital increase, we must grant preemptive rights to our shareholders,giving them the right to purchase a sufficient number of shares to maintaintheir pro-rata interest unless we issue shares in a public offering. However,we may not be legally permitted to offer ADS holders in the United States theright to exercise preemptive rights in any future issuances of shares unless wefile a registration statement with the U.S. Securities and Exchange Commission,or SEC, with respect to that future issuance of shares; or the issuancequalifies for an exemption from the registration requirements of the U.S.Securities Act of 1933, or Securities Act. At the time of any future capitalincrease, we will evaluate the costs and potential liabilities associated withfiling a registration statement with the SEC, the benefits of enabling U.S.holders of ADSs to exercise preemptive rights, and any other factors that weconsider important in determining whether to file a registration statement topermit the exercise of mandatory preemptive rights. It is possible that we willnot file such a registration statement. As a result, the equity interests ofADS holders would be diluted to the extent that ADS holders cannot participatein a future capital increase.

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Under the termsof the ADSs, you may instruct the depositary, JPMorgan Chase Bank, to vote theordinary shares underlying our ADSs, but only if we request the depositary toask for your instructions. Otherwise, you will not be able to exercise yourright to vote unless you withdraw the common shares underlying the ADSs andvote such common shares. However, you may not receive sufficient notice of ashareholders’ meeting to permit you to withdraw your common shares to allow youto cast your vote with respect to any specific matter. In addition, thedepositary and its agents may not be able to send out or receive your votinginstructions on time or carry them out in the manner you have instructed. As aresult, you may not be able to exercise your right to vote.

In addition, Mexican law and our bylaws requireshareholders to deposit their common shares with our secretary or with aMexican custodian and provide evidence of their status as shareholders in orderto attend shareholders’ meetings. ADS holders will not be able to meet thisrequirement and accordingly are not entitled to attend shareholders’ meetings. ADSholders will also not be permitted to vote the common shares underlying theADSs directly at a shareholders’ meeting or to appoint a proxy to do so withoutwithdrawing the common shares. Please see “Description of American DepositaryReceipts” of this prospectus for further discussion regarding the depositagreement and your voting rights.

***Minority Shareholders Have DifferentRights Against Us, Our Directors, or Our Controlling Shareholders in Mexico***

Under Mexican law, the protections afforded to minorityshareholders are different from those afforded to minority shareholders in theUnited States. For example, because Mexican laws concerning fiduciary duties ofdirectors are not well developed, there are limited grounds on which a minorityshareholder may bring an action against directors for breach of this duty aspermitted in most jurisdictions in the United States. The grounds forshareholder derivative actions under Mexican law are extremely limited, whicheffectively bars most of these kinds of suits in Mexico. Procedures for classaction lawsuits do not exist under Mexican law. Therefore, it may be moredifficult- for minority shareholders to enforce their rights against us, ourdirectors, or our controlling shareholders than it would be for minorityshareholders of a U.S. company.

***It May Be Difficult to Enforce CivilLiabilities Against Us or Our Directors, Executive Officers and ControllingPersons***

We are organized under the laws of Mexico. A majority ofour directors, executives officers and controlling persons reside outside theU.S., all or a significant portion of the assets of our directors, executiveofficers and controlling persons, and substantially all of our assets, arelocated outside the U.S., and certain of the experts named in this annualreport also reside outside the United States. As a result, it may be difficultfor you to effect service of process within the United States upon thesepersons or to enforce against them or us in U.S. courts judgments predicatedupon the civil liability provisions of the federal securities laws of theUnited States. We have been advised by our Mexican counsel. Mijares, Angoitia,Cortes y Fuentes, S.C., that there is doubt as to the enforceability, inoriginal actions in Mexican courts, of liabilities predicated solely on U.S.federal securities law and as to the enforceability in Mexican courts ofjudgments of U.S. courts obtained in actions predicated upon the civilliability provisions of U.S. federal securities laws. See “Limitation ofLiability.”

**ITEM 4.**                    Information onthe Company.

**BUSINESS OVERVIEW**

**HISTORY ANDDEVELOPMENT**

DesarrolladoraHomex, S.A.B. de C.V. is a corporation (*sociedad anónima decapital variable*) registered in Culiacán, Sinaloa, Mexico under theMexican Companies Law (*Ley General de SociedadesMercantiles*) on March 30, 1998 with an indefinite corporateexistence. Our full legal name is Desarrolladora Homex, S.A.B. de C.V. and,effective June 28, 2006, our full legal name is Desarrolladora Homex, S.A.B. deC.V.. Our principal executive offices are located at Boulevard Alfonso ZaragozaM. 2204 Norte, Fraccionamiento Bonanza, 80020, Culiacán Sinaloa, México. Ourtelephone number is +52 (667) 759-5800. Our legal domicile is BoulevardAlfonso Zaragoza Maytorena 2204 norte, 80020, Culiacán, Sinaloa, México.

Our company traces its origins to 1989 and established itscurrent structure in 1998. Beginning in 1999, various strategic investorsincluding, in 2002, EIP, an entity affiliated with Equity Group Investments,L.L.C., an investment 

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company founded by Samuel Zell, chairman of EIP, madeequity investments in our company. These strategic investors have assisted usin developing and refining our operating and financial strategies. In addition,this increased access to equity financing has allowed us to accelerate ourgrowth.

**CapitalExpenditures**

Our operations do not require substantial capitalexpenditures, as we lease, on a short-term basis, most of the constructionequipment we use and subcontract a substantial portion of ‘ the services necessaryto build the infrastructure of our developments. In 2005 we spent Ps.149.8million on capital expenditures, primarily to fund the integration of Beta’spurchases of construction equipment to support growth. Our purchases of landare treated as additions to inventory and not as capital expenditures.

**Recent Developments**

***Acquisition of Controladora CasasBeta, S.A. de C.V.***

On July 1, 2005, we acquired Controladora Casas Beta, S.A.de C.V., or Beta, which, prior to its acquisition by us, was the sixth-largesthomebuilder in Mexico measured by units sold in 2004. After giving effect tothe acquisition, we believe we are now the largest homebuilder in Mexico interms of operating income on a pro forma basis for 2005. Beta’s results areconsolidated into Homex’s 2005 audited financial statements.

We believe that our acquisition of Beta will providesignificant economies of scale. Together with Beta, we have approximately a6.6% share of the Mexican housing market in terms of units sold in 2005. OurBeta acquisition also strengthens our presence in the top four Mexicanhome-building markets:  Estado de Mexico,Guadalajara, Monterrey and Tijuana.

**Note Offering and Exchange Offering**

On September 28, 2005, we consummated our offering ofUS$250 million aggregate principal amount of 7.50% Senior Guaranteed Notes dueSeptember 28, 2015, the “September 2005 Note Offering”. The Senior GuaranteedNotes were entitled to registration rights. Pursuant to the registration rightsagreement covering the Senior Guaranteed Notes, we commenced an exchange offerwhereby the 7.50% Senior Guaranteed Exchange Notes due 2015 were registered andoffered in exchange for the 7.50% Senior Guaranteed Notes. The terms of theregistered Senior Guaranteed Exchange Notes are more fully described in ourRegistration Statement on Form F-4 filled with the SEC.

**Our Company**

We are a vertically-integrated home development companyengaged in the development, construction and sale of affordable entry-level,middle-income and upper-income housing in Mexico. During 2004 we sold 21,053homes, an increase of 57.2% over 2003, and during 2005 we sold 31,594 homes, anincrease of 50.9% over 2004. As of December 31, 2005 we had 67 developmentsunder construction in 26 cities located in 17 Mexican states. We had total landreserves under title of approximately 13.1 million square meters as of December31, 2005 on which we estimate we could build approximately 55,000 affordableentry-level homes and approximately 25,500 middle-income homes. As of December31, 2005, we also had approximately 14.3 million square meters of land forwhich we had signed purchase agreements and made partial payment, and for whichtitle was in the process of being transferred. We estimate that we could buildapproximately 70,000 affordable entry-level homes and 4,000 middle-income homeson this land.

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We believe that we have grown faster than the three otherlargest publicly traded Mexican home development companies over the pastthree-year period ended December 31, 2005, based on:

·                  number of homessold, reflected by our compounded annual growth rate of 54.0% versus a 17.5%average compounded annual growth rate for these other three companies;

·                  revenues,reflected by our compounded annual growth rate of 71.8% versus a 21.1% averagecompounded annual growth rate for these other three companies; and

·                  net income,reflected by our average compounded annual growth rate of 75.6% versus a 42.0%average compounded annual growth rate for these other three companies.

In addition, we believe our geographic diversity is one ofthe strongest among home builders in Mexico, reflected by our operations as ofDecember 31, 2005 in 26 cities located in 17 Mexican states. In addition, oursales are not concentrated in a limited number of areas, compared to ourcompetitors, with only one city (Guadalajara) in which we operate providingapproximately 15.6% of our revenues and no other city providing more than 10%of our revenues for the 12-month period ended December 31, 2005.

From time to time, we evaluate investments in real estateprojects and companies outside Mexico with a view toward replicating ourbusiness model in other jurisdictions. To this end, we may also enter into realestate development joint ventures and strategic alliances with the assistanceof knowledgeable local partners. Such investments, if any, are not expected tobe material in terms of cost or management time.

**Our Products**

Mexico’s developer-built housing industry is divided intothree tiers according to cost: affordable entry-level, middle-income, and residential. We consideraffordable entry-level homes to range in price between Ps.173,000 andPs.399,000 (US$16,275 and US$37, 535), middle-income homes to range in pricebetween Ps.400,000 and Ps.1,700,000 (US$37,629 and US$159,925) and residentialhomes to have a price above Ps.1,800,000 (US$169,332). We currently focus onproviding affordable entry-level and middle-income housing for our clients.

Our affordable entry-level developments range in size from500 to 20,000 homes and are developed in stages typically comprising 300 homeseach. During 2005, our affordable entry-level homes had an average sales priceof approximately Ps.234,000 (US$22,013). A typical affordable entry-level homeconsists of a kitchen, living-dining area, one to three bedrooms, and onebathroom. We are able to deliver a completed affordable entry-level home inapproximately seven to ten weeks from the time a buyer obtains a mortgageapproval. Currently, our largest affordable entry-level housing developmentsare located in the cities of Guadalajara, Monterrey, Culiacan, and Nuevo Laredoand the State of Mexico.

Our middle-income developments range in size from 400 to2,000 homes and are developed in stages typically comprising 200 homes each.During 2005, our middle-income homes had an average sales price ofapproximately Ps.551,000 (US$51,834). A typical middle-income home consists ofa kitchen, dining room, living room, two or three bedrooms, and two bathrooms.We are able to deliver a completed middle-income home in approximately twelveto fourteen weeks from the time a buyer obtains a mortgage approval. Inresponse to the increase in demand for middle-income housing in Mexico and thehigher margins generally obtainable from middle-income housing developments, welaunched ten middle-income developments in 2005 in the cities of La Paz,Guadalajara, Atizapán, Metepec, Lerma León, Los Cabos, Morelia, Culiacán andNuevo Laredo. In 2005, 21.9% of our revenue was attributable to sales ofmiddle-income housing compared to 20.9% in 2004.

**Land Reserve**

We have developed specific procedures to identify land thatis suitable for our needs and perform ongoing market research to determineregional demand for housing. Suitable land must be located near areas withsufficient demand, 

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generally in areas where at least 500 homes can be built,and must be topographically amenable to housing development. We also considerthe feasibility of obtaining required governmental licenses, permits,authorizations, and adding necessary improvements and infrastructure, includesewage, roads and electricity in balance with a purchase price that willmaximize margins within the limits of available mortgage financing. We conductengineering and environmental assessments, and in some cases urbanization andland composition studies, of land we consider for purchase in order todetermine that it is suitable for construction. We budget the majority of ourland purchases for the second half of the year to coincide with peak cash flow.As a result, our total land reserves fluctuate between our targeted 18 to 24months of future home deliveries depending upon the time of year.

As of December 31, 2005, we had total land reserves undertitle of approximately 13.1 million square meters on which we estimate we couldbuild approximately 55,000 affordable entry-level homes and 25,500middle-income homes. We also had approximately 14.3 million square meters ofland for which we had signed purchase agreements and made partial payment, andfor which title was in the process of being transferred. We estimate that wecould build approximately 70,000 affordable entry-level homes and 4,000middle-income homes on this land.

**Our Relationship with EquityInternational Properties, Ltd.**

Beginning in 1999, private investors, including in 2002,Equity International Properties, Ltd., or EIP, a privately held investmentcompany specializing in real estate investments outside the United States, madea number of equity investments in Homex in an aggregate amount of US$30.0million. EIP is affiliated with Equity Group Investments, L.L.C., or EGI, a privately-heldinvestment company founded by Samuel Zell, chairman of EIP. EGI, together withits affiliates, is one of the largest real estate investment companies in theUnited States. EIP participates on our board of directors.

**BusinessStrengths**

***Standardized Business Processes***

Over several years, we have developed and refined scalableand standardized business processes that allow us to enter new markets rapidlyand efficiently. We have designed proprietary information technology systemsthat integrate and monitor every aspect of our operations, including landacquisition, construction, payroll, purchasing, sales, quality control,financing, delivery, and maintenance. Our systems connect every one of ourbranch locations and help us monitor and control the home building process, toadminister our client relations, and to oversee the financing process for ourclients. This standardized model drives our growth, geographic diversification,and profitability, and is an integral component of our culture.

***Efficient Working Capital Management***

Our standardized processes allow us to time theconstruction and delivery of our homes and payment to our suppliersefficiently, which has allowed us to reduce our borrowing needs and minimizeworking capital requirements. We do not commence construction on a developmentstage until prospective buyers representing at least 10% of the planned numberof homes in that stage have qualified to receive mortgage financing. We seek tomaintain a short construction period of less than ten weeks for affordableentry-level housing and less than fourteen weeks for middle-income housing byusing our systems to maximize the efficiency of our standardized methods. Thisspeed allows us to maximize our working capital by minimizing overhead and coordinatingpayables with receivables, which greatly reduces our borrowing needs, and tominimize our costs.

***Geographic Diversification***

We believe that we are one of the most geographicallydiversified home development companies in Mexico. As of December 31, 2005, ouroperations included 67 developments in 26 cities located in 17 Mexican states,which states represent 68% of Mexico’s population, according to the MexicanInstitute of Statistics, Geography and Computer Sciences, or INEGI (InstitutoNacional de Estadistica, Geografia e Informatica). Many of our developments arelocated in markets where no major competitors currently operate. In addition,our sales are not concentrated in limited areas, compared to our competitors.For instance, only one city (Guadalajara) in which we operate accounted forapproximately 15.6% of our 

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revenues and no other city accounted for more than 10% ofour revenues for period ended December 31, 2005. We believe that thisgeographic diversification reduces our risk profile as compared to ourless-diversified competitors.

***Experienced and Committed ManagementTeam***

Eustaquio Tomas de Nicolas Gutierrez, our chairman,co-founded Homex’s predecessor in 1989, and Gerardo de Nicolas Gutierrez, ourCEO, joined us in 1993. Our senior management team is comprised of executiveswith an average of 15 years’ experience in their respective areas ofresponsibility. Senior management owns an aggregate of 16.37% of our commonshares. Consistent with our standardized business processes and geographicdiversification, we delegate significant managerial responsibility to ourseasoned team of branch managers. Upon completion of a development, wetypically relocate our branch managers to another development in order tocapitalize on their significant experience.

**BusinessStrategies**

***Maintain a Conservative FinancialPosition***

We operate our business with the goal of reducing ourexposure to interest rate and financing risk. We begin construction only whenan approved buyer has qualified for a mortgage and, if applicable, made a downpayment, thereby reducing our working capital needs. We believe the resultingfinancial flexibility enhances our ability to respond quickly to marketopportunities and minimizes any negative effects that might result from a downturnin the economy.

***Focus on Growth Consolidation andHigh-Return Opportunities***

Our strategy is to consolidate our growth and to identifyand target high return opportunities such as middle-income home sales. For theyear ended December 31, 2005, 30.7% of our revenue came from middle-income homesales as compared to 26.2% in the same period in the prior year. We havedeveloped an operating model that we believe allows us to enter underservedmarkets quickly and efficiently in order to take advantage of attractiveopportunities offered by increased availability of public and private sectormortgage financing. In response to these opportunities, during the last threecalendar years and the year ended December 31, 2005 we launched 34 newaffordable entry-level developments in 16 cities. Increased availability ofprivate sector financing has also allowed us to expand our presence in themiddle-income sector, which provides higher margins than affordable entry-levelhomes. We launched eight new middle-income developments in 2004 and ten newmiddle-income developments in nine cities in 2005. We expect to continue toexpand our operations in the higher margin middle-income sector.

***Maintain Appropriate and BalancedLand Reserves***

Our ability to identify, acquire, and improve land iscritical to our success. Because the success of our operations depends, amongother things, on managing our reserves efficiently, we continually review ourportfolio and seek new development opportunities. We balance our need for additionalland for growth with our desire to minimize leverage and avoid excessive landinventory. Our current goal is to maintain sufficient land reserves for aminimum of 18 to 24 months of future home deliveries. This time period allowsus to undertake the lengthy processes necessary to prepare land fordevelopment, including identifying suitable parcels, locating adequate watersupplies, obtaining required governmental permits and authorizations, andincorporating parcels into existing urban zones. We generally purchase largeparcels of land in order to amortize our acquisition and infrastructure costsover a large number of homes, minimize competition, and take advantage ofeconomies of scale. As of December 31, 2005, we had total land reserves ofapproximately 13.1 million square meters, which had an estimated aggregatecapacity of approximately 55,000 affordable entry-level homes and approximately25,500 middle-income homes. As December 31, 2005, we also had approximately14.3 million square meters of land for which we had signed purchase agreementsand made partial payment, and for which title was in the process of beingtransferred. We estimate that we could build approximately 70,000 affordableentry-level homes and 4,000 middle-income homes on this land.

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***Continueto Build and Contribute to Successful Communities***

We seek to foster brand loyalty byenhancing the quality and value of our communities through building anddonating schools, day-care facilities, parks and churches, and by providingother social services to residents of the housing we develop. We are committedto fulfilling our clients’ needs by responding to and meeting their demands.Through market studies, for example, we determine that home buyers preferlarger home sizes over higher priced finishing details. We allow our clients toimprove these details at their own expense in order to offer more squarefootage per house than similarly priced homes offered by our competitors. Atthe same time, we seek to become the best employer to our employees throughtraining and educational opportunities. We seek to hire and keep talentedemployees and invest in training our workforce at all levels by offeringprograms such as middle-school equivalency courses for our constructionlaborers. We are committed to becoming the best customer to our suppliers byoffering various payment alternatives and opportunities for cooperative growth,and through our factoring structure and other initiatives, including electronicordering and payment systems. We believe that these factors make us a preferredhome builder, employer, and customer and ultimately enhance our overallbusiness.

**Our Markets**

We operate in geographically diversemarkets throughout Mexico, from Tijuana in the north to Tapachula in the south,which represent 17 states as of December 31, 2005. Only one city (Guadalajara)in which we operate accounted for approximately 15.6% of our revenues and noother city accounted for more than 10% of our revenues for the year endedDecember 31, 2005. In the year ended December 31, 2004, our developments inGuadalajara represented 23.0% of our revenues. We anticipate that in thefuture, revenues attributable to our developments in Guadalajara will representan even smaller portion of our total revenues. We expanded into Guadalajara,the capital of the state of Jalisco and Mexico’s second largest city, becausethe financing available from government-sponsored lenders such as INFONAVITduring 2003 significantly exceeded the construction capacity of existingdevelopers in the area. We seek to continue operations in markets where we havea strong presence and to expand into underserved markets where demand forhousing is high.

**Total Homes Sold**

The following table sets forthinformation on our historical sales by state. During 2002, all of the homes wesold were affordable entry-level homes. No middle-income homes were sold in2002. During 2003, 96.5% of the homes we sold were affordable entry-level homesand 3.5% of the homes we sold were middle-income homes. During 2004, 91% of thehomes we sold were affordable entry-level homes and 9% of the homes we soldwere middle-income homes. During 2005, 88.8% of the homes we sold wereaffordable entry-level homes and 11.2% of the homes we sold were middle-incomehomes.
| ** **           | ** ** | **Year Ended December 31,** | ** ** |
|----------------------|------------|--------------------------------------------|------------|
| ** **           | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **State**            | ** ** | **Affordable  entry-level**                | ** ** | **Middle-  income** | ** ** | **Affordable  entry-level** | ** ** | **Middle-  income** | ** ** | **Affordable  entry-level** | ** ** | **Middle-  income** | ** ** | **Affordable  entry-level** | ** ** |
| Baja California      |       | 1,682                                      |       | 350 |   | 220 |   | 289 |   | — |   | — |   | — |   |
| Baja California  Sur |       | 894                                        |       | 33 |   | 1,180 |   | — |   | 584 |   | 84 |   | 865 |   |
| Chiapas              |       | 1,126                                      |       | — |   | 1,317 |   | 18 |   | 391 |   | 6 |   | 174 |   |
| Chihuahua            |       | 562                                        |       | 37 |   | 1,171 |   | — |   | 980 |   | — |   | 824 |   |
| Guanajuato           |       | 376                                        |       | 637 |   | 783 |   | — |   | 356 |   | — |   | 308 |   |
| Estado de Mexico     |       | 6,403                                      |       | 715 |   | 30 |   | 262 |   | — |   | 115 |   | — |   |
| Guerrero             |       | 759                                        |       | — |   | 867 |   | — |   | — |   | — |   | — |   |
| Hidalgo              |       | 156                                        |       | 93 |   | — |   | 31 |   | — |   | — |   | — |   |
| Jalisco              |       | 5,184                                      |       | 926 |   | 5,264 |   | 501 |   | 6,641 |   | 121 |   | 1,406 |   |
| Michoacan            |       | 821                                        |       | 105 |   | 686 |   | — |   | 388 |   | — |   | 313 |   |
| Nayarit              |       | —                                     |       | — |   | — |   | — |   | 444 |   | — |   | 204 |   |
| Nuevo Leon           |       | 3,394                                      |       | — |   | 1,691 |   | — |   | — |   | — |   | — |   |
| Oaxaca               |       | 273                                        |       | — |   | 246 |   | — |   | — |   | — |   | — |   |
| Sinaloa              |       | 2,146                                      |       | 238 |   | 2,092 |   | 464 |   | 1,412 |   | 108 |   | 2,017 |   |
| Sonora               |       | 968                                        |       | 13 |   | 751 |   | 247 |   | 603 |   | 29 |   | 477 |   |
| Tamaulipas           |       | 2,188                                      |       | 244 |   | 2,471 |   | — |   | 1,434 |   | — |   | 589 |   |
| Veracruz             |       | 1,271                                      |       | — |   | 5 |   | — |   | — |   | — |   | — |   |
| Yucatan              |       | —                                     |       | — |   | — |   | — |   | — |   | — |   | 29 |   |
| Total                |       | 28,203                                     |       | 3,391 |   | 19,141 |   | 1,912 |   | 12,933 |   | 463 |   | 7,206 |   |

 

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**THE MEXICAN HOUSING MARKET**

We have obtained the following information from publicsources, including publications and materials from the Mexican Ministry ofSocial Development, or SEDESOL (Secretaria de Desarrollo Social), the MexicanPopulation Council, or CONAPO (Consejo Nacional de Poblacion), INEGI,INFONAVIT, SHF, the Mexican Home Building and Development Industry Chamber ofCommerce, or CANADEVI (Camara Nacional de la Industria de Desarrollo yPromocion de la Vivienda), and CONAFOVI. We have not independently verified anyof the information provided in this section.

**General**

The housing market in Mexico is influenced by severalsocial, economic, industry, and political factors, including demographics,housing supply, market segmentation, government policy, and availablefinancing.

**Demographics**

National demographic trends drive demandfor housing in Mexico. These trends include:

·                  sustainedgrowth of a relatively young population;

·                  a high rate ofnew household formation;

·                  a high urbanarea growth rate; and

·                  a decrease innumber of occupants per home.

According to INEGI, Mexico had a population ofapproximately 97.5 million in 2000, or approximately 22.3 million households.CONAPO estimates that there were approximately 28.1 million households by theend of 2005.

Mexico experienced a period of particularly high populationgrowth during the 1970s and 1980s. The children born during this boom arecontributing to the current increased demand for housing. The target consumergroup for our homes is typically between 25 and 49 years old. In 2000, the 25-49year-old age group represented approximately 31 million people or 32% ofMexico’s total population. CONAPO estimates that by 2020, this age group willrepresent 46 million or 38% of Mexico’s total population. The growth of thisgroup is expected to contribute to increased housing demand in Mexico.

**Housing Supply**

In 2001, CONAFOVI housing statistics indicated there was ashortage of 4.3 million homes in Mexico. This figure included the need for: *

·                  1.8 million newhomes to accommodate multiple households currently living in a single home andhouseholds living in homes that must be replaced; and

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·                  2.5 millionsubstandard homes in need of extensive repair and possible replacement. Inaddition, there are expected to be approximately 28.1 million households inMexico by the end of 2005 and 32.9 million households by 2010.

These estimates suggest that Mexico will have to increaseits housing stock by 4.7 million units between 2005 and 2010. CONAFOVIestimates that the growth of the Mexican population will generate a sustaineddemand for new homes of at least 766,000 units per year into the near future.To address the immediate shortage of 4.3 million homes as well as theanticipated new demand, the Mexican government has committed to financingand/or building at least 750,000 units a year in 2006.

**Market Sectors**

In general, Mexico’s developer-built (as opposed toself-built) housing market is divided into three sectors according tocost:  affordable entry-level, middle-incomeand residential. The developer-built housing market includes homes built bycontractors and developers, which are generally financed by mortgage providers.These homes are built with official permits, have municipal services, and arelocated on land that is registered and titled by the buyer. Developers mustobtain proper zoning permits, install infrastructure, obtain any necessaryfinancing commitments from lenders, and clear title to the land.

We categorize Mexico’s developer-built housing market in the tablebelow:

**Housing Market Sectors**
| **Sector**             | ** ** | **Cost**                                                    | ** ** | **Size**                           | ** ** | **Characteristics**                                                                                                                       |
|------------------------|------------|-------------------------------------------------------------|------------|------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|
| Affordable entry-level |       | between Ps.173,000 and Ps.399,000  (US$16,279-US$37,544)    |       | 45m2-76m 2 (484 ft 2-818 ft 2)     |       | Kitchen; living-dining area; 1-3 bedrooms; 1 bath;  parking; titled; all utilities available                                              |
|                   |       |                                                        |       |                               |       |                                                                                                                                      |
| Middle-income          |       | between Ps.400,000 and Ps.1,700,000  (US$37,638-US$159,962) |       | 76m 2-172m 2 (818 ft 2-1,851 ft 2) |       | Kitchen, family room; living-dining room; 2-4  bedrooms; 2-4 baths; 1-4 parking; service quarters; titled; all utilities  available       |
|                   |       |                                                        |       |                               |       |                                                                                                                                      |
| Residential            |       | more than Ps.1,700,000 (US$159,962)                         |       | more than 172m 2 (1,851 ft 2)      |       | Kitchen; family room; living room; dining room; 3-4  bedrooms; 3-5 baths; 3-6 parking; service quarters; titled; all utilities  available |

 

**Government Policy and Available Financing**

The size of the developer-built market depends to a greatextent on the availability of mortgage financing. Due to liquidity crisesoccurring in the last twenty years, Mexico has experienced fluctuations in theavailability of mortgage financing, particularly from private sector sources.As a result, the supply of affordable entry-level and middle-income housing hasalso remained low during this period.

During the 1980s, Mexican government policy focused onencouraging investment by the private sector, reducing development costs, andstimulating construction. Government-sponsored funds provided mortgage loanguarantees and direct payment and savings procedures. In 1994, Mexicoexperienced an economic crisis that led to the devaluation of the Mexican pesoand a steep rise in interest rates. Smaller housing development companies wentout of business, and the industry experienced a sharp fall in home salesbetween 1995 and 1996 due to diminished commercial bank lending.

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Following the1994 economic crisis, government policy sought to counterbalance the shortageof available financing and the increases in interest rates that resulted byfocusing primarily on providing mortgages and construction financing viagovernment-sponsored funds in the affordable entry-level sector. Governmentfunds no longer provided development or sales activities and functioned insteadas true savings-and-loan programs. Legislative reforms with regard tocommunity-owned agricultural territories (ejidos), which made it possible tosell these formerly restricted properties, also increased the potential supplyof land available for development. During this period, the governmentauthorized sofoles that underwrite mortgages with funds and guarantees providedby government agencies, private investment, national, foreign or developmentbank loans, or through the Mexican capital markets. Furthermore, the governmentencouraged industry growth and private sector lending by supportingconsolidation in the housing development industry.

Between 1997 and 1998, home sales stabilized, growingslightly in 1997 due to improving economic conditions. During 1999 and 2000,mortgage financing increased due to stabilizing economic conditions. The levelof available financing has continued to grow as a result of Mexican governmentpolicies implemented following the crisis and the current Mexican presidentialadministration’s goal to provide 750,000 new mortgages per year by 2006pursuant to its national housing plan. The administration set forth fourobjectives to achieve this growth:

·                  make moreadequate land available, including infrastructure such as sewage and utilities;

·                  increasederegulation of the home building industry;

·                  encourageconsolidation within the industry; and

·                  increasefinancing opportunities available to qualified home buyers.

In conjunction with these efforts, the Mexican legislatureamended existing tax regulations in order to allow individuals to deduct aportion of their mortgage loan interest payments from their personal incometaxes beginning in 2003, which the administration expects will lead toincreased mortgage financing activity.

In the last four years, the developer-built market hascontinued to expand due to higher levels of available mortgage financing,especially through government-sponsored funds such as INFONAVIT, SHF, andFOVISSSTE. Between 1998 and 2000, the housing stock in Mexico increased by 2.4million homes, 37% of which (900,000 homes) were built by developers, with theremainder being self-built. Between 2001 and 2003, CONAPO estimates that thehousing stock increased by another 2.5 million homes, 46% of which (1.1 millionhomes) were built by developers, with the remainder being self-built.

**Sources of Mortgage Financing**

Four principal sources provide mortgage financing forMexico’s housing market:

·                  Mortgageproviders financed by mandatory employer or member contributions to publicfunds, including:

·                  INFONAVIT,serving private sector employees,

·                  FOVISSSTE,serving public sector employees, and

·                  SHF, whichprovides financing to credit-qualified homebuyers through financialintermediaries such as commercial banks or sofoles through funds from the WorldBank, the Mexican government, and its own portfolio;

·                  Commercialbanks and sofoles using their own funds; and

·                  Directsubsidies from public housing agencies and state housing trusts, including theMexican Fund for Popular Housing, or FONHAPO(Fideicomiso Fondo Nacional de Habitaciones Populares).

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According to CONAFOVI, these mortgage providers originated 561,550 homemortgages in 2005, as follows:

***INFONAVIT***

INFONAVIT was established by the Mexican government, laborunions, and private sector employees in 1972 as a mutual fund for the benefitof private sector employees. INFONAVIT functions as a savings and loan thatprovides financing primarily for affordable entry-level housing tocredit-qualified home buyers. INFONAVIT makes loans for home construction,acquisition, or improvement to workers whose individual monthly earnings are generallyless than five times the minimum monthly wage. It is funded through payrollcontributions by private sector employers on behalf of their employees equal to5% of their employees’ gross wages.

Home buyers qualify for INFONAVIT loans according to a pointsystem whereby points are awarded based on income, age, amount of monthlycontributions, and number of dependents, among others. INFONAVIT is phasing ina requirement that mortgage loan applicants make a down payment of between 5%to 10% of a home’s total value, depending on price. The total loan amount mayequal 100% of the cost of a home up to a maximum of between 300 and 350 timesthe monthly minimum wages, depending on geographical region. Repayment iscalculated based on the borrower’s wages, for a term of up to thirty years, andis made by direct wage deductions by employers. INFONAVIT generally grantsloans at variable annual interest rates, which are indexed to inflation andbased on a borrower’s income. INFONAVIT allows for a one-year grace period withno interest or principal payments in the event of job loss and seeks directrepayment from the borrower after this period.

INFONAVIT has a program called Apoyo INFONAVIT that isdirected at assisting higher-income borrowers obtain mortgage financing. ApoyoINFONAVIT customers can use the amounts contributed via payroll deductions totheir INFONAVIT accounts as collateral for mortgage loans held by privatesector lenders. In addition, these clients can apply their monthly INFONAVITcontributions toward the monthly mortgage payments owed to private sectorlenders.

INFONAVIT recently inaugurated a new program calledCofinanciamiento, or Cofinavit, which is meant to assist high-income borrowersin a manner similar to the Apoyo INFONAVIT program. This new program enablesCofinavit customers to obtain a mortgage loan granted by INFONAVIT inconjunction with a commercial bank or a sofol. In addition, the customers canuse their individual contributions in their INFONAVIT accounts as part of thefinancing or as collateral for the mortgage loan.

In addition, during late 2004 and early 2005, INFONAVITinitiated a new mortgage financing system, enabling INFONAVIT to expedite theissuance of mortgages in response to public demand by reducing documentationnecessary for initial processing, permitting INFONAVIT to achieve its year-endgoals. In addition, this new system enhances transparency and quality ofservice in connection with mortgage services. Mortgage financing increased 22%to approximately 371,706 mortgages granted in 2005 from approximately 305,000mortgages granted in 2004 partially as a result of the implementation of thenew mortgage financing system.

INFONAVIT has made a commitment to provide 435,000 newmortgages in 2006 and 500,000 new mortgages in 2007. In addition, this agencyhas agreed to guarantee mortgage loans granted to employees by commercial banksand sofoles in the case of job loss. INFONAVIT expects to continue to modernizeits operations and increase available financing by focusing on reducing paymentdefaults, participating more closely with the private sector, and implementinga voluntary savings program. INFONAVIT has also recently begun securitizing itsloan portfolio in order to contribute to the growth of the secondary mortgagemarket in Mexico and expand its available sources of funds.

INFONAVIT provided approximately 66.2% of all mortgagefinancing in Mexico during the year ended December 31, 2005.

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***FOVISSSTE***

The Mexican government established FOVISSSTE in 1972 as apension fund on behalf of public sector employees to provide financing foraffordable housing. FOVISSSTE obtains funds from Mexican governmentcontributions equal to 5% of public sector employee wages. The Mexicangovernment administers FOVISSSTE similarly to INFONAVIT and permits FOVISSSTEto co-finance mortgage loans with private sector lenders in order to maximizeavailable funds.

FOVISSSTE mortgage financing is typically available forhousing ranging from the affordable entry-level sector through the lower end ofthe middle-income sector. Eligible applicants can obtain FOVISSSTE mortgageloans to purchase new or used homes, remodel or repair existing homes, financeconstruction of self-built homes, and make down payments on homes not financedthrough FOVISSSTE. FOVISSSTE loans are granted based on seniority within thepublic sector and allocated on a first-come first-served basis that also takesinto account wages, number of dependents, and geographic location. Once theprogram establishes a number of approved applicants, it allocates mortgageloans by state based on historical demand.

FOVISSSTE generally grants loans at variable interestrates, indexed to inflation, for a maximum amount of approximately US$40,000.Repayment is calculated based on the borrower’s wages, for a term of up tothirty years, and is made by direct wage deductions.

FOVISSSTE has publicly announced that it is seeking toincrease the total number of mortgage loans it grants to 70,000 in 2006 and75,000 in 2007.

FOVISSSTE provided approximately 7.5% of all mortgagefinancing in Mexico during the year ended December 31, 2005.

***SHF***

SHF was created in 2002 as a public sector developmentbank. SHF obtains funds from the World Bank, the Mexican government, and SHF’sown portfolio and provides financing through intermediaries such as commercialbanks and sofoles. In turn,, financial intermediaries administer SHF-sponsoredmortgage loans, including disbursement and servicing.

Traditionally, SHF has been an important source ofconstruction financing for housing developers by providing loans to commercialbanks and sofoles (which in turn make direct bridge loans to developers). As ofSeptember 1, 2004, however, SHF provided funding for bridge loans only forhomes with a purchase price of up to UDI 166,667 (approximately US$57,000 as ofDecember 31, 2005). In lieu of funding bridge loans for homes with a higherpurchase price (up to UDI 500,000 (approximately US$171,000 as of December 31,2005)), SHF will provide guarantees to support efforts by commercial banks andsofoles to raise capital for the financing of bridge loans to build such homes.

In addition, SHF makes financing available to commercialbanks and sofoles for the purpose of providing individual home mortgages foraffordable entry-level and middle-income homes. Historically, SHF has onlyfinanced a total amount equal to 80% to 90% of a home’s value, generally for amaximum of approximately UDI 500,000 (approximately US$171,000 as of December31, 2005). Beginning in 2005, however, in order to maximize the availability ofaffordable entry-level mortgages, SHF has replaced its financing of mortgagesfor homes with a purchase price greater than UDI 150,000 (approximatelyUS$51,000 as of December 31, 2005) with credit enhancements and loan guaranteesfor commercial banks and sofoles to support their capital-raising efforts forthe financing of such individual mortgage loans.

In terms of total homes financed, SHF (through commercialbanks and sofoles) provided approximately 19% of all mortgage financing inMexico during the year ended December 31, 2005.

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***Commercial Banks and Sofoles***

Commercial banks generally target the middle-income andresidential markets while sofoles generally target the affordable entry-levelhousing market and a portion of the middle-income housing market using SHFfinancing, and the balance of the middle-income housing market as well as theresidential housing market using other sources of funding. Sofoles providemortgage loans to borrowers using funds from securities offerings on the Mexicanstock market, loans from Mexican and foreign lenders, their own portfolios, andpublic agencies such as SHF. They are not allowed to accept deposits from thepublic.

Although commercial banks and sofoles provide mortgagefinancing directly to home buyers, the financing is commonly coordinatedthrough the home builder. In order to obtain funding for construction, a homebuilder must submit proposals, including evidence of title to the land to bedeveloped, architectural plans, necessary licenses and permits, and marketstudies demonstrating demand for the proposed housing. On approval, lendersprovide construction financing and disburse funds as each stage of the housingdevelopment advances.

Commercial bank and sofol mortgage loans are typicallyavailable for housing ranging from the upper tier of the affordable sectorthrough the residential sector. Nevertheless, during 2005 home -buyersqualifying for these private sector mortgages were generally assumed to bethose purchasing homes with a value in excess of US$25,000. Private sectorlenders require down payments of approximately 20% of a home’s total value andmake loans at fixed or variable annual interest rates based on consumer indicesand inflation.

Commercial bank and sofol mortgage loans generally maturein ten to thirty years, and payments are sometimes adjusted for increases inthe monthly minimum wage and rates of inflation.

We estimate that commercial banks and sofoles (notincluding SHF financing) provided approximately 6.7% of all mortgage financingin Mexico during the year ended December 31, 2005.

***OtherPublic Housing Agencies***

Other public housing agencies such as Fonapo and theMexican Housing and Social and Urban Development Trust Fund, or Fividesu(Fideicomiso para Promover y Realizar Programas de Vivienda y Desarrollo Socialy Urbano), operate at the federal and local levels and target mainlynon-salaried workers earning less than 25 times the minimum annual wage, oftenthrough direct subsidies. These agencies lend directly to organizations such asstate and municipal housing authorities, housing cooperatives, and creditunions representing low-income beneficiaries, as well as to individualborrowers. Financing is made available to both the self-built anddeveloper-built markets. The total amount of available funds depends on theMexican government budget.

Other public housing agencies provided approximately 6.4%of all mortgage financing in Mexico during the year ended December 31, 2005.

**Competition**

The Mexican home development and construction industry ishighly fragmented and includes a large number of regional participants and afew companies with a more national market presence, including companies whichare public in Mexico like Corporacion GEO, S.A. de C.V., Consorcio ARA, S.A. deC.V. Sare Holding, Consorcio Hogar and URBI Desarrollos Urbanos, S.A. de C.V.as well as the privately-held companies such as Grupo SADASI, Pulte Mexico (nowAltta Homes) and Metta which do not publicly disclose their financialinformation.

All things considered , we estimate that approximately1,200 different companies operate approximately 3,000 new home developments inMexico at any one time. The following table sets forth approximate operatinginformation on the largest home builders in Mexico with which we compete basedon public information and our estimates:

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| **Competitor** | ** ** | **2005 Home Sales** | ** ** | **2005 Sales**             | ** ** | **Location in Mexico** | ** ** | **Sector** | ** ** |
|----------------|------------|-------------------------------|------------|---------------------------------|------------|----------------------------------|------------|------------|------------|
| ** **     | ** ** | ** **                    | ** ** | **(millions of US$)** | ** ** | ** **                       | ** ** | ** ** | ** ** |
| GEO            |       | 37,605                        |       | 950                             |       | National                         |       | AEL,  M, R |       |
| URBI           |       | 24,869                        |       | 771                             |       | North  and border                |       | AEL,  M, R |       |
| ARA            |       | 19,015                        |       | 637                             |       | National                         |       | AEL,  M, R |       |
| Ruba           |       | 10,732                        |       | 241                             |       | North                            |       | AEL        |       |
| SARE           |       | 9,652                         |       | 317                             |       | Mexico  City region              |       | AEL,  M, R |       |
| Hogar          |       | 1,699                         |       | 56                              |       | West-Northwest                   |       | AEL        |       |

 

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Source:  *Mexican Housing Overview* 2005.

(AEL)                AEL refers toaffordable entry-level housing.

(M)                            M refers tomiddle-income housing.

(R)                                R refers toresidential housing.

We believe that we are well positioned to capture futuregrowth opportunities in the affordable entry-level and middle-income housingsectors because of our principal business strengths and strategies, asdescribed above.

**Seasonality**

The Mexican affordable entry-level housing industryexperiences significant seasonality during the year, principally due to theoperational and lending cycles of INFONAVIT and FOVISSSTE. The programs,budgets, and changes in the authorized policies of these mortgage lenders areapproved during the first quarter of the year. Payment by these lenders forhome deliveries is slow at the beginning of the year and increases graduallythrough the second and third quarters with a rapid acceleration in the fourthquarter. We build and deliver affordable entry-level homes based on theseasonality of this cycle because we do not begin construction of these homesuntil a mortgage provider commits mortgage financing to a qualified home buyerin a particular development. Accordingly, we also tend to recognizesignificantly higher levels of revenue in the third and fourth quarters and ourdebt levels tend to be highest in the first and second quarters. We budget themajority of our and purchases for the second half of the year to coincide withpeak cash flows. As a result, our total land reserves fluctuate between ourtargeted 18 to 24 months of future home deliveries depending upon the time ofyear. We anticipate that our quarterly results of operations and our level ofindebtedness will continue to experience variability from quarter to quarter^in the future. Mortgage commitments from commercial banks and sofoles formiddle-income housing are generally not subject to significant seasonality. Weexpect that as the percentage of our sales from middle-income housingincreases, the overall seasonality of our results of operations shoulddiminish.

We acquire land and plan the development of the homes webuild through Proyectos Inmobiliarios de Culiacan, S.A. de C.V. or PICSA.Desarrolladora de Casas del Noroeste S.A. de C.V. or DECANO builds thedevelopments that PICSA plans and promotes. We also receive executive andadministrative services from Administradora PICSA, S.A. de C.V. and AltosMandos de Negocios, S.A. de C.V. Homex Atizapan, S.A. de C.V., which we operateand control as a joint venture with strategic partners in the region, owns oneof our middle-income developments in the Mexico City area. AeroHomex, S.A. deC.V. provides transportation services to us. Through AAA Homex Trust, a Mexicantrust, we establish factoring facilities for the settlement of trade payablesto many of our suppliers. See “—Materials and Suppliers.”

**Marketing**

We develop customer awareness through our marketing andpromotion efforts and referrals from satisfied customers. Through surveys weconduct through our marketing department and with sales agents, we gatherdemographic and market information to help us gauge the feasibility of newdevelopments. We use these surveys to target groups of customers who sharecommon characteristics or have common needs and offer packages of services,including housing models and financing sources, tailored to these groups.

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We conductadvertising and promotional campaigns principally through print media,including billboards, fliers, and brochures designed specifically for thetarget market, as well as local radio and television. Moreover, we complementthese campaigns with additional advertising efforts, including booths atshopping centers and other high traffic areas, to promote open houses and otherevents. In some locations, we work with local employers and other groups tooffer our homes to their employees or members and rely on positiveword-of-mouth from satisfied customers for a large percentage of our sales. Wealso employ specially-trained salespeople to market our middle-income housingdevelopments.

**Sales**

In general, we make sales either at sales offices or modelhomes. Using data we gather through our marketing efforts, we open salesoffices in areas where we identify demand. As of December 31, 2005, we operated68 sales offices, one in each of the developments we have established.Similarly, once we have purchased land and planned a development in regions wehave identified as underserved, we build and furnish model homes to display toprospective customers. We have sales offices in each of our branches wheretrained corporate sales representatives are available to provide customers withrelevant information about our products, including financing, technicaldevelopment characteristics, and information about our competitors and theirproducts. We provide the same information through trained corporate salesrepresentatives at model homes. During 2005 we changed our method ofcompensating our sales agents to an exclusively performance-based commissionmethod, typically 1.4% of the total home price.

We provide our customers with assistance through our salesdepartments from the moment they contact us, during the process of obtainingfinancing, and through the steps of establishing title on their new home. Wehave specialized sales areas in each of our offices that advise customers onfinancing options, collecting necessary documentation, and applying for a loan.We also help to design down payment plans tailored to each customer’s economicsituation, although we do not provide any financing to our clients either atany point in the sale process. Once houses are sold and delivered, ourspecialized teams are available to respond to technical questions or problemsduring the twelve-month warranty period following the delivery.

**Customer Financing**

We assist qualified homebuyers in obtaining mortgagefinancing by participating in all the stages of applying for and securing mortgageloans from housing funds, commercial banks, and sofoles.

For sales of affordable entry-level homes, the process ofobtaining customer financing generally occurs as follows:

·                  a potentialhome buyer enters into a purchase agreement and furnishes the necessarydocumentation to us;

·                  we review thedocumentation to determine whether all the requirements of the relevantmortgage provider have been met;

·                  we create anelectronic credit file for each home buyer and submit it to the relevantmortgage provider for approval;

·                  we superviseand administer each client file via our database through all the phases of itsprocessing and arrange for signing the required documentation once approval hasbeen obtained;

·                  the home buyermakes any required down payment;

·                  once the homehas been completed, the buyer signs the deed of transfer of title and themortgage agreement; and

·                  we deliver thehome to the buyer and register the title.

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For sales ofmiddle-income housing, the process of obtaining customer financing occurs asabove, except that we collect a down payment of between 10% to 25% of a home’stotal sales price immediately following the execution of the purchaseagreement, and the buyer signs the deed of transfer of title and the mortgageagreement when the home is 90% complete.

In all cases, the procedures and requirements for obtainingmortgage financing are determined by the mortgage provider. We grant no directfinancing to home buyers for the purchase of our homes.

In general, the purchase agreement we enter into with apotential buyer binds the buyer to purchase the relevant home at the time thatthe home is completed. We collect an origination fee at the time that a buyerenters into a purchase agreement, which is returned (less a processing fee) ifthe sale does not close as a result of a buyer’s breach or if a lender declinesa mortgage financing application. We have not experienced and do not expect toexperience losses resulting from breaches of buyer purchase agreements becausewe generally have been able to locate other buyers immediately in these cases.

The purchase price of the homes we sell is denominated inpesos and is either fixed in the purchase agreement or is subject to an upwardadjustment for the effects of inflation. In cases where the price of a home issubject to adjustment and increases due to inflation, any difference is payableby the buyer.

**Design**

We internally develop all the construction designs that weuse. Our architects and engineers are trained to design structures to maximizeefficiency and minimize production costs. Our standardized modular designs,which focus on quality and size of construction, allow us to build our homesquickly and efficiently. By allowing our clients to upgrade finishing detailson a custom basis after homes are delivered, we experience savings that allowus to build larger homes than our competitors.

We use advanced computer-assisted design systems andcombine market research data in order to plan potential developments. Webelieve that our comprehensive design and planning systems, which are intendedto reduce costs, maintain competitive prices, and increase sales, constitute asignificant competitive advantage in the affordable entry-level housing market.In order to further enhance the residential nature of our communities, we oftendesign our developments as gated communities, install infrastructure forsecurity surveillance, and arrange street layouts to foster road safety. Wecontinue to invest in the development of design and planning construction systemsto further reduce costs and continue to meet client needs.

**Construction**

We manage the construction of each development directly,coordinate the activities of our laborers and suppliers, oversee quality andcost controls, and assure compliance with zoning and building codes. We havedeveloped efficient, durable, and low-cost construction techniques, based onstandardized tasks, which we are able to replicate at all of our developments.We pay each laborer according to the number of tasks completed. We generallysubcontract preliminary site work and infrastructure development such as roads,sewage, and utilities. Currently, we also subcontract the construction of alimited number of multi-unit middle-income apartment buildings in the MexicoCity area.

Our designs are based on modular forms with definedparameters at each stage of construction, which are closely controlled by ourcentral information technology systems. Our methods result in low constructioncosts and high quality products. We use substantially similar materials tobuild our middle-income homes, with higher quality components for certainfinishing details and fixtures.

**Materials and Suppliers**

We maintain strict control over our building materialsthrough use of a sophisticated electronic barcode identification system thattracks deliveries and monitors all uses of supplies. In general, we reducecosts by negotiating 

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supply arrangements at the corporate level for the basicmaterials used in the construction of our homes, including concrete, concreteblock, steel, bricks, windows, doors, roof tiles, and plumbing fixtures. Wetake advantage of economies of scale in contracting for materials and servicesin every situation and seek to establish excellent working relationships withour suppliers. In order to better manage our working capital, we also arrangelines of credit for many of our suppliers through a factoring program sponsoredby Nacional Financiera, S.N.C., or NAFIN, a Mexican government-owneddevelopment bank, as well as certain additional financial institutions. Weguarantee a portion of the financing provided to some of our suppliers formaterials we buy from them during construction and repay these lenders directlywith funds received when homes are delivered, which allows us to ensuresuppliers are paid on time while minimizing our need to secure constructionfinancing.

Our main suppliers include Cemex, S.A de C.V., Capeco, S.A.de C.V., Electroferretera Orvi, S.A. de C.V., Mercon de Nuevo Laredo, S.A. deC.V, Kuroda, S.A. de C.V., GTI Mexicana S.A. de C.V, Distribuidora Jama, S.A.de C.V., Legrand de Mexico, S.A. de C.V., Internacional de Ceramica, S.A. deC.V., Vitromex, S.A. de C.V., Losetas Asfalticas, S.A. de C.V., FTP AccesoriosPlasticos para la Construccion, S.A. de C.V., Curacreto, S.A. de C.V.,Imperquimia, S.A. de C.V., Prefabricados y Sistemas, S.A. de C.V., CemexConcretes, S.A. de C.V., Lamina y Placa Comercial S.A. de C.V. and GrupoPorcelanite, S.A. de C.V.

Substantially all of the materials that we use aremanufactured in Mexico and are delivered to our sites from suppliers’ localfacilities on a time-efficient basis devised to keep low levels of inventory onhand. Our principal materials and supplies are readily available from multiplesources and we have not experienced any shortages or supply interruptions.

**Labor**

As of December 31, 2005, we had a totalof approximately 7,337 employees . All of these employees were employed inMexico. Total employees for 2004, 2003 and 2002 were 8,559, 7,911 and 1,286,respectively. Approximately 2,684 of our employees as of December 31, 2005 wereadministrative and managerial personnel.

We hire local labor forces for specific housingdevelopments in each region that we operate in addition to experienced in-housepersonnel for supervisory and highly skilled work. We have an efficientinformation technology system that controls payroll costs. Our systems, usingbarcoded identification cards, track the number of tasks completed by eachemployee according to the parameters of our modular construction designs,assign salaries according to tasks and homes completed, and award incentivesfor each stage of the development based on team performance. We also streamlinegovernmental and social security costs for our workforce using a strict attendancecontrol system that captures information fed via our system through laborers’identification cards.

We have implemented programs throughout Homex to assist ouremployees in obtaining elementary and middle-school equivalency degrees. Webelieve that these programs enhance our ability to attract and retain highquality employees. In 2004 and 2003 we were named as one of the top 50 “GreatPlaces to Work” in Mexico by the Great Place to Work Institute, which is basedin the United States.

As of December 31, 2005, approximately 99% of ourconstruction employees were members of a national labor union of constructionworkers. The economic terms of our collective bargaining agreements arenegotiated on an annual basis. All other terms and conditions of these agreementsare negotiated every other year. We believe that we have an excellent workingrelationship with our workforce. We have not experienced a labor strike or anysignificant labor-related delay to date.

**Customer Services and Warranties**

Our quality control department oversees strict pre-deliveryquality control inspections and responds to post-delivery customer needs. Werespond to client requests during the construction phase and coordinate everylegal aspect that our clients must fulfill when purchasing our products,including signing deeds, obtaining permits, and securing funding. We provide atwelve-month warranty following delivery of the home. Historically, we havespent immaterial amounts in warranty claims. In the past three years, we havespent an aggregate of less than 0.5% of our total revenues in warranty claims.

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**Community Services**

We seek to foster brand loyalty after construction iscomplete by strengthening community relations in the developments we build. Aspart of agreements with potential clients and governmental authorities, wedonate land and build community infrastructures such as schools, day-carecenters, churches, and green areas, often amounting to 10% to 15% of the totalland area of the developments we construct. For a period of eighteen months, wealso provide for community development specialists to assist in promotingcommunity relations in certain developments by organizing neighborhood eventssuch as competitions for beautiful homes and gardens.

**Regulation**

***General***

Our operations are subject to Mexican federal, state, andlocal regulation as any other corporation doing business in Mexico. Some of themost relevant statutes, regulations, and agencies that govern our operationsinclude the following:

·                  The MexicanGeneral Human Settlements Act (Ley General de Asentamientos Humanos) regulatesurban development, planning and zoning and delegates to the Mexico City andstate governments the authority to promulgate urban development laws andregulations within their jurisdiction, including the Urban Development Act (Leyde Desarrollo Urbano) of each state where we operate, which regulates stateurban development.

·                  The MexicanFederal Housing Act (Ley Federal de Vivienda) coordinates the activities ofstates, municipalities, and the private sector within the context of thehousing industry. As in effect, the Federal Housing Act seeks to encourage andpromote the construction of affordable entry-level housing.

·                  Local BuildingRegulations (Reglamentos de Construccion) and urban development planspromulgated by the states, Mexico City, and local municipalities controlbuilding construction, establish the required licenses and permits, and definelocal zoning and land-use requirements.

·                  The MexicanINFONAVIT Act (Ley del Instituto del Fondo Nacional de la Vivienda para losTrabajadores) requires that construction financing provided by INFONAVIT begranted only to registered developers that participate in public INFONAVITbidding processes.

·                  The FederalMortgage Society Organizational Act (Ley Organica de la Sociedad HipotecariaFederal) encourages the development of the primary and secondary home mortgagemarkets by authorizing SHF to grant home mortgage loans pursuant to the FederalMortgage Society General Financing Conditions (Condiciones Generales deFinanciamiento de Sociedad Hipotecaria Federal), which regulate the generalterms and conditions on which these loans may be granted.

·                  The MexicanFederal Consumer Protection Act (Ley Federal de Proteccion al Consumidor)promotes and protects consumer rights and seeks to establish equality and legalcertainty in relationships between consumers and commercial suppliers.

***Environmental***

Our operations are subject to the Mexican GeneralEnvironmental Protection Act (Ley General del Equilibrio Ecologico y laProteccion al Ambiente), the Mexican General Waste Prevention and ManagementAct (Ley General para la Prevencion y Gestion Integral de los Residuos), andthe related regulations. The Mexican Ministry of the Environment and NaturalResources (Secretaria del Medio Ambiente y Recursos Naturales) and the MexicanFederal Environmental Protection Agency (Procuraduria Federal de Proteccion alAmbiente) are the federal governing authorities responsible for enforcingenvironmental regulations in Mexico, including environmental impact studies,which are required for obtaining land-use permits, investigations, and audits,as well as to provide guidelines and procedures regarding the generation,handling, disposal, and treatment of hazardous and non-hazardous waste.

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We are committed to conducting our business operations in amanner that minimizes environmental impact. Our business processes includeprocedures that are intended to ensure compliance with the Mexican GeneralEnvironmental Protection Act, the Mexican General Waste Prevention andManagement Act, and the related regulations. In accordance with these laws, webuild our homes with metal instead of wooden beams and treat waste water foruse in irrigating common areas in our developments. We plant trees on the landof homes we sell and provide plantings on land that we donate to ourcommunities. Our internal teams conduct environmental studies for each projectand produce environmental reports that are intended to identify environmentalissues and assist in project planning in order to minimize adverseenvironmental effects, such as limiting the felling of trees during the processof urbanizing rural land for use in our developments. Our costs include thecost of complying with applicable environmental regulations. To date, the costof complying and monitoring compliance with environmental regulationsapplicable to us has been immaterial.

**Significant Subsidiaries**

We are a holding company and conduct our operations throughsubsidiaries. The table below sets forth our principal subsidiaries as ofDecember 31, 2005.
| **Name of  Company**                               | ** ** | **Jurisdiction of  Incorporation** | ** ** | **Percentage  Owned** | ** ** | **Products/Services**                                                                       |
|----------------------------------------------------|------------|------------------------------------|------------|-----------------------|------------|---------------------------------------------------------------------------------------------|
| Proyectos Inmobiliarios de Culiacan, S.A. de C.V.  |       | Mexico                             |       | 100.00                | %          | Development of housing complexes                                                            |
| Desarrolladora de Casas del Noroeste, S.A. de C.V. |       | Mexico                             |       | 100.00                | %(1)       | Construction of housing complexes                                                           |
| Administradora Picsa, S.A. de C.V.                 |       | Mexico                             |       | 100.00                | %          | Rendering of administrative services to and  professional services for affiliated companies |
| Altos Mandos de Negocios, S.A. de C.V.             |       | Mexico                             |       | 100.00                | %          | Rendering of administrative services to affiliated  companies                               |
| Homex Atizapan, S.A. de C.V.                       |       | Mexico                             |       | 67.00                 | %(2)       | Development of housing complexes                                                            |
| AeroHomex, S.A. de C.V.                            |       | Mexico                             |       | 100.00                | %          | Rendering of transportation services to Homex                                               |
| Casas Beta del Centro, S.A. de C.V.                |       | Mexico                             |       | 100.00                | %          | Development of housing complexes                                                            |
| Casas Beta del Noroeste, S.A. de C.V.              |       | Mexico                             |       | 100.00                | %          | Development of housing complexes                                                            |
| Casas Beta del Norte, S.A. de C.V.                 |       | Mexico                             |       | 100.00                | %          | Development of housing complexes                                                            |

 

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(1)             On September 1,2005, the Company acquired an additional 4.14% ownership interest inDesarrolladora de Casas del Noroeste, S.A. de C.V. (“DECANO”), from the formerowners of Econoblock, which merged into DECANO in 2004 and resulted in DECANObecoming a wholly-owned subsidiary of the Company.

(2)             The balance ofthe shares of Homex Atizapan is held by the individual who owns the land beingdeveloped by Homex Atizapan.

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**ITEM 4A.****           Unresolved StaffComments.**

Not Applicable

## **ITEM 5.****                   ****Operating and Financial Review and Prospects.**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

*The following discussion should be read in conjunction with our auditedconsolidated  financial statements andtheir accompanying notes included elsewhere herein. Our consolidated financialstatements and other financial information included in this annual report,unless otherwise specified, are restated in constant pesos as of December 31,2005. Our consolidated financial statements have been prepared in accordancewith Mexican GAAP which differs in certain respects from U.S. GAAP as describedin Notes 24 and 25 to our audited consolidated financial statements.**As discussed in theexplanatory note included within the forepart of this document, theconsolidated financial information as of and for the year ended December 31,2005 has been restated for certain differences as follows: (i) the addition ofthe previously unrecognized deferred income tax liability associated with theintangible asset for the Beta trademark; (ii) the addition of the previouslyunidentified intangible asset related to the value of the backlog of housesunder construction as of the date of the Beta acquisition and the addition ofthe deferred income tax liability associated with this backlog; (iii) theaddition of the previously unrecognized amortization of the intangible assetsrelated to the Beta trademark and the backlog of houses under construction fromthe date of the Beta acquisition to December 31, 2005 and their relateddeferred income tax effects and (iv) an adjustment to the U.S. GAAPreconciliation associated with the effect of the additional deferred taxliability on the adjustment related to recognition of revenues between MexicanGAAP and US GAAP; this adjustment is related to an interpretation of a changein the applicable tax law beginning in 2005.** *

This annual report contains forward-looking statements thatreflect our plans, estimates and beliefs. Our actual results could differ materiallyfrom those discussed in the forward-looking statements. Factors that couldcause or contribute to these differences include, but are not limited to, thosediscussed below and elsewhere in this annual report, particularly in“Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

**Critical Accounting Estimates**

**Our consolidated financial statementshave been prepared in accordance with Mexican GAAP, which requires that we makecertain estimates and use certain assumptions that affect the amounts reportedin our consolidated financial statements and the accompanying notes. See note 3of the Consolidated  Financial Statement.Although these estimates are based on our best knowledge of current events,actual results may differ. Our critical accounting estimates are as listedbelow**

***Goodwill****, Backlog**and Intangible Assets*

**We are required to apply the purchasemethod of accounting for all business combinations which requires therecognition of certain acquired intangible assets separate from goodwill.Goodwill and other intangibles determined to have an indefinite life are nolonger to be amortized but are to be tested for impairment at least annually.In our allocation of the purchase price of the acquisition of ControladoraCasas Beta, S.A. de C.V., we identified and allocated a value to intangibleassets totaling Ps. 455.3 million related to** (i)the Beta trademark and (ii) the value of the backlog ofthe houses under construction as of the date of the Beta acquisition.  As of December 31, 2005 the net book value ofthe Beta trademark and the backlog were Ps.409.7 million and Ps.10.3 million,respectively. Thevaluation of these intangible assets required us to use our judgment. We alsorecorded goodwill related to the acquisition of Controladora Casas Beta, S.A.de C.V. of Ps. 677.8 million. The annual impairment testing requirements requires us to useour judgment and could require us to write down the carrying value of ourgoodwill and other intangible assets in future periods. 

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***Revenueand Cost Recognition***

We use the percentage-of-completion method of accountingfor revenues and costs, measuring progress towards completion in terms ofactual costs incurred versus budgeted expenditures for each stage of adevelopment. Under the percentage-of-completion method of accounting, revenuesfor work completed are recognized prior to receipt of actual cash proceeds. Wereceive proceeds from the sale of a home at closing whentitle to the home is transferred to the buyer. We include revenues in excess ofbillings as accounts receivable on our balance sheet, and any cash proceeds wereceive as advance payments prior to completion of the actual work related tothe payments, including customer down payments, are included in currentliabilities as advances from customers. Please see Note 3 to the consolidatedfinancial statements.

The percentage-of-completion method of accounting requiresus to determine on a monthly basis the percentage of completion of each stageof a development based on actual expenditures incurred to date versus budgetedexpenditures. To the extent that the estimated costs of a development stagediffer from the actual costs incurred, our recognized revenues could change. Inaddition, to the extent that estimated revenues derived from home sales perdevelopment stage differ from revenues derived from home deliveries perdevelopment stage, our recognized revenues could change.

We apply the percentage-of-completion method to recognizerevenues from our housing development subject to the following conditions:

·                  the home buyerhas submitted all required documents in order to obtain financing from themortgage lender;

·                  we establishthat the home buyer will obtain the required financing from the mortgagelender;

·                  the home buyerhas signed a purchase application; and

·                  the home buyerhas made a down payment, where down payments are required.

Beta, which we acquired on July 1, 2005,uses a similar percentage-of-completion method.

***IncomeTaxes***

We recognize deferred tax assets and liabilities based onthe differences between the financial statements carrying amounts and the taxbases of assets and liabilities. We regularly review our deferred tax assetsfor recoverability and, if necessary, establish a valuation allowance based onhistorical taxable income, projected future taxable income and the expectedtiming of the reversals of existing temporary differences. If these estimatesand related assumptions change in the future, we may be required to record avaluation allowance against deferred tax assets resulting in additional incometax expense. Please see Notes 3 and 19 to our consolidated financialstatements.

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**OPERATING RESULTS**

Thefollowing table sets forth selected data for the periods indicated, restated inconstant pesos as of December 31, 2005 and also expressed as a percentage ofour total revenues.
| ** **                                                        | ** ** | **2005  As restated**                       | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                        | ** ** | **(thousands of constant pesos)** | ** ** |
| **Mexican GAAP:**                                                 | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                                          |       | 8,536,162                                        |       | 5,491,294  |       | 3,008,841  |       |
| Costs                                                             |       | 5,945,061                                        |       | 3,823,572  |       | 2,152,170  |       |
| Gross profit                                                      |       | 2,591,101                                        |       | 1,667,722  |       | 856,671    |       |
| Selling and  administrative expenses                              |       | 845,799                                          |       | 447,901    |       | 275,643    |       |
| Income from  operations                                           |       | 1,745,302                                        |       | 1,219,821  |       | 581,028    |       |
| Other income                                                      |       | 23,443                                           |       | 44,473     |       | 80,454     |       |
| Net  comprehensive financing cost(1)                              |       | 457,561                                          |       | 164,948    |       | 131,834    |       |
| Income tax  expense                                               |       | 425,048                                          |       | 350,945    |       | 189,474    |       |
| Employee  statutory profit-sharing expense                        |       | 9,590                                            |       | 8,806      |       | 285        |       |
| Net income                                                        |       | 876,546                                          |       | 739,595    |       | 339,889    |       |
| **Mexican GAAP:**                                                 | ** ** | **(as a percentage of sales)**                   | ** ** |
| Revenues                                                          |       | 100.0                                            | %          | 100        | %          | 100        | %          |
| Costs                                                             |       | 69.6                                             | %          | 69.6       | %          | 71.5       | %          |
| Gross profit                                                      |       | 30.4                                             | %          | 30.4       | %          | 28.5       | %          |
| Selling and  administrative expenses                              |       | 9.9                                              | %          | 8.2        | %          | 9.2        | %          |
| Income from  operations                                           |       | 20.4                                             | %          | 22.2       | %          | 19.3       | %          |
| Other income                                                      |       | 0.3                                              | %          | 0.8        | %          | 2.7        | %          |
| Net  comprehensive financing cost                                 |       | 5.4                                              | %          | 3.0        | %          | 4.4        | %          |
| Income tax  expense and employee statutory profit-sharing expense |       | 5.1                                              | %          | 6.6        | %          | 6.3        | %          |
| Net income                                                        |       | 10.3                                             | %          | 13.5       | %          | 11.3       | %          |

 

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(1)               Represents interest income, interest expense,monetary position gains and losses, and foreign exchange gains and losses.

***Results of Operations for the Year EndedDecember 31, 2005 Compared to the Year Ended December 31, 2004***

***Revenues***. Total revenues increased 55.4% toPs.8,536.2 million in 2005 from Ps.5,491.3 million in 2004 primarily due to a 50.9% increase in thenumber of homes sold, an increase of 2.3% in the average price of ouraffordable entry-level homes, and additional revenue recognized in connectionwith increased sales of middle-income homes, for which the revenue per homesold is substantially greater than for affordable entry-level homes. We sold3,391 middle-income homes in 2005 compared to 1,912 middle-income homes in2004, and sold 28,203 affordable entry-level homes in 2005 as compared with19,141 affordable entry-level homes in 2004.

***Gross Profit.*** Costs increased 55.5% in 2005 to Ps.5,945.1million from Ps.3,823.6 million in 2004, due primarily to the incorporation ofBeta into the Company’s operations as well as the increased volume, asdescribed above. Gross profit increased by 55.4% to Ps.2,591.1 million from Ps.1,667.7 million in 2004. Our gross profit margin remained 30.4 % in 2005 from30.4% in 2004. 

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***Sellingand Administrative Expenses.*** Selling and administrativeexpenses increased 88.8% to Ps.845.8 million in 2005 from Ps.447.9 million in2004. This increase was due principally to the addition of Beta to theCompany’s results as well as higher aggregate sales commissions resulting fromthe increase in the number of homes sold and the increase in the number ofadministrative personnel required to support our expanding operations, as wellas the increase in training expense for the sales force and branch managers. Asa percentage of sales, selling and administrative expenses increased to 9.9% in2005 from 8.2% in 2004. The increase in selling and administrative expenses asa percentage of sales was mainly attributable to the addition of Beta to theCompany’s results. 

***Net ComprehensiveFinancing Cost***.Net comprehensive financing cost (comprised of interest income, interestexpense, monetary position gains and losses, and foreign exchange gains andlosses) increased by 177.4% from Ps.164.9 million in 2004 to Ps.457.6 millionin 2005. Net comprehensive financing cost as a percentage of sales increasedfrom 3.0% in 2004 to 5.4% in 2005.

Netinterest expense increased by 308.7% from Ps.88.3 million in 2004 to Ps.360.8million in 2005. This increase was primarily due to an increase in theCompany’s debt level, mainly reflecting borrowings under the credit facilityentered into in connection with the acquisition of Beta, the Beta’s existingdebt during the period as well as the Company’s commercial paper program.Interest income increased by 20.7% to Ps.58.3 million in 2005 from Ps.48.3million in 2004 due to higher cash balances throughout the year.

Wehad a foreign exchange loss of Ps.65.5 million in 2005 as a result of a higherdebt level exposure in U.S. dollar terms impacted by the peso appreciation ofapproximately 5.0% against the U.S. dollar during 2005, compared to a foreignexchange gain of Ps.7.4 million in 2004 as a result of the dollar balance thatwe held after our initial public offering and a peso depreciation ofapproximately 7.0% against the U.S. dollar, during the first quarter of 2003.

Monetaryposition loss decreased from Ps.84.0 million in 2004 to Ps.31.3 million in 2005as a result of a decrease in our net monetary asset position.

***Income Tax Expense and Employee StatutoryProfit-Sharing Expense.*** Income tax expense increased 21.1% from Ps.350.9 million in 2004 toPs.425.0 million in 2005 due principally to increased revenues and incomebefore taxes. The 32.0% effective income tax rate in 2005 remained relativelystable from the 31.9% in 2004. Employee statutory profit-sharing expenseincreased from Ps.8.8 million in 2004 to Ps.9.6 million in 2005 as a result ofthe increase in revenue and income before taxes. 

***Net Income***. Net income increased by 18.51% toPs.876.5 million in 2005 (as restated) from Ps.739.6 million in 2004 as aresult of the factors described above. 

***Results of Operations for the Year EndedDecember 31, 2004 Compared to the Year Ended December 31, 2003***

***Revenues***. Total revenues increased 82.5% toPs.5,491.3 million in 2004 from Ps.3,008.8 million in 2003 primarily due to a57.2% increase in the number of homes sold, an increase of 6.8% in the averageprice of our affordable entry-level homes, and additional revenue recognized inconnection with increased sales of middle-income homes, for which the revenueper home sold is substantially greater than for affordable entry-level homes.We sold 1,912 middle-income homes in 2004, compared to 463 middle-income homessold in 2003, and sold 19,141 affordable entry- level homes in 2004, ascompared to 12,933 affordable entry-level homes in 2003.

***Gross Profit***. Costs increased 77.7% to Ps.3,823.6 millionin 2004 from Ps.2,152.2 million in 2003, almost exclusively as a result ofincreased volume, as described above. Gross profit increased by 94.7% to Ps. 1,667.7 million in 2004 fromPs.856.7 million in 2003. Our gross profit margin improved to 30.4% in 2004from 28.5% in 2003. 

***Selling and Administrative Expenses***. Selling and administrative expensesincreased 62.5% to Ps.447.9 million in 2004 from Ps.275.6 million in 2003. Thisincrease was due principally to increases in aggregate sales commissionsresulting from the increase in the number of homes sold, the increase in thenumber of administrative personnel required to support our expandingoperations. As a percentage of sales, selling and administrative expensesimproved by decreasing from 9.2% in 2003 to 8.2% in 2004. The decrease inselling and administrative expenses as a percentage of sales was attributableto restrained growth in the number of our fixed salary personnel in relation toour significantly increased sales.

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***Net Comprehensive Financing Cost***. Net comprehensive financing cost (comprisedof interest income, interest expense, monetary position gains and losses, andforeign exchange gains and losses) increased by 25.1% from Ps.131.8 million in2003 to Ps.164.9 million in 2004. Net comprehensive financing cost as a;percentage of sales decreased from 4.4% in 2003 to 3.0% in 2004. Net interestexpense decreased by 23.2% from Ps.114.9 million in 2003 to Ps.88.3 million in2004. This decrease was primarily due to a decline in average interest rates onour outstanding indebtedness, a reduction in amounts outstanding under ourcredit facilities and the prepayment of outstanding debt with increased cash duein part to proceeds of the initial public offering. Interest income increased;by 620.9% to Ps.48.3 million in 2004 from Ps.6.7 million in 2003 due to highercash balances throughout the year. We had a foreign exchange gain of Ps.7.4million in 2004 as a result of a peso appreciation of approximately 0.8%against the U.S. dollar during 2004, compared to a foreign exchange gain ofPs.1.3 million in 2003 as a result of the dollar balance that we held followingcapital contributions by our principal shareholders and a peso depreciation ofapproximately 7.0% against the U.S. dollar during the first two months of 2003.Monetary position loss increased from Ps.18.2 million in 2003 to Ps.84.0million in 2004 as a result of an increase in our net monetary asset positionand an increase in inflation.

***Income Tax Expense and Employee StatutoryProfit-Sharing Expense***. Income tax expense increased 85.2% from Ps.189.5 million in 2003 toPs.350.9 million in 2004 due principally to increased revenues and incomebefore taxes. The effective income tax rate decreased by 12.5% from a rate of36.0% in 2003 to 32.0% in 2004. Such decrease was primarily a result ofinflation, reduction in the statutory income tax rate on deferred income taxesand an increase in tax loss carry forwards from Ps.554.9 million in the yearended December 31, 2003 to Ps.1,986.8 million in the year ended December 31,2004. The tax loss carry forwards were obtained from the purchase of new landthat helped offset payable tax income. Employee statutory profit-sharingexpense increased from Ps.0.3 million in 2003 to Ps.8.8 million in 2004 as aresult of the increase in revenue and income before taxes.

***Net Income***. Net income increased by 117.6% to Ps.739.6million in 2004 from Ps.339.9 million in 2003 as a result of the factorsdescribed above.

***Government Policy and Available Financing***

Thesize of the developer-built market depends to a great extent on theavailability of mortgage financing. Due to liquidity and general economiccrises occurring in the last twenty years, Mexico has experienced fluctuationsin the availability of mortgage financing, particularly from private sectorsources. As a result, the supply of affordable entry-level and middle-income;housing has also remained low during this period.

Duringthe 1980s, Mexican government policy focused on encouraging investment by theprivate sector, reducing development costs, and stimulating construction.Government-sponsored funds provided mortgage loanguarantees and direct payment and savings procedures. In 1994, Mexicoexperienced an economic crisis that led to the devaluation of the Mexican pesoand steep rise in interest rates. Smaller housing development companies wentout of business, and the industry experienced a sharp fall in home sales between1995 and 1996 due to diminished commercial bank lending. 

Followingthe 1994 economic crisis, government policy sought to counterbalance theshortage of available financing and the increases in interest rates thatresulted by focusing  primarily onproviding mortgages and construction financing via government sponsored fundsin the affordable entry-level sector. Government funds no longer provideddevelopment or sales activities and functioned instead as true savings-and-loanprograms. Legislative reforms with regard to community-owned agriculturalterritories (ejidos), which made it possible to sell these formerly restrictedproperties, also increased the potential supply of land available fordevelopment. During this period, the government authorized sofoles thatunderwrite mortgages with funds and guarantees provided by government agencies,private investment, national, foreign or development bank loans, or through theMexican capital markets. Furthermore, the government encouraged industry growthand private sector lending by supporting consolidation in the housingdevelopment industry.

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Between1997 and 1998, home sales stabilized, growing slightly in 1997 due to improvingeconomic conditions. During 1999 and 2000, mortgage financing increased due tostabilizing economic conditions. The level of available financing has continuedto grow as a result of Mexican government policies implemented following thecrisis and the current Mexican presidential administration’s goal to provide750,000 new mortgages per year by 2006 pursuant to its national housing, plan.The administration set forth four objectives to achieve this growth:

·                  make more adequate land available, includinginfrastructure such as sewage and utilities;

·                  increase deregulation of the home buildingindustry;

·                  encourage consolidation within the industry;and

·                  increase financing opportunities available toqualified home buyers.

Inconjunction with these efforts, the Mexican legislature amended existing taxregulations in order to allow individuals to deduct a portion of their mortgageloan interest payments from their personal income taxes beginning in 2003,which the administration expects  willlead to increased mortgage financing activity.

Inthe last four years, the developer-built market has continued to expand due tohigher levels of available mortgage financing, especially throughgovernment-sponsored funds such as INFONAVIT, SHF and FOVISSSTE. Between 1998and 2000 according to the Housing Development Agency (Comision Nacional deFomento a la Vivienda), or CONAFOVI, the housing stock in Mexico increased by2.4 million homes, 37% of which (900,000 homes) were built by developers, withthe remainder being self-built. Between 2001 and 2004, CONAPO estimates thatthe housing stock increased by another 3.0 million homes, 46% of which werebuilt by developers, with the remainder being self-built.

Changesin the availability of mortgage financing from government agencies couldadversely affect us. See “Risk Factors—Risk Factors Related to our Business—Decreasesin the Amount of Mortgage Financing Provided by Mexican Government-SponsoredAgencies on which We Depend, or Disbursement Delays, Could Result in a Decreasein Our Sales and Revenues.”

**LIQUIDITY AND CAPITAL RESOURCES**

Wehave experienced, and expect to continue to experience, substantial liquidityand capital resource requirements, principally to finance development andconstruction of homes and for land inventory purchases.

As of December 31, 2005, wehad Ps. 1,318.8 million of cash and temporary investments and Ps. 3,353.5million of outstanding indebtedness for money borrowed (none of which wasconstruction financing provided by sofoles for developments underconstruction), as compared to Ps.549.3 million of cash and temporaryinvestments and Ps.575.9 million of outstanding indebtedness as of December 31,2004.

Althoughwe do not commence construction of any development until the availability ofmortgage financing for qualified homebuyers is assured, we do acquire land andperform licensing, permitting, and certain infrastructure developmentactivities prior to receiving confirmation of the availability of mortgagefinancing. Historically, we have financed our development and constructionactivities through internally generated funds, commercial paper programs, andbridge loans.

Ourprimary sources of liquidity are:

·                  cash flow from operations;

·                  our domestic commercial paper programs;

·                  financing from sellers of land and, to alesser extent, suppliers of materials;

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·                  commercial banks, sofoles, and otherfinancial institutions; and

·                  downpayments from home buyers.

The table below sets forthinformation regarding our outstanding debt as of December 31, 2005.

Debt Outstanding as of December 31, 2005
| **Homex Debt**                           | ** ** | **Aggregate Lender  Principal Amount** | ** ** | **Interest  Rate (1)** | ** ** | **Maturity**   | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------|------------|----------------|------------|
| ** **                                    | ** ** | **(in thousands of  pesos)**           | ** ** | ** **                  | ** ** | ** **     | ** ** |
| Paccar Arrendadora Financiera, S.A. de C.V.   |       | 8,851                                            |       | 0.00                        | %          | July 01, 2006  |       |
| Arrendadora Financiera Navistar, S.A. de C.V. |       | 6,240                                            |       | 0.00                        | %          | July 10, 2006  |       |
| GE Capital.                                   |       | 23,316                                           |       | 7.40                        | %          | July 29, 2010  |       |
| HSBC Mexico,  S.A.                            |       | 540,500                                          |       | TIIE+1.00                   |       | Sept. 14, 2010 |       |
| Senior  Guaranteed Notes (2)                  |       | 2,774,629                                        |       | 7.50                        | %          | Sept. 28, 2015 |       |
| Total debt                                    |       | 3,353,536                                        |       |                        |       |           |       |

 

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(1)          TIIE refers to the 28-day Mexicaninterbank rate (Tasa de Interes Interbancaria de Equilibrio), which was 8.56%as ofDecember 31, 2005.

(2)          Issuedin an aggregate principal amount of US$250 million with a coupon rate of 7.50%.We entered into a foreign exchange swap to hedge the foreign exchange riskassociated with the principal amount of this debt at a rate of Ps.10.86 perU.S. dollar and at an average cost of 2.92%.

Ourtotal indebtedness increased to Ps.3,353.5 million as of December 31, 2005 fromPs.575.9 million as of December 31, 2004 mainly as a result of the incurrenceof debt in connection with the Beta acquisition facility arranged on September14, 2005 and the issuance of the our Senior Guaranteed Notes due 2015 onSeptember 28, 2005.

Asof December 31, 2005, our short-term debt was Ps.15,091 million and anequipment lease obligation of Ps.18.6 million. Our long-term debt was Ps.3,338.3 million, including an equipment lease obligation in the amount ofPs.19.7 million, the remaining balance of the Beta acquisition facility ofPs.540.5 million and our Senior Guaranteed Notes in the aggregate principalamount of Ps.2,715 million. In connection with the Beta acquisition, we enteredinto an unsecured credit facility with HSBC in the amount of Ps.1,081.0million. We repaid approximately 50% of the outstanding amount under the HSBCunsecured credit facility on September 29, 2005 reducing the remainingoutstanding balance to Ps.540.5 million as of December 31, 2005.

OnSeptember 28, 2005, we issued US$250 million of Senior Guaranteed Notes due2015 with a coupon rate of 7.50%.

Wehave not paid dividends since the inception of the Company in 1998 and we donot currently expect to pay dividends in the foreseeable future.

**TREND INFORMATION**

Other than as disclosedelsewhere in this Annual Report including in “Item 3. Key Information RiskFactors” and “Item 4. Information on the Company—Business Overview—The MexicanHousing Market”, we are not aware of any trends, uncertainties, demands,commitments or events which are reasonably likely to have a material effectupon our net sales or revenues, income from continuing operations,profitability, liquidity or capital resources, or that would cause reportedfinancial information to not necessarily be indicative of future operatingresults or financial condition.

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**OFF-BALANCE SHEET ARRANGEMENTS**

We have no off-balance sheetarrangements as of December 31, 2005.

***CONTRACTUAL OBLIGATIONS***

Thefollowing table sets forth information regarding our contractual obligations asof December 31, 2005: 
| ** **                                                                     | ** ** | **Payment Due by Period**        | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| **Contractual Obligations**                                               | ** ** | **Total**                                       | ** ** | **Less than  1 Year** | ** ** | **1-3 Year** | ** ** | **3-5 Years** | ** ** | **More than  5 Years** | ** ** |
| ** **                                                                     | ** ** | **(Millions of constant pesos)** | ** ** |
| Short-Term Debt  Obligations                                                   |       | Ps.                                             | 6,852      |   | Ps. | 6,852 |   | Ps. | — |   | Ps. | — |   | Ps. | — |   |
| Long-Term Debt  Obligations                                                    |       | 3,336,150                                       |       | — |   | 2,611 |   | 558,910 |   | 2,774,629 |   |
| Estimated  Interest                                                            |       | 2,934,831                                       |       | 327,058 |   | 639,693 |   | 584,640 |   | 1,383,440 |   |
| Capital  (Finance) Lease                                                       |       | Ps.                                             | 10,534     |   | 10,534 |   | — |   | — |   |   |   |
| Purchase  Obligations                                                          |       | 1,569,474                                       |       | 1,558,445 |   | 11,029 |   | — |   | — |   |
| Other Long-Term  Liabilities Reflected on our Balance Sheet under Mexican GAAP |       | —                                          |       | — |   | — |   | — |   | — |   |
| Total                                                                          |       | Ps.                                             | 7,857,841  |   | Ps. | 1,902,889 |   | Ps. | 653,333 |   | Ps | 1,143,550 |   | Ps. | 4,158,069 |   |
|                                                                                |            |                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Contractual obligations increased by  479 % from Ps.1,362,779 as of December 31, 2004 to Ps.7,895,244  as of December 31, 2005. This change wasmainly due to the issuance of the senior guaranteed notes. see “Liquidity andCapital Resources.”

**New Accounting Pronouncements**

***Mexican GAAP***

As of May 31, 2004, the Mexican Institute ofPublic Accountants (“IMCP”) formally transferred the function of establishingand issuing financial reporting standards to the Mexican Board for Research andDevelopment of Financial Reporting Standards (“CINIF”), consistent with theinternational trend of requiring this function be performed by an independententity.

Accordingly, the task of establishingbulletins of Mexican GAAP and circulars previously issued by the IMCP wastransferred to CINIF, who subsequently renamed standards of Mexican GAAP as“Normas de Información Financiera” (Financial Reporting Standards, or “NIFs”),and determined that NIFs encompass (i) new bulletins established under the newfunction; (ii) any interpretations issued thereon; (iii) any Mexican GAAPbulletins that have not been amended, replaced or revoked by the new NIFs; and(iv) International Financial Reporting Standards (“IFRS”) that are supplementaryguidance to be used when Mexican GAAP does not provide primary guidance.

One of the main objectives of CINIF is toachieve greater concurrence with IFRS. To this end, it started by reviewing thetheoretical concepts contained in Mexican GAAP and establishing a ConceptualFramework (“CF”) to support the development of financial reporting standardsand to serve as a reference in solving issues arising in the accountingpractice. The CF is formed by eight financial reporting standards, which comprisethe NIF-A series. The NIF-A series, together with NIF B-1, were issued onOctober 31, 2005. Their provisions are effective for years beginning January 1,2006, superseding all existing Mexican GAAP series A bulletins.

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The new NIFs are as follows:
| NIF A-1 |   | Structure of Financial Reporting Standards           |
|---------|--------|------------------------------------------------------|
| NIF A-2 |   | Fundamental Principles                               |
| NIF A-3 |   | Users’ Needs and Financial Statement Objectives |
| NIF A-4 |   | Qualitative Characteristics of Financial Statements  |
| NIF A-5 |   | Basic Elements of Financial Statements               |
| NIF A-6 |   | Recognition and Valuation                            |
| NIF A-7 |   | Presentation and Disclosure                          |
| NIF A-8 |   | Supplementary Standards to Mexican GAAP              |
| NIF B-1 |   | Accounting Changes                                   |

 

The most significant changes established bythese standards are as follows:

·                                In addition to the statement of changes infinancial position, NIF A-3 includes the statement of cash flows, whichshould be issued when required by a particular standard.

·                                NIF A-5 includes a new classificationfor revenues and expenses: ordinary and not ordinary. Ordinary revenues andexpenses are derived from transactions or events that are within the normalcourse of business or that are inherent in the entity’s activities, whetherfrequent or not; revenues and expenses classified as not ordinary refer to unusualtransactions and events, whether frequent or not.

·                                NIF A-7 requires the presentation ofcomparative financial statements for at least the preceding period. ThroughDecember 31, 2004, the presentation of prior years’ financial statements wasoptional. The financial statements must disclose the authorized date for theirissuance, and the name(s) of the officer(s) or administrative body(ies)authorizing the related issuance.

·                                NIF B-1 establishes that changes inparticular standards, reclassifications and correction of errors must berecognized retroactively. Consequently, basic financial statements presented ona comparative basis with the current year that might be affected by the change,must be adjusted as of the beginning of the earliest period presented.

The Company has not fully assessed theeffects of adopting these new standards on its financial information.

***U.S.GAAP***

In November 2004, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards(“SFAS”) No. 151, *Inventory Costs — an amendment of ARB No.43, Chapter 4*. SFAS No. 151 amends the guidance in AccountingResearch Bulletin (“ARB”) No. 43, *Inventory Pricing*,to clarify the accounting for abnormal costs related to idle facility expense,freight, handling costs and spoilage. SFAS No. 151 requires that these costsand expenses be recognized as current-period charges regardless of whether theymeet the criterion of “so abnormal” as previously defined under ARB No. 43. Inaddition, SFSA No. 151 requires that the allocation of fixed productionoverhead to the costs of conversion be based on the normal capacity of theproduction facilities. This statement is effect for inventory costs incurredduring fiscal years beginning after June 15, 2005. The Company does notanticipate the adoption of this new accounting principle will have a materialeffect on its financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No.123 (revised 2004), *Share-Based Payments*or SFAS No. 123(R). This statement eliminates the option to apply the intrinsicvalue measurement provisions of Accounting Principles Board (“APB”) Opinion No.25, *Accounting for Stock Issued to Employees*to stock compensation awards issued to employees. Rather, SFAS No. 123(R)requires companies to measure the cost of employee services received inexchange for an award of equity instruments based on the grant-date fair valueof the award. That cost will be recognized over the period during which anemployee is required to provide services in exchange for the award—therequisite service period (usually the vesting period). SFAS No. 123(R) appliesto all awards granted after the required effective date as well as to existingawards that are modified, repurchased, or cancelled after the effective date.SFAS No. 123(R) will be effective for the Company’s fiscal year

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ending December 31, 2006. This Financial Accounting Standard isnon-applicable to us because the company does not have any stock compensationplans.

In December 2004, the FASB issued SFAS No.153, *Exchanges of Nonmonetary Assets - an amendment ofAPB Opinion No. 29* or SFAS No. 153, which amends APB Opinion No. 29,*Accounting for Nonmonetary Transactions*to eliminate the exception for nonmonetary exchanges of similar productiveassets and replaces it with a general exception for exchanges of nonmonetaryassets that do not have commercial substance. SFAS No. 153 is effective fornonmonetary assets exchanges occurring in fiscal periods beginning after June15, 2005. The Company does not anticipate that the adoption of this statementwill have a material effect on its financial position, results of operations orcash flows.

In May 2005, the FASB issued SFAS No. 154, *Accounting Changes and Error Corrections — a replacement of APB OpinionNo. 20 and FASB Statement No. 3*. SFAS No. 154 requires retrospectiveapplication to prior periods’ financial statements of changes in accountingprinciples, unless impracticable. The statement defines retrospectiveapplication as the application of a different accounting principle to prioraccounting periods as if that principle had always been used and redefinesrestatement as the revising of previously issued financial statements toreflect the correction of an error. SFAS No. 154 also requires thatretrospective application of a change in accounting principle be limited to thedirect effects of the change. Indirect effects of a change in accountingprinciple should be recognized in the period of the accounting change. The newstandard is effective for accounting changes made in fiscal years beginningafter December 15, 2005. The Company does not anticipate that the adoption ofthis standard will have a material effect on its financial position, results ofoperations or cash flows.

On November 2, 2005, the FASB issuedFinancial Staff Position (“FSP”) FAS 115-1 and FAS 124-1, *The Meaning of Other-Than-Temporary Impairment and Its Application toCertain Investments*, which nullifies certain requirements ofEmerging Issues Task Force Issue (“EITF”) No. 03-1, *The Meaningof Other-Than Temporary Impairment and Its Application to Certain Investments*”and supersedes EITF Abstracts Topic No. D-44, *Recognitionof Other-Than-Temporary Impairment Upon the Planned Sale of a Security whoseCost Exceeds Fair Value.*The guidance in this FSP shall be appliedto reporting periods beginning after December 15, 2005. The Company does notexpect the adoption of this guidance will have a material effect on itsfinancial position, results of operations or cash flows.

At the September 29 and 30, 2004 and November17 and 18, 2004 Emerging Issues Task Force (“EITF”) meetings, the EITFdiscussed Issue 04-10, *Determining Whether toAggregate Operating Segments That Do Not Meet the Quantitative Thresholds*(“EITF 04-10”). EITF 04-10 concludes that a company, whendetermining if operating segments that do not meet the quantitative thresholdsof FASB Statement No. 131, *Disclosures about Segmentsof an Enterprise and Related Information* (“SFAS No. 131”) should beaggregated, may aggregate such operating segments only if aggregation isconsistent with the objective and basic principle of SFAS No. 131, that theyhave similar economic characteristics, and that the segments share a majorityof the aggregation criteria listed in (a) through (e) of paragraph 17 of SFASNo. 131. The consensus in EITF 04-10 should be applied for fiscal yearsending after September 15, 2005. The Company does not anticipate that theapplication of this consensus will affect the presentation or aggregation of itsoperating segments.

At the September 15, 2005 EITF meeting, theEITF discussed Issue 04-13, *Accounting for Purchasesand Sales of Inventory with the Same Counterparty*, (“EITF 04-13”).At the meeting, it was agreed that that in situations in which an inventorytransaction is legally contingent upon the performance of another inventorytransaction with the same counterparty, the two transactions are deemed to havebeen entered into are in contemplation of one another and would be considered asingle exchange transaction subject to Accounting Principles Board Opinion 29, *Accounting for Nonmonetary Transactions*. The Task Force alsostated indicators of when a purchase transaction and a sales transaction wouldnot be considered as entered into in contemplation of one another, and thus,may have the ability to be recorded as separate purchases and sales. EITF 04-13is effective for new arrangements entered into, or modifications orrenegotiations of existing arrangements, beginning in the first annualreporting period beginning after March 15, 2006. The Company has not yetdetermined the effects of adoption of EITF 04-13 on its financialposition, results of operations or cash flows.

At the June 15 and 16, 2005 EITF meeting, andfurther modified at the September 15, 2005 meeting, the EITF discussed Issue 05-6,*Determining the Amortization Period for LeaseholdImprovements Purchased after Lease Inception or Acquired in a BusinessCombination*, (“EITF 05-6”), and concluded on the appropriateamortization periods for leasehold improvements either acquired in a businesscombination or which were not preexisting and were placed in servicesignificantly after, and not contemplated at, the beginning of the lease term.This Issue is effective for leasehold improvements (that are within the scopeof this Issue) that are purchased or acquired in reporting periods beginningafter 

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June 29, 2005. The Company does not anticipate the adoption of EITF 05-6will have a material effect on its financial position, results of operations orcash flows.

For the fiscal year ending December 31, 2005the Company adopted FASB Interpretation No. 47, *Accountingfor Conditional Asset Retirement Obligations* (“FIN 47”), whichclarifies the term “conditional asset retirement obligation” as defined in FASBStatement No. 143, *Accounting for AssetRetirement Obligations*, and clarifies when an entity would havesufficient information to reasonably estimate the fair value of an assetretirement obligations. The adoption of FIN 47 did not have a material effecton the Company’s financial position, results of operations or cash flows.

At the June 15 and 16, 2005 meeting of the EITF, the EITF agreed toamend Item 4 of the Protective Rights section of Issue No. 96-16,*Investor’s Accounting for an Investee When theInvestor Has a majority of the Voting Interest but the Minority Shareholder orShareholders Have Certain Approval or Veto Rights* as well as amendExample 1 of Exhibit 96-16, in order to be consistent with the consensusreached in EITF Issue No. 04-5, *Determining Whether aGeneral Partner, or the General Partners, as a Group, Controls a LimitedPartnership or Similar Entity when the Limited Partners Have Certain Rights*.These amendments were effective for new investments and investment agreementsthat are modified after June 29, 2005. The adoption of these amendments did nothave a material impact on the Company’s financial position, results ofoperations or cash flows

## **ITEM 6.**    **Directors, Senior Management and Employees.**

***DIRECTORS AND EXECUTIVE OFFICERS***

Ourboard of directors currently consists of ten members and is responsible formanaging our business. Each director is elected for a term of one year or untila successor has been appointed. Our board of directors meets quarterly.Pursuant to Mexican law, at least 25% of the members of the board .of directorsmust be independent, as the term independent is defined by the MexicanSecurities Market Law. As required by New York Stock Exchange regulations, amajority of the members of our board of directors are independent. EffectiveJune 28, 2006, we no longer have Alternate Directors.

Asof the date of this annual report, the members of our board of directors are asfollows:
| Name                                        | ** ** | **Born** | ** ** | **Position**             | ** ** |
|---------------------------------------------|------------|----------|------------|--------------------------|------------|
| Eustaquio Tomas de Nicolas Gutierrez        |       | 1961     |       | Chairman                 |       |
| Gerardo de  Nicolas Gutierrez               |       | 1968     |       | Chief  Executive Officer |       |
| Jose Ignacio de Nicolás Gutiérrez |       | 1964     |       | Director                 |       |
| Luis Alberto  Harvey McKissack              |       | 1960     |       | Director                 |       |
| Gary R.  Garrabrant                         |       | 1957     |       | Vice  Chairman           |       |
| Matthew M. Zell                             |       | 1966     |       | Director                 |       |
| Z. Jamie Behar                              |       | 1957     |       | Director                 |       |
| Wilfrido  Castillo Sánchez-Mejorada    |       | 1941     |       | Director                 |       |
| Edward Lowenthal                            |       | 1944     |       | Director                 |       |
| Rafael Matute Labrador*                     |       | —   |       | Director                 |       |

 

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*                                         Subject to formal acceptance.

Eustaquio Tomas de Nicolas Gutierrez is chairman of our board ofdirectors. Before co-founding our predecessor in 1989, Mr. de Nicolas foundedand managed DENIVE, a clothing manufacturing company. He has served as regionalchairman and regional vice chairman of the Mexican-Federation of IndustrialHousing Promoters, or Provivac (Federacion Nacional de Promotores Industrialesde la Vivienda), and as a member of the regional advisory board of financialinstitutions such as BBVA Bancomer and HSBC (formerly BITAL). Currently, Mr. deNicolas oversees our main operations, focusing on land acquisition anddeveloping new geographical markets.

Gerardode Nicolas Gutierrez has served as CEO since 1997. Prior to becoming CEO, Mr.de Nicolás served as regional manager, systems manager, and constructionmanager supervisor. Currently, Mr. de Nicolás participates in overseeing ourmain operations, focusing on sales and construction.

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JoseIgnacio de Nicolas Gutierrez is founder and chairman of the board of directorsof Hipotecaria Credito y Casa, S.A. de C.V., a *sofol*that has become the third largest mortgage bank in Mexico. Mr. de Nicolas alsoco-founded our company and served as our CEO from 1989 to 1997. Mr. de Nicolasis a regional director of Fianzas Monterrey and a state director of NAFIN.

Luis Alberto HarveyMcKissack is co-founding partner, President and Managing Principal of ZN MexicoFunds and co-founder of Nexxus Capital, S.C. He has over 16 years of experiencein investment banking and private equity. Before founding Nexxus Capital, S.C.,Mr. Harvey held positions at Fonlyser, Operadora de Bolsa, and ServiciosIndustriales Peñoles, S.A. de C.V. His experience includes several private andpublic equity transactions and also the initial public offering of severalmajor Mexican corporations on the Mexican Stock Exchange and the internationalcapital markets. Mr. Harvey sits on the Board of Directors of DesarrolladoraHomex, S.A.B. de C.V., Industrias Innopack, S.A. de C.V., Aerobal, S.A. deC.V., Grupo Mágico Internacional, S.A. de C.V., Sociedad Financiera de ObjetoLimitado, Grupo Sports World, S.A. de C.V., Nexxus Capital, S.C. and is amember of the investment committee of ZN Mexico Trust and ZN Mexico II, L.P.Mr. Harvey received a B.S. in Economics from Instituto Tecnológico Autónomo deMéxico (ITAM) and an MBA with a concentration in Finance from the University ofTexas at Austin.

Gary R. Garrabrant is vicechairman of our board of directors and CEO and co-founder of EquityInternational Properties, Ltd.. Mr. Garrabrant oversees all of the Company’sactivities and investment portfolio. He is also executive vice president ofEquity Group Investments, LLC (EGI), the privately-held investment companyfounded and led by Sam Zell. Mr. Garrabrant joined EGI in 1996. Mr. Garrabranthas extensive real estate, investment management and banking experience. He ledthe acquisition of California Real Estate Investment Trust and the creation ofCapital Trust (NYSE:CT) where he served as vice chairman and director. He wasalso involved in the consolidation of the four Zell/Merrill Lynch OpportunityFunds which led to the creation of Equity Office Properties Trust (NYSE:EOP).Prior to joining EGI, Mr. Garrabrant co-founded and led Genesis Realty CapitalManagement, a real estate securities investment management firm based in NewYork. Mr. Garrabrant was a senior real estate investment banker with ChemicalBank followed by The Bankers Trust Company from 1981 to 1994. Mr. Garrabrant ismember of the Board of Directors of Homex (NYSE:HXM), Gafisa (BZ:GFSA3), EquityInternational, and various other portfolio companies. He is also a member ofthe Real Estate Advisory Board at Cambridge University. Mr. Garrabrantgraduated from the University of Notre Dame with a B.B.A. in finance andcompleted the Dartmouth Institute at Dartmouth College.

MatthewM. Zell is managing director of EGI. Previously, he served as president ofPrometheus Technologies, Inc., an information technology consulting firm. Mr.Zell is a member of the board of directors of Anixter Inc., a globaldistributor of wire, cable and communications connectivity products as well asof GP Strategies, a global performance improvement company providing corporateeducation strategies, training, engineering, consulting, and technical servicesto leading organizations in the automotive, steel, power, chemical, energy,pharmaceutical and food & beverage industries, as well as the governmentsector. Mr. Zell is the son of Samuel Zell.

Z.Jamie Behar is Managing Director, Real Estate & Alternative Investments,for General Motors Investment Management Corporation, or GMIMCo. She managesGMIMCo clients’ real estate investment portfolios, including both privatemarket and publicly-traded security investments, as well as   their alternative investment portfolios, totaling$9.5 billion. Ms. Behar is a member of the  board of directors of Sunstone Hotel Investors, Inc., a publicly listedhotel company operating  in the UnitedStates, and serves on the advisory boards of several domestic and internationalprivate real estate investment entities.

WilfridoCastillo Sánchez-Mejorada is CFO of Qualitas Cía. de Seguros, S.A. de C.V., orQualitas, a Mexican insurance company. Previously he served as CEO of CastilloMiranda, Contadores Públicos, a public accounting firm, and he has held seniorpositions in several brokerage firms. Mr. Castillo is a member of the board ofdirectors of Qualitas, Sociedad Operadora de Sociedades de Inversión, Ficsac,Unión de Esfuerzo para el Campo, Fundacion Mexicana de Psicoanálisis, I. A. P.,and Industrias Innopack, S.A. de C.V., where he also serves as chairman of theaudit committee.

EdwardLowenthal is president of Ackerman Management LLC, an investment management andadvisory company with particular focus on real estate and other asset-basedinvestments. Previously, Mr. Lowenthal founded and was president of WellsfordReal Properties, Inc., or WRP, a publicly-owned real estate merchant bankingcompany. He also founded and was trustee and president of Wellsford ResidentialProperty Trust, a publicly-owned multi-family real estate investment trust thatwas merged into Equity Residential Properties Trust. Mr. Lowenthal is a memberof the board of directors of several

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companies,including WRP, Reis, Inc., a real estate market information and analyticsprovider, and Omega Healthcare Investors, Inc., a healthcare real estateinvestment trust. American Campus Communities, a publicly traded Real EstateInvestment Trust which focuses solely on student housing in the United States,and Ark Restaurants Corp., a company that engages in the ownership andoperation of restaurants, fast food concepts, catering operations, andwholesale and retail bakeries.

RafaelMatute Labrador is Chief Financial Officer and Vice President and ExecutiveVice President Administration of Walt-Mart Mexico, S.A. de C.V.

EustaquioTomas de Nicolas Gutierrez, Gerardo de Nicolas Gutierrez, and José Ignacio deNicolas Gutierrez are brothers.

***Secretary***

Thesecretary of the board of directors is Jaime Cortes Rocha who is not a memberof the board of directors.

***Audit Committee***

Ouraudit committee consists of Wilfrido Castillo Sánchez-Mejorada (Chairman), Z.Jamie Behar, and Edward Lowenthal. Our audit committee was re-elected at theshareholders meeting on April 28, 2005. The members of the audit committee areindependent in accordance with Sarbanes Oxley Act requirements. Our board ofdirectors has determined that Mr. Castillo has the attributes of an “auditcommittee financial expert” as defined by the SEC and that each member of theaudit committee satisfies the financial literacy requirements of the New YorkStock Exchange. Among other duties and responsibilities, the committee: issuesopinions to the board of directors regarding related party transactions;recommends that independent experts be retained to render fairness opinions inconnection with related party transactions and tender offers, where it deemsappropriate; reviews the critical accounting policies adopted by us and advisesthe board of directors on changes to such policies; assists the board ofdirectors with planning and conducting internal audits; and prepares a yearlyactivity report for submission to the board of directors. The committee is alsoresponsible for the appointment, retention, and oversight of any accountingfirm engaged for the purpose of preparing or issuing an audit report orperforming other audit review or attestation services, as well as for theestablishment of procedures for the receipt, retention, and treatment ofcomplaints received with respect to accounting, internal controls, or auditingmatters and the confidential, anonymous submission by employees with regard tothese complaints.

***Compensation Committee***

Ourcompensation committee consists of Edward Lowenthal, Luis Alberto HarveyMcKissack, and Gary R. Garrabrant. Among other duties and responsibilities, thecommittee reviews and approves corporate goals and objectives relevant to CEOcompensation; evaluates the CEO’s performance in light of those goals andobjectives; determines and approves the CEO’s compensation level based on thisevaluation; and makes recommendations to the board with respect to non-CEOcompensation, incentive-compensation plans and equity-based plans.

***Executive Committee***

Ourexecutive committee consists of Eustaquio Tomás de Nicolás Gutiérrez, Gerardode Nicolás Gutiérrez, Luis Alberto Harvey McKissack, and Gary R. Garrabrant.Among other duties and responsibilities, the committee acts on general planningand financial matters not reserved exclusively for action by the board ofdirectors, including appointing and removing our CEO, members of management,and any of our employees; entering into credit agreements on our behalf; andconvening shareholders’ meetings.

***Corporate Governance and Nominating Committee***

Ourcorporate governance and nominating committee consists of Luis Alberto HarveyMcKissack, Gary R. Garrabrant, and Edward Lowenthal. Among other duties andresponsibilities, the committee identifies individuals qualified to becomeboard members and makes recommendations to the board of directors and shareholdersregarding director nominees;

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developsand recommends to the board of directors a set of corporate governanceprinciples applicable to us; and oversees the evaluation of the board andmanagement.

***Corporate Governance***

Asa foreign private issuer with shares listed on the NYSE, we are subject todifferent corporate governance requirements than a U.S. company under the NYSElisting standards. Pursuant to Rule 303.A11 of the NYSE listed company manual,we are required to provide a summary of the significant ways in which ourcorporate governance practices differ from those required for U.S. companiesunder the NYSE listing standard.

Itis our intention, however, to follow NYSE corporate governance standards to theextent we deem appropriate given the different regulatory framework to which weare subject in Mexico and in the United States and the different businessenvironment in which we operate. Compliance with these higher standards ofgovernance is not mandatory for us, however, we believe we are in substantialcompliance with the majority of these requirements demonstrating our commitmentto high standards of governance.

Weare a Mexican corporation with shares listed on the *BolsaMexicana de Valores*, or Mexican Stock Exchange. Our corporategovernance practices are governed by our bylaws, the Mexican Securities MarketLaw, and the regulations issued by the CNBV and the Mexican Stock Exchange.Although compliance is not mandatory, we also substantially comply with theMexican Code of Best Corporate Practices (*Código de MejoresPrácticas Corporativas*), which was created in January 1999 by agroup of Mexican business leaders and was endorsed by the Mexican Banking andSecurities Commission.

Thetable below sets forth a description of the significant differences betweencorporate governance practices required for U.S. companies under the NYSElisting standards and our practices.
| **NYSE Rules**                                                                                                                                                                                             | ** ** | **Mexican Rules**                                                                                                                                                                                                                                                                                                                                       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                 | ** ** | ** **                                                                                                                                                                                                                                                                                                                                              |
| Listed companies  must have a majority of independent directors                                                                                                                                            |       | While not required under Mexican law, a majority of  our directors are independent as defined under NYSE standards.                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                       |       |                                                                                                                                                                                                                                                                                                                                                    |
| Listed companies  must have a nominating/corporate governance committee composed entirely of  independent directors.                                                                                       |       | Pursuant to Mexican law, we have a  nominating/corporate governance committee composed entirely of independent  directors.                                                                                                                                                                                                                              |
|                                                                                                                                                                                                       |       |                                                                                                                                                                                                                                                                                                                                                    |
| Listed companies  must have a compensation committee composed entirely of independent  directors.                                                                                                          |       | Under Mexican law, we are not required to have a  compensation committee. However, we have a compensation committee composed  entirely of independent directors. Our compensation committee does not issue  a compensation report as contemplated by the NYSE standards as we operate in  Mexico where this practice is neither required not customary. |
|                                                                                                                                                                                                       |       |                                                                                                                                                                                                                                                                                                                                                    |
| Listed companies  must have an audit committee with a minimum of three members and must be  independent.                                                                                                   |       | Under Mexican law, we are required to have an audit  committee with independent members within the meaning of the NYSE standards  with a charter that complies with applicable Mexican statutes and  substantially complies with the NYSE standards applicable to domestic  companies where appropriate for us.                                         |
|                                                                                                                                                                                                       |       |                                                                                                                                                                                                                                                                                                                                                    |
| Audit committees  are required to prepare an audit committee report as required by the SEC to  be include in the listed company’s annual proxy statement.                                             |       | As a foreign private issuer, we are not required by  the SEC to prepare and file proxy statements. In this regard, we are subject  to Mexican securities law requirements. We have chosen to follow Mexican law  and practice in this regard.                                                                                                           |
|                                                                                                                                                                                                       |       |                                                                                                                                                                                                                                                                                                                                                    |
| Non-management  directors must meet at executive sessions without management.                                                                                                                              |       | Our non-management directors meet at executive  sessions. This is not required by either Mexican law or the Mexican Code of  Best Corporate Practices.                                                                                                                                                                                                  |
|                                                                                                                                                                                                       |       |                                                                                                                                                                                                                                                                                                                                                    |
| Listed companies  must adopt and disclose a code of business conduct and ethics for directors,  officers and employees, and promptly discuss any waivers of the code for  directors or executive officers. |       | Companies listed on the Mexican Stock Exchange are  not required to adopt a code of ethics. However, we have adopted a code of  ethics.                                                                                                                                                                                                                 |

 

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***Senior Management***

As of the date of thisannual report, our senior management is as follows:
| Name                                 | ** ** | **Born** | ** ** | **Position**                                               | ** ** |
|--------------------------------------|------------|----------|------------|------------------------------------------------------------|------------|
| Eustaquio Tomas de Nicolas Gutierrez |       | 1961     |       | Chairman                                                   |       |
| Gerardo de  Nicolas Gutierrez        |       | 1968     |       | Chief  Executive Officer                                   |       |
| Mario Alberto  González Padilla |       | 1965     |       | Chief  Financial Officer                                   |       |
| Ruben Izabal  Gonzalez               |       | 1968     |       | Vice  President—Construction                          |       |
| Alberto Menchaca  Valenzuela         |       | 1969     |       | Vice  President—Operations                            |       |
| Josemaria Anton Vlasich de la Rosa   |       | 1978     |       | Vice  President—Sales, Marketing and Regional Offices |       |
| Monica Lafaire  Cruz                 |       | 1964     |       | Vice  President—Regional Offices                      |       |

 

MarioAlberto Gonzalez Padilla joined the company as Chief Financial Officer onJanuary 30, 2006. Mr. Gonzalez is a seasoned financial executive with more thantwenty years of senior-level financial experience. Before joining the Companyhe was Chief Financial Officer of Consultores de Integración de Sistemas (CIS),a Mexico City-based management consulting firm that advises Fortune 500companies and others with operations in Latin America. From 2001 until 2003, hewas Chief Financial Officer for Panamerican Beverages, Inc., a New York StockExchange listed company and the primary Latin American Coca Cola bottler anddistributor. From 1995 until 2001, Mr. Gonzalez was employed in varioussenior-level financial positions with Grupo TMM, S.A. de C.V., a major Mexicantransportation and logistics services company. At the time of his departurefrom Grupo TMM, he was Chief Financial Officer of Transportación FerroviariaMexicana (TFM), a SEC reporting company and a major Mexican railways company.Mr. Gonzalez has also held a variety of senior-level financial positionsinternationally at Dow Chemical Co. Mr. Gonzalez holds a master’s degree inEngineering Administration and studies on the MBA program from GeorgeWashington University, a diploma on Science and Economics from AmericanUniversity and a bachelor’s degree in Industrial Engineering from theUniversidad Autónoma de Mexico.

AlbertoMenchaca Valenzuela has served as Vice President—Operations since 2000. Priorto becoming Vice President—Operations, Mr. Menchaca served as finance manager.His prior experience includes work at Banco Mexicano, Invermexico, and BancaConfia. Currently, Mr. Menchaca oversees our main operations, with a focus onhome deliveries. Mr. Menchaca earned an undergraduate degree in agriculturalengineering from Universidad Autonoma Agraria Antonio Narro in Saltillo,Coahuila.

RubenIzabal Gonzalez has served as Vice President—Construction since 1997. Prior tojoining Homex, Mr. Izabal served at different construction companies, includingGomez y Gonzales Constructores, Provisur S.A. de C.V., Promotoria de Viviendadel Pacifico, S.A. de C.V., and Constructor Giza, S.A. de C.V. Currently, Mr.Izabal oversees our construction operation, with a focus on the home-buildingprocess. Mr. Izabal earned an undergraduate degree in Architecture fromInstituto Tecnologico y de Estudios Superiores del Occidente in Guadalajara,Jalisco.

JosemariaAnton Vlasich de la Rosa has served as Vice President—Sales and Marketing sinceMarch 2004. From 2002 to March 2004, he served as Vice President—RegionalOffices. His prior experience includes work at Cemex, S.A. de C.V., BancoNacional de Mexico, S.A., American Express, and Universidad Panamericana.Currently, he coordinates our sales and marketing activities. He holds amaster’s degree in business administration and an undergraduate degree inmarketing and management, both from Universidad Panamericana, Mexico City.

MonicaLafaire Cruz has served as Vice President—Regional Offices since February 2005.Miss Lafaire joined Homex in 2001 and prior to her current position she servedas Director of Strategic Planning and in diverse management positions in theFinance division. Her prior experience includes work as full-time professor atUniversidad Panamericana. Currently, she coordinates the activities of ourbranch offices and their directors. Miss Lafaire holds a master’s degree inbusiness administration from Universidad La Salle in Mexico City and anundergraduate degree in economics from Universidad de Monterrey.

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***Compensation of Directors and Senior Management***

Eachmember of the board of directors is paid a fee of US$12,500 for each boardmeeting that he or she attends, subject to an annual cap of US$50,000 permember of the board of directors. Additionally, members of the audit committeeare paid an additional annual compensation fee of US$25,000 (the Chairman ofthe audit committee annual compensation is US$35,000) and members of theexecutive, corporate governance and compensation committees are paid an annualfee of US$5,000.

For2005, the aggregate amount of compensation net of taxes paid to alldirectors  alternate directors andcommittee members was approximately US$589,000, which includes US$347,563 ofvariable compensation for directors paid during the first quarter of 2006.

For2005, the aggregate amount of compensation paid to all executive officers wasapproximately US$1,619,481.

Weoffer a bonus plan to our directors and senior management that is based onindividual performance and on the results of our operations. This variablecompensation can range from 30% to 50% of annual base compensation, dependingupon the employee’s level.

***Management Changes***

OnDecember 29, 2005, our Compensation Committee announced the appointment ofMario Alberto Gonzalez Padilla as our Chief Financial Officer effective January30, 2006. Mr. Gonzalez replaces Roberto Carrillo Herrera who served in aninterim capacity from July 30, 2005 to January 30, 2006.

**EMPLOYEES**

As of December 31, 2005, we had a total ofapproximately 7,337 employees, including 7,257 unionized and 80 non-unionizedfull- and part-time employees. All of these employees were employed in Mexico.Total employees for 2004, 2003 and 2002 were 7,911, 1,286 and 856,respectively. Of our total employees as of December 31, 2005, approximately 37%were white-collar and 62% were blue-collar.

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***Share Ownership***

The following table setsforth the beneficial ownership of our capital stock by our directors and seniormanagement as of the date of this annual report:  
| **Name**                                   | ** ** | **Number of  Common Shares  Owned** | ** ** | **Percentage of   Common Shares  Outstanding** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------------------|------------|
| Eustaquio Tomas de Nicolas’ Gutierrez |       | 34,348,250                                    |       | 10.2                                                          | %          |
| Jose Ignacio de Nicolas Gutierrez          |       | 34,348,250                                    |       | 10.2                                                          | %          |
| Gerardo de  Nicolas Gutierrez              |       | 20,608,950                                    |       | 6.1                                                           | %          |
| Mario Alberto  Gonzalez Padilla            |       | *                                             |       | *                                                             |       |
| Ruben Izabal  Gonzalez                     |       | *                                             |       | *                                                             |       |
| Alberto Menchaca  Valenzuela               |       | *                                             |       | *                                                             |       |
| Josemaria Anton Vlasich de la Rosa         |       | *                                             |       | *                                                             |       |
| Luis Alberto  Harvey McKissack             |       | *                                             |       | *                                                             |       |
| Gary R.  Garrabrant                        |       | *                                             |       | *                                                             |       |
| Matthew M. Zell                            |       | *                                             |       | *                                                             |       |
| Z . Jamie Behar                            |       | *                                             |       | *                                                             |       |
| Wilfrido  Castillo Sanchez -Mejorada       |       | *                                             |       | *                                                             |       |
| Edward Lowenthal                           |       | *                                             |       | *                                                             |       |
| Monica Lafaire  Cruz                       |       | *                                             |       | *                                                             |       |
| Paulo Cesar Pina  Verdugo                  |       | *                                             |       | *                                                             |       |

 

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*                 Beneficially owns less than one percent ofthe outstanding shares of our capital stock.

**ITEM 7.**                    Major Shareholders And Related Party Transactions.

**MAJORSHAREHOLDERS**

Asof December 31, 2005, there were 335,869,550 common shares issued andoutstanding, with 60,858,546 shares held in the United States in the form ofAmerican Depositary Shares by six record holders. The remaining shares wereheld in Mexico. Because certain of the shares are held by nominees, the numberof record holders may not be representative of the number of beneficialholders.

OnJanuary 24, 2006 the Company completed a successful non-dilutive secondarypublic offering of approximately 45.6 million shares of its common stock by agroup of investors controlled by Mr. Carlos Romano, the former majorityinvestor of Beta, who sold his position in Homex as part of his overallfinancial strategy. Equity International Properties, also sold approximately33% of its position. The public float of the Company was increased to 46% ofthe total equity of Homex.

Thetable below sets forth information concerning the percentage of our capitalstock owned by any person known to us to be the owner of 5% or more of anyclass of our voting securities, our directors and officers as a group and ourother shareholders as of January 30, 2006. The Company’s major shareholders donot have different or preferential voting rights with respect to the sharesthey own.
| ** **                                | ** ** | **As of January 30, 2006** | ** ** |
|-------------------------------------------|------------|------------------------------------------------|------------|
| **Identity of Shareholder**     | ** ** | **Number of Shares**                 | ** ** | **% of Share Capital** | ** ** |
| De Nicolás  family(1)(2)             |       | 137,393,001                                    |       | 40.9 | % |
| Equity  International Properties, Ltd.(3) |       | 43,992,301                                     |       | 13.1 | % |
| Total(4)                                  |       | 335,869,550                                    |       | 100.0 | % |

 

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(1)               Following our acquisition of Beta. For adescription of the terms of our acquisition of Beta, including the exchange of22.0 million of our common shares, see “Business—Recent Developments.”

(2)               Held by Ixe Banco, S.A. as trustee of TrustNo. F/466, for the benefit of the de Nicolas family, including Eustaquio deNicolas Vera, Eustaquio Tomas de Nicolas Gutierrez, Jose Ignacio de NicolasGutierrez, Gerardo de Nicolas Gutierrez, and Julian de Nicolas Gutierrez.Voting and dispositive control over these shares is directed by a TechnicalCommittee

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comprisedof ; Eustaquio de Nicolas Vera, Eustaquio Tomas de Nicolas Gutierrez, JoseIgnacio de Nicolas Gutierrez, Gerardo de Nicolas Gutierrez, and Julian deNicolas Gutierrez.

(3)               Held by EIP Investment Holdings L.L.C., BVBA,an indirect subsidiary of EIP. Voting control over these shares is shared byEIP’s senior management team, headed by Samuel Zell, chairman of EIP, and GaryR. Garrabrant, CEO of EIP and one of our directors. EIP is located at Two NorthRiverside Plaza, Chicago, IL 60606.

 (4)            Includespublic shareholders that in the aggregate hold 46.0% of our share capital,respectively.

**RELATED PARTY TRANSACTIONS**

We have engaged, and in the future mayengage, in transactions with our shareholders and companies affiliated with ourshareholders. We believe that the transactions in which we have engaged withthese parties have been made on terms that are no less favorable to us thanthose that could be obtained from unrelated third parties. Recently, we beganrequiring that transactions with our shareholders and companies affiliated withour shareholders be approved by our board of directors after considering therecommendation of our audit committee and, in , certain cases, after anindependent fairness opinion, as required by the Mexican Securities Market Act.

***Financing from Related Parties***

***Hipotecaria Créditoy Casa, S.A. de C.V.***

EustaquioTomas de Nicolas Gutierrez, our chairman, and Jose Ignacio de NicolasGutierrez, brother of Eustaquio Tomas de Nicolas Gutierrez and chairman ofHipotecaria Credito y Casa, S.A. de C.V, or Credito y Casa, collectively own a29.4% ownership interest in this Sofol,the principal business of which is providing mortgage financing and bridge loanfinancing. Eustaquio Tomas de Nicolas Gutierrez and Jose Ignacio de NicolasGutierrez are both members of the de Nicolas family, which collectively owns40.9% of our share capital. Credito y Casa has provided bridge loan financingto us and mortgages under SHF-sponsored programs to our clients. During 2003,2004 and 2005, Credito y Casa provided mortgage’s with respect to certain ofthe homes sold by us. We expect to continue to sell homes to buyers who obtainmortgages from Credito y Casa. 

Weestimate that in 2005 less than 7.0% of the mortgages obtained by our homebuyers were provided by related parties.

Asof December 31, 2005, there were no amounts outstanding in loans or financingfrom Credito y Casa, but our buyers may receive additional financing fromCredito y Casa in the future.

During2004, the largest aggregate outstanding balances owed to Credito y Casa werePs. 63 million and UDI 5.2 million. There were no amounts outstanding as ofDecember 31, 2004. These loans bore interest at varying rates and matured atvarious dates through 2005. During 2004, we made aggregate interest payments ofPs.2.8 million and UDI 331,491.

During2003, the largest aggregate outstanding balances owed to Credito y Casa werePs. 135.2 million and UDI 56.7 million. The aggregate amounts outstanding as ofDecember 31, 2003 were Ps.94.8 million and UDI 7.5 million. These loans boreinterest at varying rates and matured at various dates through 2004. During2003, we made aggregate interest payments of Ps. 4.09 million and UDI 3.7million.

***Crédito Inmobiliario, S.A. de C.V.***

EIPacquired a 24.64% interest in this Sofol on December 1, 2003. Also on December 1, 2003, CreditoInmobiliario, S.A. de C.V., or Credito Inmobiliario, acquired the entirety ofthe loan portfolio of Terras Hipotecaria, S.A. de C.V., or Terras Hipotecaria.Prior to this acquisition, Terras Hipotecaria provided construction financingto us via bridge loans and mortgage financing to our clients via SHF-sponsoredprograms. 

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As of December 31, 2005, no amounts wereoutstanding under these lines of credit. On December 9, 2005, EIP sold its24.64% interest in Credito Inmobiliario to a private investor.

Wehave no amounts outstanding to Credito Inmobiliario but may receive additionalfinancing from Credito Inmobiliario in the future. Credito Inmobiliarioprovided mortgages with respect to certain of the homes sold by us and weexpect to continue to sell homes to buyers who obtain mortgages from CreditoInmobiliario

***Financing to Related Parties***

In1997, we formed a joint venture with Dynámica de Desarrollos Sustentables, S.A.de C.V., or Dynámica, a company owned by Diego Valenzuela Cadena and CarlosFederico Valenzuela Cadena, brothers-in-law of Eustaquio Tomás de NicolásGutiérrez, our chairman. The joint venture was created to build housingdevelopments in the cities of Leon and Puerto Vallarta. We dissolved the jointventure in April 2002.

Someaccounts payable to us by Dynámica in consideration for services providedpursuant to the joint venture remain outstanding. The maximum aggregate amountoutstanding in connection with these accounts was Ps.****12.7million during 2004. These accounts were paid in full by March 31, 2005.

***Econoblock***

EffectiveMay 15, 2004, our DECANO subsidiary entered into an agreement with Gerardo deNicolas Gutierrez, our Chief Operating Officer, Josefina Gutierrez Pando deNicolas, his mother, and Jose Ignacio de Nicolas, his brother, to mergeEconoblock, S.A. de C.V. with DECANO.

Priorto June 1, 2004, we purchased cement block, concrete, and asphalt fromEconoblock in the cities of Culiacan, Mazatlan, Guadalajara, Ciudad Juarez, andLaredo. Gerardo de Nicolas Gutierrez, Josefina Gutierrez Pando de Nicolas andJose Ignacio de Nicolas collectively owned a 100% interest in Econoblock priorto June 1, 2004, when Econoblock merged with and into DECANO.

Priorto June 1, 2004, we purchased materials from Econoblock in an aggregate amountof Ps.31.0 million in 2004, Ps.63.0 million in 2003 and Ps.27.7 million in2002. These purchases represented 3.7% of our total purchases of constructionmaterials and services during 2004, 7.1% during 2003 and 5.7% during 2002.

Econoblockhad revenues of Ps.40.0 million for the six-month period ended June 1, 2004,approximately three-fourths of which came from sales to us. As of June 1, 2004,Econoblock had a net loss of Ps.l million. As of June 1, 2004, Econoblock hadnet assets of Ps. 15.0 million. We believe that in the near future, ouroperations will utilize all of the products that Econoblock can supply.

Inconsideration for their shares of Econoblock, the former shareholders ofEconoblock received common shares of DECANO representing 4.1% of DECANO’soutstanding share capital. On September 1, 2005, we exercised the option topurchase the shares of DECANO owned by the former shareholders of Econoblock atbook value (as of December 31, 2004, the book value of these remaining shareswas Ps.6.7 million). which resulted in DECANO becoming a wholly-ownedsubsidiary of the Company.

Concurrentwith the DECANO merger and as additional consideration for their sale of theEconoblock shares to DECANO, certain members of the de Nicolas family were issued8,481,673 of our common shares and made a capital contribution of Ps.4.3million to our company. These common shares had a value of approximatelyUS$393,443.

Thesevalues were arrived at by negotiations between Homex, EIP and ZN Mexico Trust,on the one hand and the shareholders of Econoblock, on the other hand, and thetransaction was approved in accordance with the bylaws of the Company.

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***Land Purchases from RelatedParties***

On November 5, 2004,Proyectos Inmobiliarios de Culiacan, S.A. de C.V., or PICSA, our wholly ownedsubsidiary, purchased from Anixter de Mexico, S.A. de C.V., a wholly ownedsubsidiary of Anixter Internacional, whose main shareholder is EquityInvestment Properties, parent company of EIP, 50,664.8 square meters of landlocated in Xalapa, Veracuz, for a purchase price of approximately Ps5,016,007(US$471, 873).

On June 15, 2005, PICSA soldto Mexico Retail Properties Fund, S. de R.L. de C.V., a wholly owned subsidiaryof MRP-EIP Retail Holding GP, which is a subsidiary of Equity InvestmentProperties, 7,928.88 square meters of commercial land located in Santa Fe,Culiacan Sinaloa, for the total amount of Ps5,676,190.68 (US$533,978).

These transactions wereauthorized or ratified by our audit committee and our board of directors.

***Service Companies***

Wepreviously compensated certain of our senior management through payments tocertain limited partnerships in which they owned partnership interests. We paidan aggregate amount of  Ps. 48.5 millionduring 2004, Ps. 52.2 million during 2003 and Ps. 32.7 million during 2002 tothese partnerships. This arrangement was terminated effective March 31, 2004 inrespect of compensation to our senior management.

***Registration Rights Agreement***

Weand our existing shareholders entered into a registration rights agreement inconnection with our initial public offering which provided our then existingshareholders with registration rights relating to our Common Shares held bythem. Pursuant to the registration rights agreement, at any time beginning 180days after the effective date of the registration statement relating to theinitial public offering, subject to customary exceptions, these shareholdersmay request that we file a registration statement under the Securities Actcovering their Common Shares or ADSs representing the Common Shares. Theseshareholders (with the de Nicolás family being treated as one shareholder forthis purpose) may each request two demand registrations. In addition, at anytime that we are eligible to use the SEC’s short-form registration statement onForm F-3 (or any successor form), these shareholders may request that weregister their Common Shares or ADSs for resale from time to time on a delayedor continuous basis. These shareholders also have certain “piggyback”registration rights with respect to their Common Shares and ADSs. Accordingly,if we propose to register any of our securities, either for our own account orfor the account of other shareholders, with certain exceptions, we are requiredto notify those shareholders and to include in such registration all the CommonShares or ADSs requested to be included by those shareholders, subject torejection of such shares under certain circumstances by an underwriter.

Theregistration rights agreement sets forth customary registration procedures,including an agreement by us to make available our senior management forroadshow presentations. All registration expenses incurred in connection withany registration, other than underwriting commissions, will be paid by us. Inaddition, we are required to reimburse the selling shareholders for the feesand disbursements of one outside counsel retained in connection with any suchregistration. The registration rights agreement also imposes customaryindemnification and contribution obligations on us for the benefit of theseshareholders and any underwriters, although these shareholders must indemnifyus for any liabilities resulting from information provided by them.

Theshareholders’ rights under the registration rights agreement remain in effectwith respect to the Common Shares and ADSs covered by the agreement until:

·                  those securities have been sold under aneffective registration statement under the Securities Act;

·                  those securities have been sold to the publicunder Rule 144 under the Securities Act; or

·                  thosesecurities have been transferred in a transaction where a subsequent publicdistribution of those securities would not require registration under theSecurities Act.

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**ITEM 8.**                    FinancialInformation.

See “Item 18. FinancialStatements.”  For information on ourdividend policy, see “Item 3. Key Information—Dividends.”  For information on legal proceedings relatedto us, see “—Legal Proceedings.”

**LEGAL PROCEEDINGS**

As of the date of this Annual Report, we are involved incertain legal proceedings incidental to the normal operation of our business.We do not believe that liabilities resulting from these proceedings are likelyto have a material adverse effect on our financial condition, cash flows, orresults of operation.

**ITEM 9.**                    The Offer AndListing.

Our Common Shares have been traded on the *Bolsa Mexicana de Valores, S.A. de C.V.*, or Mexican StockExchange, since June 29, 2004. The ADSs, each representing six Common Shares,have been trading on the New York Stock Exchange since June 29, 2004. OnDecember 31, 2005, there were 335,869,550 outstanding Common Shares, (of which60,858,546****Common Shares were represented by10,143,091****ADSs held by 6 record holders in theUnited States).

The following table sets forth, for theperiods indicated, the quarterly and monthly high and low closing sale pricesfor the Common Shares and the ADSs as reported by the Mexican Stock Exchangeand the New York Stock Exchange, respectively.
| ** **            | ** ** | **Mexican Stock Exchange** | ** ** | **NYSE**                                                                             | ** ** |
|-----------------------|------------|--------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **            | ** ** | **High**                             | ** ** | **Low**                                                                              | ** ** | **High** | ** ** | **Low** | ** ** |
| ** **            | ** ** | **(Ps. Per share)**        | ** ** | **(U.S. $ per ADS (one ADS  six common shares))** | ** ** |
| **2004**              | ** ** | ** **                           | ** ** | ** **                                                                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| 3rd Quarter      |       | 40.05                                |       | 30.99                                                                                |       | 21.18 |   | 16.35 |   |
| 4th Quarter      |       | 44.51                                |       | 35.00                                                                                |       | 24.00 |   | 18.00 |   |
|                  |       |                                 |       |                                                                                 |       |   |   |   |   |
| **2005**              | ** ** | ** **                           | ** ** | ** **                                                                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| 1st Quarter      |       | 66.80                                |       | 43.30                                                                                |       | 35.78 |   | 22.79 |   |
| 2nd Quarter      |       | 47.05                                |       | 39.15                                                                                |       | 25.79 |   | 23.45 |   |
| 3rd Quarter      |       | 54.05                                |       | 48.68                                                                                |       | 31.97 |   | 26.98 |   |
| 4th Quarter      |       | 54.90                                |       | 49.18                                                                                |       | 32.80 |   | 27.21 |   |
|                  |       |                                 |       |                                                                                 |       |   |   |   |   |
| **2006**              | ** ** | ** **                           | ** ** | ** **                                                                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| December 2005         |       | 56.07                                |       | 52.47                                                                                |       | 32.31 |   | 29.85 |   |
| January 2006          |       | 62.53                                |       | 54.80                                                                                |       | 35.90 |   | 31.38 |   |
| February 2006         |       | 66.85                                |       | 59.50                                                                                |       | 38.21 |   | 33.79 |   |
| March 2006            |       | 65.58                                |       | 61.42                                                                                |       | 36.76 |   | 35.08 |   |
| April 2006            |       | 70.46                                |       | 64.16                                                                                |       | 38.32 |   | 35.32 |   |
| May 2006              |       | 71.26                                |       | 56.70                                                                                |       | 38.98 |   | 30.18 |   |
| Through June 23, 2006 |       | 64.94                                |       | 51.90                                                                                |       | 34.82 |   | 27.11 |   |

On June 23,2006, the reported last sale price of the Common Shares on the Mexican StockExchange was Ps.55.51****per CommonShare and the reported last sale price of the ADSs on the New York StockExchange was U.S.$29.16****per ADS.

**MEXICAN STOCK EXCHANGE**

The Mexican Stock Exchange, located in Mexico City, is theonly stock exchange in Mexico. Operating continuously since 1907, the MexicanStock Exchange is organized as a corporation (*sociedadanónima de capital*

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*variable*). Securitiestrading on the Mexican Stock Exchange occurs each business day from 8:30 a.m.to 3:00 p.m., Mexico City time.

Since January 1999, all trading on the Mexican StockExchange has been effected electronically. The Mexican Stock Exchange mayimpose a number of measures to promote an orderly and transparent trading priceof securities, including the operation of a system of automatic suspension oftrading in shares of a particular issuer when price fluctuation exceeds certainlimits. The Mexican Stock Exchange may also suspend trading in shares of aparticular issuer as a result of:

·                  non-disclosureof material events; or

·                  changes in theoffer or demand, volume traded, or prevailing share price that are inconsistentwith the shares’ historical performance and cannot be explained throughpublicly available information.

The Mexican Stock Exchange may reinstate trading insuspended shares when it deems that the material events have been adequatelydisclosed to public investors or when it deems that the issuer has adequatelyexplained the reasons for the changes in offer and demand, volume traded, orprevailing share price. Under current regulations, the Mexican Stock Exchangemay consider the measures adopted by the other stock exchanges in order tosuspend and/or resume trading in an issuer’s shares in cases where the relevantsecurities are simultaneously traded on a stock exchange outside of Mexico.

Settlement on the Mexican Stock Exchange is effected twobusiness days after a share transaction. Deferred settlement is not permittedwithout the approval of the CNBV, even where mutually agreed. Most securitiestraded on the Mexican Stock Exchange are on deposit with the Mexican SecuritiesDepository, or INDEVAL (*S.D. Indeval, S.A. deC.V., Institución para el Depósito de Valores, S.A. de C.V.*), aprivately owned securities depositary that acts as a clearinghouse, depositary,and custodian, as well as a settlement, transfer, and registration agent forMexican Stock Exchange transactions, eliminating the need for physical transferof securities.

Although the Mexican Securities Market Act (*Ley del Mercado de Valores*) provides for the existence of anover-the-counter market, no such market for securities in Mexico has developed.

***MarketRegulation and Registration Standards***

In 1925, the Mexican Banking Commission (*Comisión Nacional Bancaria*) was established to regulatebanking activity and in 1946, the Mexican Securities Commission (*Comisión Nacional de Valores*) was established to regulatestock market activity. In 1995, these two entities were merged to form theCNBV. The Mexican Securities Market Act, which took effect in 1975, introducedimportant structural changes to the Mexican financial system, including theorganization of brokerage firms as corporations (*sociedadesanónimas*). The Mexican Securities Market Act sets standards forauthorizing companies to operate as brokerage firms, which authorization isgranted at the discretion of the CNBV by resolution of its board of governors.In addition to setting standards for brokerage firms, the Mexican SecuritiesMarket Act authorizes the CNBV, among other things, to regulate the publicoffering and trading of securities and to impose sanctions for the illegal useof insider information and other violations of the Mexican Securities MarketAct. The CNBV regulates the Mexican securities market, the Mexican StockExchange, and brokerage firms through a board of governors composed of thirteenmembers.

Effective June 28, 2006, the new Mexican Securities MarketAct requires issuers to increase the protections offered to minority shareholdersand to bring corporate governance practices in line with internationalstandards. See “Item 3. Key Information—Risk Factors — Risks Relating to Mexico— Minority shareholders may be less able to enforce their rights against us,our directors, or our controlling shareholders in Mexico.”

To offer securities to the public in Mexico, an issuer mustmeet specific qualitative and quantitative requirements. In addition, onlysecurities that have been registered with the Mexican Securities Registrypursuant to CNBV approval may be listed on the Mexican Stock Exchange. TheCNBV’s approval for registration does not imply any kind of certification or assurancerelated to the investment quality of the securities, the solvency of theissuer, or the accuracy or completeness of any information delivered to theCNBV.

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In March 2003, the CNBV issued certain generalregulations applicable to issuers and other securities market participants. Thegeneral regulations, which repealed several previously enacted CNBV regulations(circulares), now provide a single set of rules governing issuers and issueractivity, among other things.

The general regulations state that the Mexican StockExchange must adopt minimum requirements for issuers to list their securitiesin Mexico. These requirements relate to matters such as operating history,financial and capital structure, and distribution. The general regulations alsostate that the Mexican Stock Exchange must implement minimum requirements forissuers to maintain their listing in Mexico. These requirements relate tomatters such as financial condition, trading minimums, and capital structure,among others. The Mexican Stock Exchange will review compliance with theforegoing requirements and other requirements on an annual, semi-annual, andquarterly basis. The Mexican Stock Exchange must inform the CNBV of the resultsof its review and this information must, in turn, be disclosed to investors. Ifan issuer fails to comply with any of the foregoing requirements, the MexicanStock Exchange will request that the issuer propose a plan to cure theviolation. If the issuer fails to propose a plan, if the plan is notsatisfactory to the Mexican Stock Exchange, or if an issuer does not makesubstantial progress with respect to the corrective measures, trading of therelevant series of shares on the Mexican Stock Exchange will be temporarilysuspended. In addition, if an issuer fails to propose a plan or ceases tofollow the plan once proposed, the CNBV may suspend or cancel the registrationof the shares.

Issuers of listed securities are required to file unauditedquarterly financial statements and audited annual financial statements as wellas various periodic reports with the CNBV and the Mexican Stock Exchange.Mexican issuers must file the following reports with the CNBV:

·                  an annualreport prepared in accordance with CNBV regulations by no later than June 30 ofeach year (analogous to reports filed with the SEC by U.S. issuers on Form 10-Kand by foreign private issuers on Form 20-F);

·                  quarterlyreports, within 20 days following the end of each of the first three quartersand 40 days following the end of the fourth quarter (analogous to reports filedwith the SEC by U.S. issuers on Form 10-Q); and

·                  current reportspromptly upon the occurrence of material events (analogous to reports filedwith the SEC by U.S. issuers on Form 8-K and by foreign private issuerson Form 6-K).

Pursuant to the CNBV’s general regulations, the internalrules of the Mexican Stock Exchange were amended to implement an automatedelectronic information transfer system, or SEDI (*SistemaElectrónico de Envío y Difusión de Informacion*), for informationrequired to be filed with the Mexican Stock Exchange. Issuers of listedsecurities must prepare and disclose their financial information via a MexicanStock Exchange-approved electronic financial information system, or SIFIC (*Sistema de Información Financiera Computarizada*).Immediately upon its receipt, the Mexican Stock Exchange makes financialinformation prepared via SIFIC available to the public.

The CNBV’s general regulations and the rules of the MexicanStock Exchange require issuers of listed securities to file information throughSEDI that relates to any act, event, or circumstance that could influenceissuers’ share price. If listed securities experience unusual price volatility,the Mexican Stock Exchange must immediately request that an issuer inform thepublic as to the causes of the volatility or, if the issuer is unaware of thecauses, that an issuer make a statement to that effect. In addition, theMexican Stock Exchange must immediately request that issuers disclose anyinformation relating to relevant material events, when it deems the informationcurrently disclosed to be insufficient, as well as instruct issuers to clarifythe information when necessary. The Mexican Stock Exchange may request issuersto confirm or deny any material events that have been disclosed to the publicby third parties when it deems that the material event may affect or influencethe securities being traded. The Mexican Stock Exchange must immediately informthe CNBV of any such requests. In addition, the CNBV may also make any of theserequests directly to issuers. An issuer may defer the disclosure of materialevents under some circumstances, as long as:

·                  the issuerimplements adequate confidentiality measures;

·                  the informationis related to incomplete transactions;

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·                  there is nomisleading public information relating to the material event; and

·                  no unusualprice or volume fluctuation occurs.

The CNBV and the Mexican Stock Exchange may suspend tradingin an issuer’s securities:

·                  if the issuerdoes not disclose a material event; or

·                  upon price orvolume volatility or changes in the offer or demand in respect of the relevantsecurities that are not consistent with the historic performance of thesecurities and cannot be explained solely through information made publiclyavailable pursuant to the CNBV’s general regulations.

The Mexican Stock Exchange must immediately inform the CNBVand the general public of any such suspension. An issuer may request that theCNBV or the Mexican Stock Exchange resume trading, provided it demonstratesthat the causes triggering the suspension have been resolved and that it is infull compliance with the periodic reporting requirements under the applicablelaw. If its request has been granted, the Mexican Stock Exchange will determinethe appropriate mechanism to resume trading. If trading in an issuer’ssecurities is suspended for more than twenty business days and the issuer isauthorized to resume trading without conducting a public offering, the issuermust disclose via SEDI a description of the causes that resulted in thesuspension and reasons why it is now authorized to resume trading beforetrading may resume.

Similarly, if an issuer’s securities are traded on both theMexican Stock Exchange and a foreign securities exchange, the issuer mustsimultaneously file the information that it is required to file pursuant to thelaws and regulations of the foreign jurisdiction with the CNBV and the MexicanStock Exchange.

Pursuant to the Mexican Securities Market Act,

·                  members of theboard of directors and principal officers of a listed issuer.

·                  shareholderscontrolling 10% or more of a listed issuer’s outstanding share capital, and thedirectors and principal officers of such shareholders.

·                  groups havingsignificant influence on a listed issuer, and

·                  other insiders

must abstainfrom purchasing or selling securities of the issuer within 90 days from themost recent public or public tender of shares of the Issuer last sale orpurchase, respectively. Shareholders of issuers listed on the Mexican StockExchange must notify the Mexican Stock Exchange of any transactions made in oroutside of the Mexican Stock Exchange that result in a transfer of 10% or morebut less than 30% of an issuer’s share capital on the next day following therespective transaction.

The new Securities Market Law requires any acquirer of morethan 30% of an issuer’s outstanding share capital to make a public tenderoffer.

Any intendedacquisition of a public company’s shares that results in the acquiror obtainingcontrol of the issuer requires the potential acquiror to make a tender offerfor 100% of the company’s outstanding share capital. These tender offers mustbe made at the same price for all tendering shareholders. The board ofdirectors must give an opinion on any tender offer within 10 days after thetender offer notice.

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In addition, the Mexican Securities Market Act requires shareholdersholding 10% or more of a listed issuers’ share capital to notify the CNBV ofany share transfer.

***MexicanSecurities Market Act***

The Mexicanlegislature issued a new Mexican Securities Market Act effective June 28, 2006.The amendments provide, among other things, that:

·                  issuers musthave a board of directors with at least five and not more than twenty onemembers, of which 25% must qualify as “independent directors” under Mexicanlaw;

·                  issuers’ boardsof directors must approve related party transactions and material assettransactions;

·                  issuers mustappoint and maintain an audit committee and a Corporate Governance Committee;and

·                  issuers mustprovide additional protections for minority shareholders.

The Mexican Securities Market Act permits issuers toinclude anti-takeover defenses in their bylaws and provides for specifiedminority rights and protections, among other things.

The Mexican Securities Market Act does not permit issuersto implement mechanisms where common shares and limited or non-voting sharesare jointly traded or offered to public investors, unless the limited ornon-voting shares are convertible into common shares within a term of up tofive years. In addition, the aggregate amount of shares with limited or non-votingrights may not exceed 25% of the aggregate amount of publicly held shares,unless approved by the CNBV.

**ITEM 10.**             Additional Information.

**BYLAWS**

Set forth belowis a brief summary of certain significant provisions of (1) our bylaws, asamended by our shareholders in accordance with the new Mexican SecuritiesMarket Act and regulations, and (2) Mexican Companies law. This descriptiondoes not purport to be complete and is qualified by reference to our bylaws,which have previously been filed with the Securities and Exchange Commission.

**Organization and Register**

We are a *sociedad anónima bursάtil de capital variable*(acorporation) organized in Mexico under the *Ley General de SociedadesMercantiles*, or the Mexican Companies Law and the *Ley del Mercado de Valores*, or the Mexican Securities MarketLaw. We were incorporated on March 30, 1998 and the duration of our corporatelife is indefinite. Our corporate purpose, as fully described in Article 2 ofour bylaws, is to act as a holding company. As such, our bylaws grant us thepower to engage in various activities, which allow us to function as a holdingcompany. These powers include, but are not limited to, the ability to (1)promote, establish, organize and administrate all types of companies,mercantile or civil, (2) acquire or dispose of stock or interests in othermercantile or civil companies, either by taking part in its formation oracquiring shares or interests in companies that already are in existence, (3)receive from third parties and give to the companies of which it is ashareholder or partner or to any other third party, guidance or technicalconsulting services, including services in the fields of administration,accounting, merchandising or financing, (4) obtain, acquire, utilize or disposeof any patent, brand or commercial name, franchise or rights in industrialproperty in Mexico or abroad., (5) obtain any type of financing or loan, withor without a specific guarantee, and grant loans to mercantile or civilcompanies or other persons in which the company has an interest or with otherswith which it has a business relationship, (6) grant any type of guarantee andendorsement in respect to obligations or credit instruments, for the benefit ofmercantile or civil companies or other persons with which the company has aninterest or with which it maintains a business relationship, (7) issue,subscribe, draw, accept and endorse all types of credit instruments, includingobligations with or without a guarantee, (8) acquire, rent, administrate, sell,mortgage,

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pledge, encumber or dispose of goods, inwhatever form, being movable or immovable, as well as rights over the same, (9)execute any kind of act and formalize any kind of labor, civil, mercantile oradministrative agreement or contract permitted by Mexican legislation, withreal and corporate personalities that are either public or private, obtainingfrom these, concessions, permits and authorizations relating directly orindirectly to the company’s objectives as set forth in its bylaws, including,actively or passively contracting any type of services, consulting work,supervisory work and technical direction that would be necessary or proper forthe aforementioned goals, (10) issue treasury stock in accord with Article 81of the Mexican Securities Market Act, (11) establish agencies orrepresentatives and act as broker, agent, representative, mercantile mediatoror distributor, and (12) perform any acts necessary to accomplish theforegoing.

***Directors***

Our bylaws provide that our board of directors will consistof a minimum of five and a maximum of twenty —one members, as resolved by therelevant shareholders’ meeting. At least 25% of the members of our board ofdirectors must be independent pursuant to Mexican law. At each shareholders’meeting for the election of directors, holders of at least 10% of our outstandingshare capital are entitled to appoint one member of the board of directors.

Pursuant to Mexican law, any director who has a conflict ofinterest with us relating to a proposed transaction must disclose the conflictand refrain from voting on the transaction or may be liable for damages.Directors receive compensation as determined at the ordinary shareholders’meetings.

**Authority ofthe Board of Directors**

The board of directors is our legal representative and isauthorized to take any action in connection with our operations not expresslyreserved to our shareholders. Pursuant to the Mexican Securities Market Act,the board of directors must approve, among other things:

·                  strategicdecision for the company and its subsidiaries;

·                  anytransactions outside the ordinary course of our business to be undertaken withrelated parties;

·                  significantasset transfers or acquisitions;

·                  creditpolicies;

·                  grantingmaterial guarantees or collateral;

·                  designation ofthe Chief Executive Officer (Director General); and

·                  other importanttransactions.

Meetings of the board of directors are validly convened andheld if a majority of its members are present. Resolutions passed at thesemeetings will be valid if approved by a majority of the disinterested membersof the board of directors present at the meeting. If required, the chairman ofthe board of directors may cast a tie-breaking vote.

**Voting Rights andShareholders’ Meetings**

Each Common Share entitles its holder to one vote at anymeeting of our shareholders.

Under Mexican law and our bylaws, we may hold two types ofshareholders’ meetings:  ordinary andextraordinary.

Ordinary shareholders’ meetings are those called to discussany issues not reserved for extraordinary shareholders’ meetings. An annualordinary shareholders’ meeting must be held within the first four monthsfollowing the end of each fiscal year to discuss, among other things:

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·                  approving ormodifying the report of the board of directors referred to in Article 172 ofthe Mexican executive General Business Corporations Act;

·                  allocatingprofits, if applicable;

·                  appointing orratifying the appointment of members of the board of directors, the secretary,members of the executive committee and other committees, if applicable, anddetermining their compensation;

·                  Appointing thechairman of the audit committee and of the corporate governance committee;

·                  designating themaximum amount that may be allocated to share repurchases;

·                  discussing theaudit committee’s and corporate governance committee’s annual reports to theboard of directors; and

·                  approvingtransactions of the company and subsidiaries representing 20% or more of theconsolidated assets of the company.

Extraordinary shareholders’ meetings may be called toconsider any of the following matters, among other things:

·                  extending thecorporate duration of the company;

·                  dissolution;

·                  increases orreductions of our fixed share capital;

·                  changes in thecompany’s corporate purpose or nationality;

·                  transformation,spin-off, or merger;

·                  issues ofpreferred shares;

·                  shareredemptions;

·                  delisting ofour shares with the Mexican Securities Registry or with any stock exchange;

·                  any amendmentsto our bylaws; and

·                  any othermatters for which applicable Mexican law or the bylaws specifically require anextraordinary meeting.

The board of directors, the audit committee and thecorporate governance committee may call any shareholders’ meeting. Anyshareholder or group of shareholders with voting rights representing at least10% of our share capital may request that the board of directors call ashareholders’ meeting to discuss the matters indicated in the written request.If the board of directors fails to call a meeting within 15 calendar daysfollowing date of the written request, the shareholder or group of shareholdersmay request that a competent court call the meeting. A single shareholder maycall a shareholders’ meeting if no meeting has been held for two consecutiveyears or if matters to be dealt with at an ordinary shareholders’ meeting havenot been considered.

Holders of 20% of our outstanding shares may oppose anyresolution adopted at a shareholders’ meeting and file a petition for a courtorder to suspend the resolution temporarily within 15 days following theadjournment of the meeting at which the action was taken, provided that thechallenged resolution violates Mexican law or our bylaws and the opposingshareholders neither attended the meeting nor voted in favor of the challengedresolution. In order to obtain such a court

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order, the opposing shareholder must deliver a bond to thecourt in order to secure payment of any damages that we may suffer as a resultof suspending the resolution in the event that the court ultimately rulesagainst the opposing shareholder. Shareholders representing at least 10% of theshares present at a shareholders’ meeting may request to postpone a vote on aspecific matter on which they consider themselves to be insufficientlyinformed.

Notices of shareholders’ meetings must be published in theofficial gazette of Sinaloa and in one newspaper of general circulation inCuliacán, Sinaloa and in Mexico at least 15 calendar days prior to the date ofthe meeting. Each notice must set forth the place, date, and time of themeeting and the matters to be addressed and must be signed by whomever convenesthe meeting. Shareholders’ meetings will be deemed validly held and convenedwithout a prior notice or publication whenever all the shares representing ourcapital are duly represented. All relevant information relating to the shareholders’meeting must be made available to shareholders starting on the date the noticeis published.

To be admitted to any shareholders’ meeting, shareholdersmust be registered in our share registry or provide evidence of their status asshareholders as provided in our bylaws (including through certificates providedby INDEVAL and INDEVAL participants). Shareholders may appoint one or moreattorneys-in fact to represent them pursuant to general or special powers ofattorney or by a proxy. Attorneys-in-fact may not be directors of Homex.

At or prior to the time of the publication of any notice ofa shareholders’ meeting, we will provide copies of the notice to the depositaryfor distribution to the ADS holders. ADS holders are entitled to instruct the depositaryas to the exercise of voting rights pertaining to the Common Shares.

**Quorum**

Ordinarymeetings are legally convened pursuant to a first notice when a majority of ourshare capital is present or duly represented. Any number of shares present orduly represented at an ordinary meeting of shareholders convened pursuant to asecond or subsequent notice constitutes a quorum. Resolutions at ordinaryshareholders’ meetings are valid when approved by a majority of the sharespresent at the meeting.

Extraordinary meetings are regarded as legally convenedpursuant to a first notice when at least 75% of the shares of our share capitalare present or duly represented. A majority of shares must be present or dulyrepresented at an extraordinary shareholders’ meeting called pursuant to asecond or subsequent notice to be considered legally convened. Resolutions atextraordinary shareholders’ meetings are valid when approved by the majority ofour share capital.

**Registrationand Transfer**

We have applied to register the Common Shares with theSpecial Section and the Securities Section of the Mexican Securities Registrymaintained by the CNBV, as required under the Mexican Securities Market Act andregulations issued by the CNBV. If we wish to cancel our registration, or if itis cancelled by the CNBV, our shareholders who are deemed to have “control” atthat time will be required to make a public offer to purchase all outstandingshares, prior to the cancellation.

Our shareholders may hold our Common Shares as physicalcertificates or, upon registration, through institutions having accounts atINDEVAL. These accounts may be maintained by brokers, banks, and other entitiesapproved by the CNBV. In accordance with Mexican law, only holders listed inour share registry and those holding ownership certificates issued by INDEVALand INDEVAL participants are recognized as our shareholders.

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**Changes in ShareCapital and Preemptive Rights**

Our minimum fixed share capital may be reduced or increased byresolution of an extraordinary shareholders’ meeting, subject to the provisionsof our bylaws, the Mexican General Business Corporations Act, and the MexicanSecurities Market Act and regulations issued thereunder. Our variable sharecapital may be reduced or increased by resolution of an ordinary shareholders’meeting in compliance with the voting requirements of our bylaws.

In the event of a share capital increase, our shareholderswill have a preemptive right to subscribe and pay for new stock issued as aresult of the increase in proportion to their shareholder interest at thattime. This preemptive right must be exercised by subscribing and paying for therelevant shares within the time period set forth in the resolution authorizingthe increase, which will be no less than fifteen calendar days following thedate of publication of the corresponding notice to our shareholders in theofficial gazette of Sinaloa and in one of the newspapers of greater circulationin Culiacán, Sinaloa.

Notwithstanding the foregoing shares issued for furthersubscription under Article 53 of the Securities Market Act will be held in thetreasury until they are offered for subscription and payment (withoutpreemptive rights being applicable), provided that such subscription iseffected through a public offering in accordance with the Securities MarketAct.

**Share Repurchases**

Pursuant to that the Securities Market Act and our by-laws, we mayrepurchase our shares on the Mexican Stock Exchange at the prevailing marketprice. Repurchased shares cannot be represented at any shareholders’ meeting.We are not required to create a special reserve for the repurchase of sharesand we do not need the approval of our board of directors to effect sharerepurchases. However, we are required to obtain shareholder approval asdescribed below. In addition, our board of directors must appoint an individualor group of individuals responsible for effecting share repurchases. Theserepurchases must be made subject to the provisions of the Securities MarketAct, and carried out, reported, and disclosed in the manner established by theCNBV.

If we intend to repurchase more than 1% of our outstandingCommon Shares at a single trading session, we must inform the public of thisintention at least ten minutes before submitting our bid. If we intend torepurchase 3% or more of our outstanding Common Shares during a period oftwenty trading days, we must conduct a public tender offer for these CommonShares.

We may not submit bids for repurchase during the first andthe last 30 minutes of each trading session and we must inform the MexicanStock Exchange of the results of any share repurchase no later than thefollowing business day.

The amount allocated to share repurchases is determinedannually by our shareholders at a general ordinary shareholders’ meeting andcannot exceed the aggregate amount of our net profits, including retainedprofits.

**Delisting**

If we decide to cancel the registration of our shares withthe Mexican Securities Registry or if the CNBV orders this deregistration wewill be required to make a tender offer to purchase the shares held by minorityshareholders prior to such cancellation. Shareholders deemed to have “control”will be secondarily responsible for making such tender offer. The price of theoffer to purchase will be the higher of:

·                  the averagetrading price on the Mexican Stock Exchange during the last 30 days on whichthe shares were quoted prior to the date on which the tender offer is made; and

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·                  the book valueof the shares as reflected in our latest quarterly report filed with the CNBVand the Mexican Stock Exchange.

In order to make the repurchase, we  must form a trust and contribute to it theamount required to secure payment of the purchase price offered pursuant to thetender offer to all of our shareholders that did not sell their shares pursuantto the tender offer. The trust must be in force for a period of, at least, sixmonths from the date of delisting.

Not later than ten business days following to thecommencement of an offering, our board of directors will issue an opinion onthe offering price, considering the opinion from our audit committee and also,disclosing any potential conflicts of interest that any of the board membersmay have. The board’s resolution may be accompanied by fairness opinion issuedby an expert selected by us to that effect.

**Ownership of ShareCapital by Subsidiaries**

Our subsidiaries, may not, directly or indirectly, purchase ourshares.

**Redemption**

Pursuant to the Securities Market Act, shareholders areentitled to the redemption of its variable Common Shares.

**Liquidation**

Upon our dissolution, one or more liquidators must beappointed at an extraordinary shareholders’ meeting to wind up our affairs. Allshares will be entitled to participate equally in any distribution uponliquidation.

***Appraisal Rights and Other Minority Protections***

If shareholders approve a change in our corporate purpose,nationality, or corporate form, any voting shareholder who voted against thesematters is entitled to the redemption of its Common Shares at book valuepursuant to the last financial statements approved by our shareholders at ashareholders’ meeting. These appraisal rights must be exercised within fifteendays after the shareholders’ meeting at which the matter was approved.

Pursuant to the Mexican Securities Market Act and theMexican General Business Corporations Act, our bylaws include a number ofminority shareholder protections. These minority protections include provisionsthat permit:

·                  holders of atleast 5% of our outstanding share capital to bring an action for civilliabilities against our directors and members of our senior management, anyrecovery is for our benefit and not the benefit of the plaintiffs;

·                  holders of atleast 10% of our shares who are entitled to vote (including in a limited orrestricted manner) are entitled to request that a shareholders’ meeting becalled in certain limited situations;

·                  holders of atleast 10% of our shares who are entitled to vote (including in a limited orrestricted manner) at any shareholders’ meeting to request that resolutionswith respect to any matter on which they were not sufficiently informed to bepostponed;

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·                  holders of atleast 10% of our outstanding share capital are entitled to appoint one memberof our board of directors, and 

·                  holders of atleast 20% of our outstanding share capital to contest and suspend anyshareholder resolution, subject to certain requirements under Mexican law. 

In addition, pursuant to the Mexican Securities Market Act,we are also subject to certain corporate governance requirements, including therequirement to maintain an audit committee and a corporate governance committeeand that at least 25% of our directors qualify as independent.  The CNBV is empowered to verify theirindependence. 

The protections afforded to minority shareholders underMexican law are generally different from those in the United States and otherjurisdictions although we believed the new Mexican Securities Market Act hasintroduced higher corporate governance standards including director fiduciaryduties with a comprehensive description of duties of care and loyalty. Mexicancivil procedure does not contemplate class action lawsuits.

Notwithstanding the foregoing, it is anticipated to be moredifficult for our minority shareholders to enforce rights against us or ourdirectors or principal shareholders than it is for shareholders of a U.S.issuer.

***Information toShareholders***

The MexicanGeneral Business Corporations Act establishes that companies, acting throughtheir boards of directors, must annually present a report to shareholders at ashareholders’ meeting that includes:

·                  a report of thedirectors on the operations of the company and the subsidiaries during thepreceding year, as well as on the policies followed by the directors andmanagement;

·                  an opinion onthe Chief Executive Officer’s report on the principal accounting andinformation policies and criteria followed in the preparation of the financialinformation;

·                  a statement ofthe financial condition of the company at the end of the fiscal year;

·                  a statementshowing the results of operations of the company during the preceding year, aswell as changes in the company’s financial condition and share capital duringthe preceding year; and

·                  the notes whichare required to complete or clarify the above mentioned information.

In addition, the Mexican Securities Market Act requiresthat information relating to matters to be discussed at shareholders’ meetingsbe made available to shareholders from the date on which the notice for therelevant meeting is published.

**Restrictions Affecting Non-Mexican Shareholders**

Foreign investment in capital stock ofMexican corporations is regulated by the 1993 Foreign Investment Law and by the1998 Foreign Investment Regulations to the extent they are not inconsistentwith the Foreign Investment Law. The Ministry of Economy and the NationalCommission on Foreign Investment are responsible for the administration of theForeign Investment Law and the Foreign Investment Regulations.

Our bylaws do not restrict theparticipation of non-Mexican investors in our capital stock. However, approvalof the National Foreign Investment Commission must be obtained for foreigninvestors to acquire a direct or indirect participation in excess of 49% of thecapital stock of a Mexican company that has an aggregate asset value thatexceeds, at the time of filing the corresponding notice of acquisition, anamount determined annually by the National Foreign Investment Commission.

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As required by Mexican law, our bylaws provide thatnon-Mexican shareholders agree to be considered Mexican citizens with respectto:

·                  shares held bythem;

·                  propertyrights;

·                  concessions;

·                  participationsor interests we own; and

·                  rights andobligations derived from any agreements we have with the Mexican government.

As required by Mexican law, our bylaws also provide thatnon-Mexican shareholders agree to refrain from invoking the protection of theirgovernments in matters relating to their ownership of our shares. Therefore, anon-Mexican shareholder may not ask its government to introduce a diplomaticclaim against the government of Mexico with respect to its rights as ashareholder. If the shareholder invokes such governmental protection inviolation of the agreement, its shares could be forfeited to the Mexicangovernment. Notwithstanding these provisions, shareholders do not forfeit anyrights they may have under U.S. securities laws.

**Summary ofDifferences between Mexican and U.S. Corporate Law**

You should be aware that the Mexican General CorporationsAct and the Mexican Securities Market Act, which apply to us, differ inmaterial respects from laws generally applicable to U.S. corporations and theirshareholders. In order to highlight these differences, set forth below is a summaryof provisions applicable to us (including modifications adopted pursuant to ourbylaws) which differ in material respects from provisions of the corporate lawof the State of Delaware.

***Duties ofDirectors***

Under the Mexican Securities Market Act, directors now havefiduciary duties of care and loyalty specified therein. The duties of directorsof public companies are more extensive than the duties of directors of privatecompanies. Actions against directors may be initiated by holders of at least 5%of our outstanding share capital, although any damages recovered from directorsare awarded solely to the company.

Under the new Mexican Securities Market Act, the businessand affairs of a corporation are managed by or under the direction of its boardof directors. In exercising their powers, directors are charged with afiduciary duty of care to protect the interests of the corporation and afiduciary duty of loyalty to act in the best interests of its shareholders.

The duty of care requires that directors act in an informedand deliberate manner, and inform themselves, prior to making a businessdecision, of all relevant material information reasonably available to them.The duty of care also requires that directors exercise care in overseeing andinvestigating the conduct of corporate employees. The duty of loyalty may besummarized as the duty to act in good faith, not out of self-interest, and in amanner which the director reasonably believes to be in the best interests ofthe shareholders.

Under the “business judgment rule,” courts generally do notquestion the business judgment of directors and officers. A party challengingthe propriety of a decision of a board of directors bears the burden ofrebutting the presumption afforded to directors by the business judgment rule.If the presumption is not rebutted, the business judgment rule attaches toprotect the directors from liability for their decisions. Where, however, thepresumption is rebutted, the directors bear the burden of demonstrating thefairness of the relevant transaction. However, when the board of directorstakes defensive actions in response to a threat to corporate control andapproves a transaction resulting in a sale of control of the corporation,Delaware courts subject directors’ conduct to enhanced scrutiny.

***Under the new Mexican Securities Market Act, directors are exemptedfrom liability in their decisions when they act in good faith and in compliancewith all legal and by-law requirements, and based on information provided by***

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***management, having selected the bestalternative, according to their best judgment and after considering theforeseeable negative effects. Mexican courts have not yet interpreted these newstandards of conduct for directors.***

***InterestedDirectors***

The Mexican Securities Market Act requires that ourcorporate governance committee issue an opinion with regard to transactions andarrangements with related parties, including directors. These transactions andarrangements must be approved by our board of directors except for immaterialtransactions or transactions with affiliates in the normal course of businessand at market prices. Mexican law provides that a member of the board ofdirectors can be liable for failing to disclose a conflict of interest and forvoting on a transaction in which he or she has a conflict of interest.

Under Delaware law, a transaction entered into with regardto which a director has an interest would not be voidable if:

·                  the materialfacts with respect to such interested director’s relationship or interests aredisclosed or are known to the board of directors, and the board of directors ingood faith authorizes the transaction by the affirmative vote of a majority ofthe disinterested directors;

·                  the materialfacts are disclosed or are known to the shareholders entitled to vote on thetransaction, and the transaction is specifically approved in good faith by voteof the majority of shares entitled to vote thereon; or

·                  the transactionis fair to the corporation as of the time it is authorized, approved orratified. Under Delaware law, an interested director could be held liable for atransaction in which the director derived an improper personal benefit.

***Dividends***

Under Mexican law, prior to paying dividends a company mustreserve at least 5% of its profits every year until it establishes a legalreserve equal to 20% of its capital share. Dividends may only be paid fromretained earnings and if losses for prior fiscal years have been paid, and theymay be subject to additional restrictions contained in a company’s bylaws. Thepayment of dividends must be approved at an annual general shareholders’meeting. We do not currently expect to pay dividends.

Under Delaware law, subject to any restrictions containedin the company’s certificate of incorporation, a company may pay dividends outof surplus or, if there is no surplus, out of net profits for the fiscal yearin which the dividend is declared and for the preceding fiscal year. Delawarelaw also provides that dividends may not be paid out of net profits at any timewhen capital is less than the capital represented by the outstanding stock ofall classes having a preference upon the distribution of assets.

***Mergers,Consolidations, and Similar Arrangements***

A Mexican company maymerge with another company only if a majority of the shares representing itsoutstanding share capital approve the merger at a duly convened generalextraordinary shareholders’ meeting, unless the company’s bylaws impose ahigher threshold. Dissenting shareholders are not entitled to appraisal rights.Creditors have ninety days to oppose a merger judicially, provided they have alegal interest to oppose the merger.

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Under Delaware law, with certain exceptions, a merger,consolidation, or sale of all or substantially all the assets of a corporationmust be approved by the board of directors and a majority of the outstandingshares entitled to vote thereon. Under Delaware law, a shareholder of acorporation participating in certain major corporate transactions may, undercertain circumstances, be entitled to appraisal rights pursuant to which theshareholder may receive payment in the amount of the fair market value of theshares held by the shareholder (as determined by a court) in lieu of theconsideration the shareholder would otherwise receive in the transaction.Delaware law also provides that a parent corporation, by resolution of itsboard of directors and without any shareholder vote, may merge with anysubsidiary of which it owns at least 90% of each class of capital share. Uponany such merger, dissenting shareholders of the subsidiary would have appraisalrights.

***Anti-TakeoverProvisions***

Our bylaws do not include anti-takeover provisions. TheMexican Securities Market Act permits public companies to include anti-takeoverprovisions in their bylaws that restrict the ability of third parties toacquire control of the company provided however that:

a)              adoption of suchprovisions is not opposed by holders of 5% or more of our share capital;

b)             no shareholderis excluded from the benefits that may drive from such provisions;

c)              takeoverscannot  be absolutely banned and anyrequired approval from the company’s board of directors must be subject toestablished criteria and a deadline not to exceed three months; and

d)             takeoverprocedures conform to compulsory tender offering rules.

Under Delaware law, corporations can implement shareholderrights plans and other measures, including staggered terms for directors andsuper-majority voting requirements, to prevent takeover attempts. Delaware lawalso prohibits a publicly-held Delaware corporation from engaging in a businesscombination with an interested shareholder for a period of three years afterthe date of the transaction in which the shareholder became an interestedshareholder unless:

·                  prior to thedate of the transaction in which the shareholder became an interestedshareholder, the board of directors of the corporation approves either thebusiness combination or the transaction that resulted in the shareholderbecoming an interested shareholder;

·                  uponconsummation of the transaction that resulted in the shareholder becoming aninterested shareholder, the interested shareholder owns at least 85% of thevoting stock of the corporation, excluding shares held by directors, officers,and employee stock plans; or

·                  at or after thedate of the transaction in which the shareholder became an interestedshareholder, the business combination is approved by the board of directors andauthorized at a shareholders’ meeting by at least 662⁄3% of the votingstock which is not owned by the interested shareholder.

***Transactions withSignificant Shareholders***

Under Mexican law, a company’s board of directors mustapprove any potential transaction to be undertaken with any shareholders of thecompany or other companies affiliated with shareholders of the company. Theboard of directors must take the recommendation of the corporate governancecommittee into consideration in granting its approval and may also require anindependent fairness opinion. In addition, pursuant to the Mexican law, anyshareholder who votes on a transaction in which it has a conflict of interestmay be liable for damages if the transaction would not have been approvedwithout the shareholder’s vote.

As a Mexican company, we may enter into businesstransactions with our significant shareholders, including asset sales, in whichthe transacting shareholder receives a greater financial benefit than othershareholders with prior approval from our board of directors. Prior approvalfrom our shareholders is not required for this kind of transaction.

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No similar provision relating to transactions withsignificant shareholders exists under Delaware law.

***Shareholders’ Suits***

As mentioned above, holders of at least 5% of our outstandingshare capital may bring derivative actions for civil liabilities against ourdirectors, members of the audit committee, and the corporate governancecommittee. However, the grounds for shareholder derivative actions underMexican law are limited, which effectively bars most of these kinds of suits inMexico. In addition, subject to certain requirements, holders of at least 20%of a company’s outstanding share capital may contest and suspend any shareholderresolution that violates Mexican law or our bylaws. Class action lawsuits arenot permitted under Mexican law.

Class actions and derivative actions are generallyavailable to shareholders under Delaware law for, among other things, breach offiduciary duty, corporate waste and actions not taken in accordance withapplicable law. In these kinds of actions, the court generally has discretionto permit the winning party to recover attorneys’ fees incurred in connectionwith the action.

***Indemnificationof Directors and Officers***

Under Mexican law, a company may indemnify directors ormembers of any committee of the board of directors, for actions taken withinthe scope of their duties, against expenses (including attorneys’ fees),judgments, fines and settlement amounts, reasonably incurred in defense of anaction, suit, or proceeding Except for breach of the duty of loyalty orunlawful acts.

Under Delaware law, a corporation may indemnify a directoror officer of the corporation against expenses (including attorneys’ fees),judgments, fines, and amounts paid in settlement actually and reasonablyincurred in defense of an action, suit, or proceeding by reason of a directoror officer’s position if:

·                  the director orofficer acted in good faith and in a manner the director or officer reasonablybelieved to be in or not opposed to the best interests of the corporation; and

·                  with respect toany criminal action or proceeding, the director or officer had no reasonablecause to believe his or her conduct was unlawful.

***Inspection ofCorporate Records***

Under Mexican law, At the time that a notice ofshareholders’ meeting is published, shareholders are entitled to allinformation related to the matters to be discussed at the meeting.

Delaware law permits any shareholder to inspect or obtaincopies of a corporation’s shareholder list and its other books and records forany purpose reasonably related to a person’s interest as a shareholder.

***ShareholderProposals***

Under Mexican law and our bylaws, holders of at least 10%of our outstanding share capital are entitled to appoint one member of ourboard of directors.

Delaware law does not include a provision restricting themanner in which nominations for directors may be made by shareholders or themanner in which business may be brought before a meeting.

***Calling ofSpecial Shareholders’ Meetings***

Under Mexicanlaw and our bylaws, a shareholders’ meeting may be called by the board ofdirectors, the chairman of the board of directors, or of the audit committee orthe corporate governance committee. Any shareholder or group of shareholderswith voting rights representing at least 10% of our share capital may requestthat the board of directors or call a

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shareholders’ meeting to discuss the matters indicated in thewritten request. If the board of directors fails to call a meeting within 15calendar days following date of the written request, the shareholder or groupof shareholders may request that a competent court call the meeting. A singleshareholder may call a shareholders’ meeting if no meeting has been held fortwo consecutive years or if matters to be dealt with at an ordinaryshareholders’ meeting have not been considered.

Delaware law permits the board of directors or any personwho is authorized under a corporation’s certificate of incorporation or bylawsto call a special meeting of shareholders.

***Cumulative Voting***

Under Mexican law, cumulative voting for the election ofdirectors is not permitted.

Under Delaware law, cumulative voting for the election ofdirectors is permitted only if expressly authorized in the certificate ofincorporation.

***Approval ofCorporate Matters by Written Consent***

Mexican law permits shareholders to take action byunanimous written consent of the holders of all shares entitled to vote. Theseresolutions have the same legal effect as those adopted in a general or specialshareholders’ meeting. The board of directors may also approve matters byunanimous written consent.

Delaware law permits shareholders to take action by writtenconsent of holders of outstanding shares having more than the minimum number ofvotes necessary to take the action at a shareholders’ meeting at which allvoting shares were present and voted.

***Amendment ofCertificate of Incorporation***

Under Mexican law, it is not possible to amend a company’scertificate of incorporation (*acta constitutiva*).However, the provisions that govern a Mexican company are contained in itsbylaws, which may be amended as described below.

Under Delaware law, amending a company’s certificate ofincorporation, which is equivalent to a memorandum of association, must be madeby a resolution of the board of directors setting forth the amendment,declaring its advisability, and either calling a special meeting of theshareholders entitled to vote or directing that the amendment proposed beconsidered at the next annual meeting of the shareholders. Delaware lawrequires that, unless a different percentage is provided for in the certificateof incorporation, a majority of the outstanding shares entitled to vote thereonis required to approve the amendment of the certificate of incorporation at theshareholders meeting. If the amendment would alter the number of authorizedshares or otherwise adversely affect the rights or preference of any class of acompany’s stock, Delaware law provides that the holders of the outstandingshares of such affected class should be entitled to vote as a class upon theproposed amendment, regardless of whether such holders are entitled to vote bythe certificate of incorporation. However, the number of authorized shares ofany class may be increased or decreased, to the extent not falling below thenumber of shares then outstanding, by the affirmative vote of the holders of amajority of the stock entitled to vote, if so provided in the company’scertificate of incorporation or any amendment that created such class or wasadopted prior to the issuance of such class or that was authorized by theaffirmative vote of the holders of a majority of such class of stock.

***Amendment of Bylaws***

Under Mexican law, amending a company’s bylaws requiresshareholder approval at an extraordinary shareholders’ meeting. Mexican lawrequires that at least 75% of the shares representing a company’s outstandingcapital share be present at the meeting (unless the bylaws require a higherthreshold) and that the resolutions be approved by a majority of the sharesrepresenting a company’s outstanding capital share.

Under Delaware law, holders of a majority of the votingpower of a corporation and, if so provided in the certificate of incorporation,the directors of the corporation, have the power to adopt, amend, and repealthe bylaws of a corporation.

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***Staggered Boardof Directors***

Mexican law does not permit companies to have a staggeredboard of directors.

Delaware law permits corporations to have a staggered boardof directors.

**MATERIAL CONTRACTS**

**Acquisition ofControladora Casas Beta, S.A.**

On April 21,2005, we signed an agreement to acquire 100% of the capital stock ofControladora Casas Beta, S.A. de C.V., or Beta, the seventh largest homebuilderin Mexico, in a transaction valued at approximately Ps.2,007.5billion (orapproximately US$188.9 million). The transaction required that we purchaseapproximately 53.0% of Beta’s stock for approximately Ps.1,045.7****million (or approximately US$98.4 million) in cash and47.0% of Beta’s stock for approximately 22.0 million of our common sharesvalued at approximately Ps.961.8 million (or approximately US$90.5 million).Beta was then merged into us. Beta shareholders owned approximately 6.6% ofHomex after the merger and sold their position in January 2006 through anon-dilutive secondary offer. We financed the cash portion of the purchaseprice principally with bank financing.

For furtherdiscussion of our material contracts, see “Item 7. Major Shareholders andRelated Party Transactions.”

**EXCHANGE CONTROLS**

Mexican law does not restrict our ability to remit dividends andinterest payments, if any, to non-Mexican holders of our securities. Paymentsof dividends to equity-holders, to the extent made, generally will not besubject to Mexican withholding tax. Mexico has had a free market for foreignexchange since 1991, and the government has allowed the peso to float freelyagainst the U.S. dollar since December 1994.

**TAXATION**

The following summary contains a description of:

·                  the materialanticipated Mexican federal income tax consequences of the purchase, ownershipand disposition of the ADSs or Common Shares by non-resident holders, orholders that

·                  are notresidents of Mexico for tax purposes and

·                  will not holdthe ADSs or Common Shares or a beneficial interest therein in connection withthe conduct of a trade or business through a permanent establishment, for taxpurposes, in Mexico; and

·                  the materialanticipated U.S. federal income tax consequences of the purchase, ownership,and disposition of the ADSs or Common Shares by non-resident holders that areU.S. holders, or holders that

·                  are citizens orresidents of the United States,

·                  are U.S.domestic corporations, or

·                  that otherwisewill be subject to U.S. federal income tax on a net income basis in respect ofthe ADSs or Common Shares.

For purposes of Mexican taxation:

·                  individuals areresidents of Mexico if they have established their principal place of residencein Mexico or, if they have established their principal place of residenceoutside Mexico, if their core of vital interests (*centro deintereses*

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*vitales*) is located inMexico. Individuals’ core of vital interests will be deemed to be located inMexico if, among other things,

·                  at least 50% ofthe individuals’ aggregate annual income derives from Mexican sources or

·                  theindividuals’ principal center of professional activities is located in Mexico;

·                  individuals areresidents of Mexico if they are state employees, regardless of the location ofthe individuals’ core of vital interests; and

·                  legal entitiesare residents of Mexico if they were established under Mexican law or if theymaintain their principal place of business or their place of effectivemanagement in Mexico.

If non-residents of Mexico are deemed to have a permanentestablishment in Mexico for tax purposes, all income attributable to thepermanent establishment will be subject to Mexican taxes, in accordance withapplicable Mexican tax law.

In general, for U.S. federal income tax purposes, holdersof ADSs will be treated as the beneficial owners of the Common Sharesrepresented by those ADSs.

However, the following summary does not purport to be acomprehensive description of all of the tax considerations that may be relevantto a decision to purchase the ADSs or Common Shares. In particular, the summaryof U.S. Federal income tax consequences deals only with U.S. holders that willhold the ADSs or Common Shares as capital assets and does not address the taxtreatment of U.S. holders that own or are treated as owning 10% or more of ouroutstanding voting shares. In addition, the summary does not address any U.S.or Mexican state or local tax considerations that may be relevant tonon-resident holders and to U.S. holders. The discussion of U.S. federal incometax considerations below assumes that we are not a passive foreign investmentcompany, or PFIC. We are not and do not expect to become a PFIC, but thisdetermination is made annually and it is possible that our status could change.

**TO ENSURE COMPLIANCEWITH INTERNAL REVENUE SERVICE CIRCULAR 230, HOLDERS ARE HEREBY NOTIFIEDTHAT:  (A) ANY DISCUSSION OF FEDERAL TAXISSUES IN THIS DISCLOSURE STATEMENT IS NOT INTENDED OR WRITTEN BY US TO BERELIED UPON, AND CANNOT BE RELIED UPON BY HOLDERS FOR THE PURPOSE OF AVOIDINGPENALTIES THAT MAY BE IMPOSED ON HOLDERS UNDER THE INTERNAL REVENUE CODE; (B)SUCH DISCUSSION IS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THETRANSACTIONS OR MATTERS ADDRESSED HEREIN (WITHIN THE MEANING OF INTERNALREVENUE SERVICE CIRCULAR 230); AND (C) HOLDERS SHOULD SEEK ADVICE BASED ONTHEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.**

The summary is based upon the federal income tax laws ofthe United States and Mexico as in effect on the date of this Annual Report,including the provisions of the income tax treaty between the United States andMexico and protocol thereto, or the Tax Treaty, all of which are subject tochange, possibly with retroactive effect in the case of U.S. federal income taxlaw. However, this summary does not address all aspects of the federal incometax laws of the United States and Mexico. Prospective investors in the ADSs orCommon Shares should consult their own tax advisors as to the U.S., Mexican, orother tax consequences of the purchase, ownership, and disposition of the ADSsor Common Shares, including, in particular, the effect of any foreign, state,or local tax laws and their entitlement to the benefits, if any, afforded bythe Tax Treaty.

**Taxation of Dividends**

***Mexican TaxConsiderations***

Under the provisions of the Mexican Income Tax Code (*Ley del Impuesto Sobre la Renta*), dividends paid tonon-resident holders with respect to the Common Shares or the ADSs will not besubject to Mexican withholding tax.

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Dividends paid from distributable earnings that have notbeen subject to corporate income tax are subject to a corporate-level dividendtax at a rate of 42.86% for the year ended December 31, 2005 and 38.89%thereafter. The corporate-level dividend tax on the distribution of earnings isnot final and may be credited against income tax payable during the fiscal yearin which the dividend tax was paid and for the following two years. Dividendspaid from distributable earnings, after corporate income tax has been paid withrespect to these earnings, are not subject to this corporate-level dividendtax.

***U.S. FederalIncome Tax Considerations***

The gross amount of any distributions (before reduction forMexican withholding tax) paid with respect to the Common Shares represented bythe ADSs, to the extent paid out of our current or accumulated earnings andprofits, as determined for U.S. federal income tax purposes, generally will beincludible in the gross income of a U.S. holder as ordinary income on the dateon which the distributions are received by the depositary and will not beeligible for the dividends received deduction allowed to certain corporationsunder the U.S. Internal Revenue Code of 1986, as amended. To the extent that adistribution exceeds our current and accumulated earnings and profits, it willbe treated as a non-taxable return of basis to the extent thereof, andthereafter as capital gain from the sale of ADSs or Common Shares.

Distributions, which will be made in pesos, will beincludible in the income of a U.S. holder in a U.S. dollar amount calculated byreference to the exchange rate in effect on the date they are received by thedepositary, whether or not they are converted into U.S. dollars. U.S. holdersshould consult their own tax advisors regarding the treatment of foreigncurrency gain or loss, if any, on any pesos received that are converted intoU.S. dollars on a date subsequent to receipt. Dividend income generally willconstitute foreign source “passive income” or, in the case of certain U.S.holders for taxable years beginning before January 1, 2007, “financial servicesincome,” and for taxable years beginning after December 31, 2006, “general”category income, (depending on whether the U.S. Holder is predominantly engagedin the active conduct of a banking, insurance, finance, or similar business) ineach case which is treated separately from other types of income for U.S.foreign tax credit purposes.

Mexican tax withheld from dividend distributions will betreated as foreign income tax that, subject to generally applicable limitationsunder U.S. federal income tax regulations, is eligible for credit against U.S.holders’ federal income tax liability or, for those U.S. holders who elect totreat foreign taxes as such, may be deducted in computing taxable income. Thecalculation of foreign tax credits and, in the case of U.S. holders that electto deduct foreign taxes, the availability of deductions involve the applicationof rules that depend on U.S. holders’ particular circumstances. U.S. holdersshould consult their own tax advisors regarding the availability of foreign taxcredits and deductions.

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Under rules enacted by the United StatesCongress as part of the U.S. Taxpayer Relief Act of 1997, foreign tax credits willnot be allowed for withholding taxes imposed in respect of certain short-termor hedged positions. U.S. holders should consult their own advisors concerningthe implications of these rules in light of their particular circumstances.

Distributions of additional CommonShares to holders of ADSs with respect to their ADSs that are made as part of apro rata distribution to all our shareholders generally will not be subject toU.S. federal income tax.

The U.S. Jobs and Growth Tax ReliefReconciliation Act of 2003, or the Tax Relief Act, enacted on May 28, 2003,reduces the maximum rate of tax imposed on certain dividends received by U.S.shareholders that are individuals to 15%, provided that certain holding periodrequirements are met. These reduced rates apply to dividends received afterDecember 31, 2002 and before January 1, 2009. In order for dividends paid by aforeign corporation to be eligible for the reduced rates, the foreigncorporation must be a “qualified foreign corporation” within the meaning of theTax Relief Act. We believe that we will be considered a “qualified foreigncorporation” within the meaning of the Tax Relief Act because our ADSs will belisted on the New York Stock Exchange and thus any distributions we make thatare treated as taxable dividends, whether in cash, shares, or other property,should qualify for reduced rates. It is possible, however, that we will notcontinue to be considered a “qualified foreign corporation” and that ourdividends will not continue to be eligible for reduced rates under the TaxRelief Act.

**Taxation of Dispositions of Shares or ADSs**

***Mexican TaxConsiderations***

Gain on the sale or other disposition ofADSs by a non-resident holder will generally not be subject to Mexican tax.Deposits and withdrawals of Common Shares in exchange for ADSs will not giverise to Mexican tax or transfer duties.

Gain on the sale of the Common Shares bya non-resident holder will not be subject to any Mexican tax if the transactionis carried out through the Mexican Stock Exchange or other stock exchange orsecurities markets approved by the Mexican Ministry of Finance and PublicCredit. Gain on sales or other dispositions of the Common Shares made in othercircumstances generally would be subject to Mexican tax at a rate of 25% basedon the total amount of the transaction or, subject to certain requirementsapplicable to the seller, at a rate of 30% for the year ended December 31,2005, 29% for 2006 and 28% thereafter of gains realized from the disposition,regardless of the nationality or residence of the transferor, provided that thetransferor is not a resident of a country with a preferential tax regime.

For tender offers conducted on theMexican Stock Exchange or other approved stock exchanges or securities markets,non-resident holders who held the Common Shares as of the date they wereinitially registered with the CNBV may apply the above exemption to the extentthat:

·                  fiveuninterrupted years have elapsed since the initial public offering of theCommon Shares;

·                  our shares havea public float of at least 35% on the authorized stock exchanges or markets onwhich they were initially listed;

·                  the offer isfor all shares representing our share capital and at the same price for allshareholders; and

·                  allshareholders are permitted to accept more competitive offers than thosereceived prior to or during the tender offer period, without penalty.

Under the Tax Treaty, a holder that iseligible to claim the benefits of the Tax Treaty will be exempt from Mexicantax on gains realized on a sale or other disposition of the Common Shares, in atransaction that is not carried out through the Mexican Stock Exchange or suchother approved securities markets, so long as the holder did not own, directlyor indirectly, 25% or more of our share capital (including ADSs) during thetwelve-month period preceding the sale or other disposition.

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***U.S. TaxConsiderations***

Upon the sale or other disposition ofthe ADSs or Common Shares, a U.S. holder generally will recognize capital gainor loss in an amount equal to the difference between the amount realized on thesale or other disposition and such U.S. holder’s tax basis in the ADSs orCommon Shares. Gain or loss recognized by a U.S. holder on such sale or otherdisposition generally will be long-term capital gain or loss if, at the time ofthe sale or other disposition, the ADSs or Common Shares have been held formore than one year. Under the Tax Relief Act, the top individual tax rate onadjusted net capital gains for sales and exchanges of capital assets on orafter May 6, 2003 and before January 1, 2009 is 15%. The deduction of a capitalloss is subject to limitations for U.S. federal income tax purposes. Gain orloss generally will be treated as U.S. source gain or loss and a U.S. holdermay be unable to credit any Mexican taxes imposed on these gains unless it hascertain other income from foreign sources. Deposits and withdrawals of CommonShares by U.S. holders in exchange for ADSs will not result in the realizationof gain or loss for U.S. federal income tax purposes. The deductibility ofcapital losses is subject to limitations.

**Other Mexican Taxes**

There are no Mexican inheritance, gift,succession, or value added taxes applicable to the purchase, ownership, ordisposition of the ADSs or Common Shares by non-resident holders. However,gratuitous transfers of the ADSs or Common Shares may result in a Mexicanfederal tax obligation for the recipient in certain circumstances.

There are no Mexican stamp, issue,registration, or similar taxes or duties payable by non-resident holders of theADSs or Common Shares.

**U.S. Backup Withholding Tax and Information Reporting Requirements**

A U.S. shareholder may, under certaincircumstances, be subject to “backup withholding” with respect to some paymentsto the U.S. shareholder, such as dividends or the proceeds of a sale or otherdisposition of the ADSs, unless the holder:

·                  is acorporation or comes within certain exempt categories, and demonstrates thisfact when so required; or

·                  provides acorrect taxpayer identification number, certifies that it is not subject tobackup withholding and otherwise complies with applicable requirements of thebackup withholding rules.

Any amountwithheld under these rules will be creditable against the U.S. shareholder’sfederal income tax liability.

**DOCUMENTS ON DISPLAY**

We are subjectto the information requirements of the Exchange Act and, in accordancetherewith, we are required to file reports and other information with the SEC.These materials, including this Form 20-F and the exhibits thereto, maybe inspected and copied at the SEC’s Public Reference Room at 450 Fifth Street,NW, Washington, D.C. 20549. The public may obtain information on the operationof the Public Reference Room by

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**ITEM 11.**             Quantitative And QualitativeDisclosures About Market Risk.

**Interest Rate Risk**

In connectionwith our business activities, we have issued and hold financial instrumentsthat currently expose us to market risks related to changes in interest rates.Interest rate risk exists principally with respect to our indebtedness thatbears interest at floating rates. At December 31, 2005, we had outstandingindebtedness of Ps. 3,353.5 million, the majority of which bore interest atfixed interest rates. The interest rate on our variable rate debt is determinedprimarily by reference to the 28-day Mexican Interbank Rate, or TIIE(Tasa de Interés Interbancaria de Equilibrio). TIIE increases would,consequently, increase our interest payments.

A hypothetical,instantaneous, and unfavorable change of 1.5% (150 basis points) in the averageinterest rate applicable to floating-rate liabilities held at December 31, 2005would have increased our interest expense in 2005 by approximately Ps.9.1million, over a twelve-month period.

We manage ourexposure to changes in interest rates by efficiently timing construction anddelivery of our homes and payments to our suppliers, thereby allowing us toreduce our borrowing needs. We have also reduced our interest expense andlending commissions through the issuance of long-term senior notes due 2015 andcommercial paper with more favorable interest rates.

Together withthe issuance of the US$250 million long term US Dollar denominated senior notesdue 2015, Homex entered into a Principal Only Swap to hedge and cover theeconomic and cash flow principal US dollar exposure. The notes bear 7.5% p.a.six months interest coupons exposed to US dollars currency fluctuations. Thecompany used a Fair  Value accountingmethodology for the financial periodic re-measurement as per FAS 133,consequently  financial periodicstatements reports a foreign exchange non cash effect from the mark to marketof the Principal Only Swap,  that at duedate on year 2015 will equate to the change of the value of the underlyingnote.

**ITEM 12.**             Description Of Securities OtherThan Equity Securities.

Not Applicable.

# **PART II**

**ITEM 13.**             Defaults, Dividend Arrearages AndDelinquencies.

Not Applicable.

**ITEM 14.**             Material Modifications To TheRights Of Security Holders And Use Of Proceeds.

Not Applicable

**ITEM 15.**             Controls and Procedures.

**EVALUATION OFDISCLOSURE CONTROLS AND PROCEDURES**

In our initial Annual Reporton Form 20-F for the year ended December 31, 2005, we reported that weperformed an evaluation under the supervision and with the participation ofmanagement, including our ChiefExecutive Officer and Chief Financial Officer, as of December 31, 2005, of our disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the“Exchange Act”)). Based on that evaluation, we concluded our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we fileor submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in SEC rules and to ensure that information required to be disclosed by us in the reportsthat we file under the Exchange Act is accumulatedand communicated to our management, including our Chief Executive Officer and 

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Chief Financial Officer, as appropriate to allow timely decisionsregarding required disclosure. There are inherent limitations to theeffectiveness of any system of disclosure controls andprocedures, including the possibilityof human error and the circumvention or overriding of the controls andprocedures. Accordingly, even effective disclosures controls and procedures canonly provide reasonable assurance of achieving their control objectives. 

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Aspart of our continuing evaluation of the financial reporting controls andprocedures process, we determined that a restatement of our consolidatedfinancial statements for the year ended December 31, 2005 was necessary. Therestatement of our 2005 Form 20-F relates to technical items derived from theacquisition of Beta that occurred effective July 1, 2005 under Mexican GAAP anddeferred income taxes under US GAAP. These differences relate to the following:  

(1)                                     the addition of the previously unrecognized deferredincome tax liability associated with the intangible asset for the Betatrademark.

(2)                              the addition of the previously unidentifiedintangible asset related to the value of the backlog of houses underconstruction as of the date of the Beta acquisition and the addition of thedeferred income tax liability associated with this backlog.

(3)                              the addition of the previously unrecognizedamortization of the intangible assets related to the Beta trademark and thebacklog of houses under construction from the date of the Beta acquisition toDecember 31, 2005 and their related deferred income tax effects.

(4)                          Anadjustment to the US GAAP reconciliation associated with the effect of theadditional deferred tax liability on the adjustment related to recognition ofrevenues between Mexican GAAP and US GAAP.  This adjustment is related toan interpretation of a change in the applicable tax law beginning in 2005.

Following the identificationof the issues referred to above, we commenced planning to make improvements incertain of our internal controls as soon as practicable to eliminate thedeficiencies that resulted in the restatement described above.  Our board of directors and audit committeehave been advised of these issues. Under the supervision and with theparticipation of our senior management, including our Chief Executive Officerand Chief Financial Officer, we are in the process of conducting furtherevaluation of our internal control over financial reporting. We plan to designenhanced processes and controls to address these and any other issues thatmight be identified through our review. As we are still in the evaluationprocess, we may identify other conditions that may result in significantdeficiencies or material weaknesses in the future. If we discover suchconditions, we will take action to correct them. We are committed to takingappropriate steps for remediation, as needed.

**CHANGES IN INTERNAL CONTROLS**

There has been no change in our internal control overfinancial reporting during 2005 that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

**ITEM 16. (Reserved)**

**ITEM 16A.**                                     FinancialExpert

Our audit committee consists of WilfridoCastillo Sánchez-Mejorada (Chairman), Z. Jamie Behar, and Edward Lowenthal. Ourboard of directors has determined that Mr. Castillo has the attributes of an“audit committee financial expert” as defined by the SEC and that each memberof the audit committee satisfies the financial literacy requirements of the NewYork Stock Exchange. Our board of directors have also determined that Mr.Castillo is independent as that term is defined in the listing rules of the NewYork Stock Exchange.

**ITEM 16B.**                                     Code of Ethics

We have adopteda code of ethics, as defined in Item 16B of Form 20-F under theSecurities Exchange Act of 1934, as amended. Our code of ethics applies to ourChief Executive Officer, Chief Financial Officer and persons performing similarfunctions as well as to our directors and other officers and employees. Ourcode of ethics is available on our web site at www.homex.com.mx. If we amendthe provisions of our code of ethics that apply to our Chief Executive Officer,Chief Financial Officer and persons performing similar functions, or if wegrant any waiver of such provisions, we will disclose such amendment or waiveron our web site at the same address.

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### **ITEM16C.****                                    ****Principal Accountant Fees and Services**

**Audit and Non-Audit Fees**

The followingtable summarizes the aggregate fees billed to us by Galaz, Yamazaki, RuizUrquiza, S.C., a member of Deloitte Touche Tohmatsu and an independentregistered public accounting firm, during the fiscal years ended December 31,2004 and 2005:
|                     | ** ** | **Year ended December 31,**      | ** ** |
|---------------------|------------|-------------------------------------------------|------------|
| ** **          | ** ** | **2005**                                        | ** ** | **2004** | ** ** |
| ** **          | ** ** | **(thousands of Mexican pesos)** | ** ** |
| Audit fees          |       | 7,394                                           |       | Ps.          4,778 |   |
| Audit-related  fees |       | 1,765                                           |       | 563 |   |
| Tax fees            |       | 4,618                                           |       | 6,340 |   |
| All other fees      |       | 4,042                                           |       | 22 |   |
| Total fees          |       | 17,820                                          |       | Ps.       11,703 |   |

 

*Audit fees*. Audit fees in the above table are the aggregate feesbilled by Galaz, Yamazaki, Ruiz Urquiza, S.C., a member of Deloitte ToucheTohmatsu and an independent public registered public accounting firm, inconnection with the audit of our annual financial statements and statutory andregulatory audits.

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*Audit-related Fees*. Audit-related fees in the abovetable are the aggregate fees billed by Galaz, Yamazaki, Ruiz Urquiza, S.C., amember of Deloitte Touche Tohmatsu and an independent registered publicaccounting firm, for financial accounting, reporting consultations andassistance in connection with our initial public offering.

*Tax Fees*. Tax fees in the above table are fees billed by Galaz,Yamazaki, Ruiz Urquiza, S.C., a member of Deloitte Touche Tohmatsu and anindependent registered public accounting firm, for services based upon existingfacts and prior transactions in order to document, compute, and obtaingovernment approval for amounts included in tax filings such as value-added taxreturn assistance, transfer pricing documentation and requests for technicaladvice from taxing authorities.

*Other Fees*. Other fees in the above table are fees billed by Galaz,Yamazaki, Ruiz Urquiza, S.C., a member of Deloitte Touche Tohmatsu and anindependent registered public accounting firm, for non-audit services. As apercentage of total fees billed to us, other fees represent 0.2% and 23% for2004 and 2005, respectively.

**Audit Committee Pre-Approval Policies and Procedures**

We have adopted pre-approval policies and procedures under whichall audit and non-audit services provided by our external auditors must bepre-approved by the audit committee. Any service proposals submitted byexternal auditors need to be discussed and approved by the audit committeeduring its meetings, which take place at least four times a year. Once theproposed service is approved, we or our subsidiaries formalize the engagementof services. The approval of any audit and non-audit services to be provided byour external auditors is specified in the minutes of our audit committee. Inaddition, the members of our board of directors are briefed on mattersdiscussed in the meetings of the audit committee.

## **ITEM 16D.****            ****Exemptions from the Listing Standards for Audit Committees**.

Not Applicable.

## **ITEM 16E.****              ****Purchases of Equity Securities by the Issuer and Affiliated Purchasers**

Not Applicable.

# **PART III**

## **ITEM 17.****                     ****Financial Statements.**

Not Applicable.

## **ITEM 18.****                     ****Financial Statements.**

See pages F-1through F-61, incorporated herein by reference.

## **ITEM 19.****                     ****Exhibits.**

| Exhibit No. | ** ** | ** **                                                                                                                                                                                                                                                                                         |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1(1)        |       | Our articles of incorporation (estatutos sociales)  as amended through March 30, 1998, together with an English translation.*                                                                                                                                                                      |
|        |       |                                                                                                                                                                                                                                                                                               |
| 1(2)        |       | Our bylaws (estatutos sociales) as amended through  June 28, 2006, together with an English translation.                                                                                                                                                                                           |
|        |       |                                                                                                                                                                                                                                                                                               |
| 2(a)(1)     |       | Form of Deposit Agreement, as amended, by and among  us, JPMorgan Chase Bank as Depositary and the Holders and Beneficial Holders  from time to time of American Depositary Shares evidenced by American  Depositary Receipts issued thereunder, including form of American Depositary  Receipt.** |

 

85

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| 2(b)(1)  |   | Indenture relating to 7.50% Senior Guaranteed Notes,  dated September 28, 2005 by and between us, as Issuer, and the Bank of New  York, as Trustee ***                                                                                                                               |
|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2(b)(2)  |   | Form of First Supplemental Indenture to the  Indenture Relating to the 7.50% Senior Guaranteed Exchange Notes, by and  between us, as Issuer, and the Bank of New York, as Trustee ****                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                 |
| 2(b)(3)  |   | Form of 7.50% Senior Guaranteed Exchange Note ****                                                                                                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                 |
| 2(b)(4)  |   | Registration Rights Agreement dated September 28,  2005 among us, Credit Suisse First Boston LLC and certain financial  institution named therein. ***                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                 |
| 2(b)(5)  |   | Form of Registration Rights Agreement by and among  us, Banco Santander Mexicano, S.A., as trustee of Trust No. F/10289,  for the benefit of the de Nicolás Family, Bermuda Trust Company Limited, as  trustee of ZN Mexico Trust, and EIP Investment Holdings, LLC.* |
|     |   |                                                                                                                                                                                                                                                                                 |
| 8        |   | List of Principal Subsidiaries.***                                                                                                                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                 |
| 12(a)(1) |   | CEO Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002, dated June 28, 2007.                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                 |
| 12(a)(2) |   | CFO Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002, dated June 28, 2007.                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                 |
| 13       |   | Officer Certifications pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002, dated June 28, 2007.                                                                                                                                                                         |

 

----

*                       Previously filed in Registration Statement on Form F-1/A(File No. 333-116257),  originallyfiled with the SEC on June 23, 2004. Incorporated herein by reference.

**                Previously filed in Registration Statement on Form F-6 (No.333-116278), originally filed with the SEC on June 8, 2004. Incorporatedherein by reference.

***         Previously filed in Registration Statement on Form F-4 (FileNo. 333-129100), originally filed with the SEC on October 18, 2005.Incorporated herein by reference.

****  Previouslyfiled in Registration Statement on Form F-4/A (File No. 333-129100),originally filed with the SEC on November 25, 2005. Incorporated herein byreference.

86

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**SIGNATURE**

The registrant, Desarrolladora Homex,S.A.B. de C.V., hereby certifies that it meets all of the requirements forfiling on Form 20-F/A and that ithas duly caused and authorized the undersigned to sign this annual report onits behalf.
|  |   | DESARROLLADORA HOMEX, S.A.B. de  C.V. |
|--|--------|---------------------------------------|

 
|                            |   | /s/ Alan  Castellanos Carmona |
|----------------------------|--------|-------------------------------|
|                       |   | Name:                         | Alan Castellanos  Carmona |
|                       |   | Title:                        | Chief Financial Officer |
|                       |   |                          |
|                       |   |                          |
| Dated: June 28,  2007 |   |                          |

 

87

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TABLE OF CONTENTS
| Report of Independent  Registered Public Accounting Firm                                                                             | F-1 |
|--------------------------------------------------------------------------------------------------------------------------------------|-----|
| Consolidated  Balance Sheets as of December 31, 2005 (As  Restated) and 2004                                                         | F-3 |
| Consolidated  Statements of Income for the years ended December 31, 2005 (As Restated),  2004 and 2003                               | F-4 |
| Consolidated  Statements of Changes in Stockholders’ Equity for the years ended December  31, 2005 (As Restated), 2004 and 2003 | F-5 |
| Consolidated  Statement of Changes in Financial Position for the years ended December 31, 2005 (As Restated), 2004 and 2003          | F-6 |
| Notes to  Consolidated Financial Statements for the years ended December 31, 2005 (As Restated), 2004 and 2003                       | F-8 |

 

88

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**Report of Independent Registered Public Accounting Firm to the Board ofDirectors and Stockholders of Desarrolladora Homex, S.A. de C.V. and Subsidiaries**

We have auditedthe accompanying consolidated balance sheets of Desarrolladora Homex, S.A. deC.V. and subsidiaries (the “Company”) as of December 31, 2005 (restated) and 2004, and the related consolidated statements of income,changes in stockholders’ equity and changes in financial position for  theyears ended December 31, 2005 (restated), 2004 and 2003 all expressed in thousands of Mexican pesos of purchasing powerof December 31, 2005. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.  

We conducted ouraudits in accordance with auditing standards generally accepted in Mexico andwith the standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion,such consolidated financial statements present fairly, in all materialrespects, the financial position of Desarrolladora Homex, S.A. de C.V. andsubsidiaries as of December 31, 2005 (restated) and 2004, andthe results of their operations, changes in their stockholders’ equity andchanges in their financial position for each of the three years in the periodended December 31, 2005 (restated), 2004 and 2003 in conformity with the accounting principles generally accepted inMexico.  

As mentioned inNote 3 to the consolidated financial statements, effective January 1, 2005 theCompany adopted the provisions of Bulletin B-7, “Business acquisitions”.On July 1, 2005 a subsidiary was acquired (see Note 2.d) utilizing the purchase method of accounting, under which theassets acquired and liabilities assumed are recorded at fair value, through theallocation of the acquisition cost of the subsidiary, and goodwill of Ps.677,871 thousand Mexican pesos (as restated) was determined. 

As explained in Note 2b, the accompanyingfinancial statements for the year ended December 31, 2005 have been restated.  

Accountingprinciples generally accepted in Mexico vary in certain significant respectsfrom accounting principles generally accepted in the Unites States of America.The application of the latter would have affected the determination ofconsolidated net income for theyears ended December 31, 2005 (restated), 2004 and 2003, and the determination of consolidated stockholders’ equity atDecember 31, 2005 (restated), 2004 and 2003 to the extentsummarized in Note 25 As discussed in Note 24 to the accompanying consolidated financialstatements, the reconciliation to US GAAP as of December 31, 2005 has beenrestated.  

F-1

----

Our audits alsocomprehended the translation of the Mexican peso amounts into U.S. dollaramounts and, in our opinion, such translation has been made in conformity withthe basis stated in Note 2. The translation of the financial statement amountsinto U.S. dollars and the translation of the financial statements into Englishhave been made solely for the convenience of readers in the United States ofAmerica.

Galaz, Yamazaki, Ruiz Urquiza, S.C.Member of Deloitte Touche Tohmatsu

C.P.C. Sergio Vargas VargasMexico City, MexicoApril 21, 2006(June 13, 2006 as to Notes 24, 25 and 27)

(April23, 2007 as to Notes 2b and June22, 2007 as to Note 24)   

F-2

----

**Desarrolladora Homex, S.A. de C.V. and Subsidiaries**

**ConsolidatedBalance SheetsAs of December 31, 2005 and 2004(In thousands of U.S. dollars($) and thousands of Mexican pesos (Ps.) of purchasing power of December 31,2005)**
| ** **                                                             | ** ** | **2005**                           | ** ** | **2005**                      | ** ** | **2004**   | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------|------------|-------------------------------|------------|------------|------------|
| ** **                                                             | ** ** | **(Convenience translation;** | ** ** | ** **                    | ** ** | ** ** | ** ** |
| ** **                                                             | ** ** | **Note 2.a)**                 | ** ** | ** **                    | ** ** | ** ** | ** ** |
| ** **                                                             | ** ** | **(As Restated see Note 2b)**      | ** ** | **(As Restated see Note 2b)** | ** ** | ** ** | ** ** |
| **Assets  **                                                      |       |                               |       |                          |       |       |       |
|                                                                   |       |                               |       |                          |       |       |       |
| Current assets:                                                        |       |                               |       |                          |       |       |       |
| Cash and  temporary investments (Note 4)                               |       | $                                  | 124,114    |                          | Ps.        | 1,318,776  |       | Ps. | 528,223 |   |
| Restricted cash  (Note 21)                                             |       | 29                                 |       | 311                           |       | 21,162     |       |
| Trade accounts  receivable, net (Note 5)                               |       | 523,006                            |       | 5,557,198                     |       | 3,276,464  |       |
| Inventories  (Notes 6 and 10)                                          |       | 330,970                            |       | 3,516,724                     |       | 2,154,963  |       |
| Other current  assets, net (Note 7)                                    |       | 16,773                             |       | 178,225                       |       | 107,707    |       |
| Total current  assets                                                  |       | 994,892                            |       | 10,571,234                    |       | 6,088,519  |       |
|                                                                   |       |                               |       |                          |       |       |       |
| Land held for future  development (Notes 6 and 10)                     |       | 167,996                            |       | 1,785,044                     |       | 520,853    |       |
| Restricted investments  (Note 20)                                      |       | —                             |       | —                        |       | 44,374     |       |
| Property and equipment,  net (Notes 8 and 10)                          |       | 43,370                             |       | 460,831                       |       | 259,838    |       |
| Goodwill (Note 2)                                                      |       | 63,796                             |       | 677,871                       |       | —     |       |
| Other assets (Note 9)                                                  |       | 57,827                             |       | 614,442                       |       | 87,459     |       |
|                                                                   |       |                               |       |                          |       |       |       |   |   |
| Total                                                                  |       | $                                  | 1,327,881  |                          | Ps.        | 14,109,422 |       | Ps. | 7,001,043 |   |
|                                                                   |       |                               |       |                          |       |       |       |
| **Liabilities and stockholders’  equity**                         | ** ** | ** **                         | ** ** | ** **                    | ** ** | ** ** | ** ** |
| ** **                                                             | ** ** | ** **                         | ** ** | ** **                    | ** ** | ** ** | ** ** |
| Current liabilities:                                                   |       |                               |       |                          |       |       |       |
| Current portion  of long-term debt (Note 10)                           |       | $                                  | 1,636      |                          | Ps.        | 17,386     |       | Ps. | 410,384 |   |
| Trade accounts  payable (Note 12)                                      |       | 283,001                            |       | 3,007,049                     |       | 1,714,376  |       |
| Advances from  customers                                               |       | 19,858                             |       | 210,998                       |       | 61,803     |       |
| Accrued expenses  and taxes other than income taxes                    |       | 24,121                             |       | 256,294                       |       | 68,532     |       |
| Income tax  payable                                                    |       | 9,322                              |       | 99,056                        |       | 359        |       |
| Employee  statutory profit sharing                                     |       | 1,898                              |       | 20,163                        |       | 2,048      |       |
| Total current  liabilities                                             |       | 339,836                            |       | 3,610,946                     |       | 2,257,502  |       |
|                                                                   |       |                               |       |                          |       |       |       |
| Long-term debt (Note  10)                                              |       | 315,014                            |       | 3,347,179                     |       | 186,233    |       |
|                                                                   |       |                               |       |                          |       |       |       |
| Employee retirement  obligations (Note 11)                             |       | 3,709                              |       | 39,415                        |       | —     |       |
|                                                                   |       |                               |       |                          |       |       |       |
| Deferred income taxes  and employee statutory profit sharing (Note 19) |       | 133,807                            |       | 1,421,763                     |       | 654,419    |       |
| Total  liabilities                                                     |       | 792,366                            |       | 8,419,303                     |       | 3,098,154  |       |
|                                                                   |       |                               |       |                          |       |       |       |
| Commitments and  contingencies (Notes 20 and 21)                       |       |                               |       |                          |       |       |       |
|                                                                   |       |                               |       |                          |       |       |       |
| Stockholders’ equity  (Note 13):                                  |       |                               |       |                          |       |       |       |
| Common stock                                                           |       | 46,027                             |       | 489,059                       |       | 224,378    |       |
| Additional  paid-in capital                                            |       | 285,938                            |       | 3,038,236                     |       | 2,303,130  |       |
| Retained  earnings                                                     |       | 184,337                            |       | 1,958,676                     |       | 1,148,991  |       |
| Excess in  restated stockholders’ equity                          |       | 29,445                             |       | 312,863                       |       | 321,073    |       |
| Initial  cumulative effect of deferred income taxes                    |       | (13,758                            | )          | (146,185                      | )          | (146,185   | )          |
| Majority  stockholders’ equity                                    |       | 531,989                            |       | 5,652,649                     |       | 3,851,387  |       |
| Minority  interest in consolidatedsubsidiaries                         |       | 3,526                              |       | 37,470                        |       | 51,502     |       |
| Total  stockholders’ equity                                       |       | 535,515                            |       | 5,690,119                     |       | 3,902,889  |       |
|                                                                   |       |                               |       |                          |       |       |       |
| Total                                                                  |       | $                                  | 1,327,881  |                          | Ps.        | 14,109,422 |       | Ps. | 7,001,043 |   |
|                                                                        |            |                                    |            |                               |            |            |            |  |  |  |  |  |  |  |

 

----

See accompanyingnotes to consolidated financial statements.

F-3

----

**Desarrolladora Homex, S.A. de C.V. andSubsidiaries**

**ConsolidatedStatements of IncomeFor the years ended December 31, 2005, 2004 and 2003(In thousands of U.S. dollars ($) and thousands of Mexican pesos (Ps.) ofpurchasing power of December 31, 2005, except share and per share data)**
| ** **                                                        | ** ** | **2005**                         | ** ** | **2005**                        | ** ** | **2004**      | ** ** | **2003**            | ** **    |
|-------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|---------------|------------|---------------------|---------------|
| ** **                                                        | ** ** | **(Convenience**                 | ** ** | ** **                      | ** ** | ** **    | ** ** | **(Note 2.e)** | ** **    |
| ** **                                                        | ** ** | **translation;  Note 2.a)** | ** ** | ** **                      | ** ** | ** **    | ** ** | ** **          | ** **    |
| ** **                                                        | ** ** | **(As Restated  see Note 2.b)**  | ** ** | **(As Restated  see Note 2.b)** | ** ** | ** **    | ** ** | ** **          | ** **    |
|                                                              |       |                             |       |                            |       |          |       |                |          |
| Revenues                                                          |       | $                                | 803,366    |                            | Ps.        | 8,536,162     |       | Ps.                 | 5,491,294     |   | Ps. | 3,008,841 |   |
| Costs                                                             |       | 559,509                          |       | 5,945,061                       |       | 3,823,572     |       | 2,152,170           |          |
|                                                              |       |                             |       |                            |       |          |       |                |          |
| Gross profit                                                      |       | 243,857                          |       | 2,591,101                       |       | 1,667,722     |       | 856,671             |          |
|                                                              |       |                             |       |                            |       |          |       |                |          |
| Selling and  administrative expenses (Notes 15 and 16)            |       | 79,601                           |       | 845,799                         |       | 447,901       |       | 275,643             |          |
|                                                              |       |                             |       |                            |       |          |       |                |          |
| Income from  operations                                           |       | 164,256                          |       | 1,745,302                       |       | 1,219,821     |       | 581,028             |          |
|                                                              |       |                             |       |                            |       |          |       |                |          |
| Other income —  net (Note 17)                                |       | 2,205                            |       | 23,443                          |       | 44,473        |       | 80,454              |          |
|                                                              |       |                             |       |                            |       |          |       |                |          |
| Net  comprehensive financing cost:                                |       |                             |       |                            |       |          |       |                |          |
| Interest expense (Note 18)                                        |       | 39,445                           |       | 419,127                         |       | 136,633       |       | 121,678             |          |
| Interest income                                                   |       | (5,489                           | )          | (58,310                         | )          | (48,348       | )          | (6,732              | )             |
| Exchange loss (gain)                                              |       | 6,161                            |       | 65,461                          |       | (7,354        | )          | (1,349              | )             |
| Monetary position loss                                            |       | 2,944                            |       | 31,283                          |       | 84,017        |       | 18,237              |          |
|                                                              |       | 43,061                           |       | 457,561                         |       | 164,948       |       | 131,834             |          |
| Income before  income taxes and employee statutory profit sharing |       | 123,400                          |       | 1,311,184                       |       | 1,099,346     |       | 529,648             |          |
|                                                              |       |                             |       |                            |       |          |       |                |          |
| Income tax  expense (Note 19)                                     |       | 40,003                           |       | 425,048                         |       | 350,945       |       | 189,474             |          |
| Employee  statutory profit sharing expense (Note 19)              |       | 902                              |       | 9,590                           |       | 8,806         |       | 285                 |          |
|                                                              |       |                             |       |                            |       |          |       |                |          |
| Consolidated net  income                                          |       | $                                | 82,495     |                            | Ps.        |  876,546 |       | Ps.                 |  739,595 |   | Ps. |  339,889 |   |
|                                                              |       |                             |       |                            |       |          |       |                |          |
| Net income of  majority stockholders                              |       | $                                | 83,127     |                            | Ps.        | 883,262       |       | Ps.                 | 730,227       |   | Ps. | 334,410 |   |
| Net (loss)  income of minority stockholders                       |       | (632                             | )          | (6,716                          | )          | 9,368         |       | 5,479               |          |
|                                                              |       |                             |       |                            |       |          |       |                |          |
| Consolidated net  income                                          |       | $                                | 82,495     |                            | Ps.        | 876,546       |       | Ps.                 | 739,595       |   | Ps. | 339,889 |   |
|                                                              |       |                             |       |                            |       |          |       |                |          |
| Weighted average  shares outstanding (in thousands)               |       | 324,953                          |       | 324,953                         |       | 281,997       |       | 241,521             |          |
|                                                              |       |                             |       |                            |       |          |       |                |          |
| Earnings per share  (basic and diluted)                           |       | $                                | 0.26       |                            | Ps.        | 2.72          |       | Ps.                 | 2.59          |   | Ps. | 1.38 |   |
|                                                                   |            |                                  |            |                                 |            |               |            |                     |               |  |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to consolidatedfinancial statements.

F-4

----

**Desarrolladora Homex, S.A. de C.V. andSubsidiaries**

**ConsolidatedStatements of Changes in Stockholders’ EquityFor the years ended December 31, 2005, 2004 and 2003(In thousands of Mexican pesos (Ps.) of purchasing power of December 31, 2005)**
| ** **                                                   | ** ** | **Common  stock** | ** ** | **Additional  paid-in  capital** | ** ** | **Retained  earnings** | ** ** | **Excess in  restated  stockholders’  equity** | ** ** | **Initial  cumulative  effect of  deferred  income  taxes** | ** ** | **Minority  interest in  consolidated  subsidiaries** | ** ** | **Total  stockholders’  equity  (Note 13)** | ** ** |
|--------------------------------------------------------------|------------|-------------------|------------|----------------------------------|------------|------------------------|------------|----------------------------------------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **        | ** ** | ** **                       | ** ** | ** **             | ** ** | ** **                                               | ** ** | ** **                                                       | ** ** | ** **                                                 | ** ** | ** **                                            | ** ** |
| Balances as of  January 1, 2003 (Note 2.f)                   |       | Ps.               | 172,989    |                             | Ps.        | 541,293                |       | Ps.                                                      | 73,405     |                                                             | Ps.        | 321,073                                                    |       | Ps.                                                   | (146,185   | ) | Ps. | 5,397 |   | Ps. | 967,972 |   |
|                                                         |       |              |       |                             |       |                   |       |                                                     |       |                                                             |       |                                                       |       |                                                  |       |
| Issuance of common stock                                     |       | 6,081             |       | 60,469                           |       | —                 |       | —                                                   |       | —                                                           |       | 36,685                                                     |       | 103,235                                               |       |
|                                                         |       |              |       |                             |       |                   |       |                                                     |       |                                                             |       |                                                       |       |                                                  |       |
| Comprehensive income                                         |       | —            |       | —                           |       | 334,410                |       | —                                                   |       | —                                                           |       | 5,479                                                      |       | 339,889                                               |       |
|                                                         |       |              |       |                             |       |                   |       |                                                     |       |                                                             |       |                                                       |       |                                                  |       |
| Balances as of  December 31, 2003 (Note 2.f)                 |       | 179,070           |       | 601,762                          |       | 407,815                |       | 321,073                                                  |       | (146,185                                                         | )          | 47,561                                                     |       | 1,411,096                                             |       |
|                                                         |       |              |       |                             |       |                   |       |                                                     |       |                                                             |       |                                                       |       |                                                  |       |
| Issuance of common stock                                     |       | 45,308            |       | 1,701,368                        |       | —                 |       | —                                                   |       | —                                                           |       | 5,522                                                      |       | 1,752,198                                             |       |
|                                                         |       |              |       |                             |       |                   |       |                                                     |       |                                                             |       |                                                       |       |                                                  |       |
| Comprehensive income                                         |       | —            |       | —                           |       | 741,176                |       | —                                                   |       | —                                                           |       | (1,581                                                     | )          | 739,595                                               |       |
|                                                         |       |              |       |                             |       |                   |       |                                                     |       |                                                             |       |                                                       |       |                                                  |       |
| Balances as of  December 31, 2004                            |       | 224,378           |       | 2,303,130                        |       | 1,148,991              |       | 321,073                                                  |       | (146,185                                                         | )          | 51,502                                                     |       | 3,902,889                                             |       |
|                                                         |       |              |       |                             |       |                   |       |                                                     |       |                                                             |       |                                                       |       |                                                  |       |
| Issuance of common stock                                     |       | 264,681           |       | 735,106                          |       | —                 |       | —                                                   |       | —                                                           |       | —                                                     |       | 999,787                                               |       |
|                                                         |       |              |       |                             |       |                   |       |                                                     |       |                                                             |       |                                                       |       |                                                  |       |
| Minority dilution                                            |       | —            |       | —                           |       | —                 |       | —                                                   |       | —                                                           |       | (7,316                                                     | )          | (7,316                                                | )          |
|                                                         |       |              |       |                             |       |                   |       |                                                     |       |                                                             |       |                                                       |       |                                                  |       |
| Capital distribution from acquisition of minority  interest  |       | —            |       | —                           |       | (73,577                | )          | —                                                   |       | —                                                           |       | (73,577                                                    | )          |                                                  |       |
|                                                         |       |              |       |                             |       |                   |       |                                                     |       |                                                             |       |                                                       |       |                                                  |       |
| Reduction of equity for labor obligations                    |       | —            |       | —                           |       | —                 |       | (8,210                                                   | )          | —                                                           |       | —                                                     |       | (8,210                                                | )          |
|                                                         |       |              |       |                             |       |                   |       |                                                     |       |                                                             |       |                                                       |       |                                                  |       |
| Comprehensive  income (as restated Note 2.b)                 |       | —            |       | —                           |       | 883,262                |       | —                                                   |       | —                                                           |       | (6,716                                                     | )          | 876,546                                               |       |
| Balances as of December  31, 2005 (As restated see Note 2.b) |       | Ps.               | 489,059    |                             | Ps.        | 3,038,236              |       | Ps.                                                      | 1,958,676  |                                                             | Ps.        | 312,863                                                    |       | Ps.                                                   | (146,185   | ) | Ps. | 37,470 |   | Ps. | 5690,119 |   |
|                                                              |            |                   |            |                                  |            |                        |            |                                                          |            |                                                                  |            |                                                            |            |                                                       |            |  |  |  |  |  |  |  |  |

 

See accompanying notes to consolidatedfinancial statements.

F-5

----

**Desarrolladora Homex, S.A. de C.V. andSubsidiaries**

**ConsolidatedStatements of Changes in Financial PositionFor the years ended December 31, 2005, 2004 and 2003(In thousands of U.S. dollars ($) and thousands of Mexican pesos (Ps.) ofpurchasing power of December 31, 2005)**
| ** **                                         | ** ** | **2005**                         | ** ** | **2005**                        | ** ** | **2004**   | ** ** | **2003**            | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|------------|------------|---------------------|------------|
| ** **                                         | ** ** | **(Convenience**                 | ** ** | ** **                      | ** ** | ** ** | ** ** | **(Note 2.e)** | ** ** |
| ** **                                         | ** ** | **translation;  Note 2.a)** | ** ** | ** **                      | ** ** | ** ** | ** ** | ** **          | ** ** |
| ** **                                         | ** ** | **(As Restated  see Note 2.b)**  | ** ** | **(As Restated  see Note 2.b)** | ** ** | ** ** | ** ** | ** **          | ** ** |
| Operating  activities                              |       |                             |       |                            |       |       |       |                |       |
| Consolidated net income                            |       | $                                | 82,495     |                            | Ps.        | 876,546    |       | Ps.                 | 739,595    |   | Ps. | 339,889 |   |
| Add items that did not require resources:          |       |                             |       |                            |       |       |       |                |       |
| Depreciation                                       |       | 5,808                            |       | 61,711                          |       | 25,054     |       | 11,436              |       |
| Loss from sale of subsidiary                       |       | —                           |       | —                          |       | 1,180      |       | —              |       |
| Amortization of Beta trademark and backlog         |       | 15,251                           |       | 162,054                         |       | —     |       | —              |       |
| Deferred income taxes                              |       | 35,074                           |       | 372,687                         |       | 287,091    |       | 162,144             |       |
|                                               |       | 138,628                          |       | 1,472,998                       |       | 1,052,920  |       | 513,469             |       |
| Changes in  operating assets and liabilities:      |       |                             |       |                            |       |       |       |                |       |
| (Increase) decrease in:                            |       |                             |       |                            |       |       |       |                |       |
| Trade accounts receivable                          |       | (61,013                          | )          | (648,290                        | )          | (1,369,903 | )          | (594,395            | )          |
| Inventories and land held for future development   |       | (192,476                         | )          | (2,045,150                      | )          | (1,430,627 | )          | (863,329            | )          |
| Prepaid expenses                                   |       | (6,380                           | )          | (67,787                         | )          | (76,584    | )          | (562                | )          |
| Other assets                                       |       | (25,097                          | )          | (266,672                        | )          | (77,166    | )          | —              |       |
|                                               |       |                             |       |                            |       |       |       |                |       |
| Increase (decrease) in:                            |       |                             |       |                            |       |       |       |                |       |
| Trade accounts payable                             |       | 92,037                           |       | 977,940                         |       | 697,723    |       | 808,815             |       |
| Due to related parties                             |       | —                           |       | —                          |       | —     |       | 3,019               |       |
| Employee retirement obligations                    |       | 3,709                            |       | 39,415                          |       | —     |       | —              |       |
| Accrued expenses and taxes other than income taxes |       | 25,355                           |       | 269,410                         |       | —     |       | —              |       |
| Other liabilities                                  |       | 12,057                           |       | 128,111                         |       | 76,020     |       | (22,840             | )          |
| Net resources used in operating activities         |       | (13,180                          | )          | (140,025                        | )          | (1,127,617 | )          | (155,823            | )          |
|                                               |       |                             |       |                            |       |       |       |                |       |
| Financing  activities:                             |       |                             |       |                            |       |       |       |                |       |
| Proceeds from new borrowings                       |       | 365,060                          |       | 3,878,945                       |       | 418,006    |       | 524,918             |       |
| Payments of notes payable                          |       | (163,481                         | )          | (1,737,064                      | )          | (387,545   | )          | (227,904            | )          |
| Loans from related parties                         |       | —                           |       | —                          |       | 31,007     |       | 421,956             |       |
| Payments of related party loans                    |       | —                           |       | —                          |       | (180,104   | )          | (431,155            | )          |
| Reduction of equity due to labor obligations       |       | (773                             | )          | (8,210                          | )          | —     |       | —              |       |
| Proceeds from issuance of common stock             |       | 94,093                           |       | 999,787                         |       | 1,752,198  |       | 103,235             |       |
| Net resources  generated by financing activities   |       | 294,899                          |       | 3,133,458                       |       | 1,633,562  |       | 391,050             |       |
|                                                    |            |                                  |            |                                 |            |            |            |                     |            |  |  |  |  |

 

F-6

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| ** **                                         | ** ** | **2005**                                       | ** ** | **2005**                                       | ** ** | **2004**   | ** ** | **2003**            | ** ** |
|----------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|------------|------------|---------------------|------------|
| ** **                                         | ** ** | **(Convenience**                               | ** ** | ** **                                     | ** ** | ** ** | ** ** | **(Note 2.e)** | ** ** |
| ** **                                         | ** ** | **translation;  Note 2.a)**               | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** **          | ** ** |
| ** **                                         | ** ** | **(As Restated  see Note 2.b)** | ** ** | **(As Restated see  Note 2.b)** | ** ** | ** ** | ** ** | ** **          | ** ** |
| Investing  activities:                             |       |                                           |       |                                           |       |       |       |                |       |
| Restricted investments                             |       | 4,176                                          |       | 44,374                                         |       | (8,067     | )          | (36,306             | )          |
| Proceeds from sale of subsidiary                   |       | —                                         |       | —                                         |       | 49,716     |       | —              |       |
| Acquisition of property and equipment — net   |       | (14,094                                        | )          | (149,756                                       | )          | (225,716   | )          | (42,615             | )          |
| Acquisition of minority interest                   |       | (7,613                                         | )          | (80,892                                        | )          | —     |       | —              |       |
| Acquisition of BETA                                |       | (195,776                                       | )          | (2,080,222                                     | )          | —     |       | —              |       |
|                                               |       |                                           |       |                                           |       |       |       |                |       |
| Net resources used in investing activities         |       | (213,307                                       | )          | (2,266,496                                     | )          | (184,067   | )          | (78,921             | )          |
|                                               |       |                                           |       |                                           |       |       |       |                |       |
| Cash, temporary  investments and restricted cash:  |       |                                           |       |                                           |       |       |       |                |       |
| Net increase                                       |       | 68,412                                         |       | 726,937                                        |       | 321,878    |       | 156,306             |       |
| Cash held by subsidiary at the time of acquisition |       | 4,025                                          |       | 42,765                                         |       | —     |       | —              |       |
| Balance at beginning of year                       |       | 51,706                                         |       | 549,385                                        |       | 227,507    |       | 71,201              |       |
|                                               |       |                                           |       |                                           |       |       |       |                |       |
| Balance at end of year                             |       | $                                              | 124,143    |                                           | Ps.        | 1,319,087  |       | Ps.                 | 549,385    |   | Ps. | 227,507 |   |
|                                                    |            |                                                |            |                                                |            |            |            |                     |            |  |  |  |  |

 

See accompanying notes to consolidated financial statements.

F-7

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**Desarrolladora Homex, S.A. de C.V. andSubsidiaries**

**Notes to Consolidated Financial StatementsFor the years ended December 31, 2005, 2004 and 2003(In thousands of Mexican pesos (Ps.) of purchasing power of December 31, 2005)**

**1.         Nature of business**

Desarrolladora Homex, S.A. de C.V. andsubsidiaries (the “Company”) is a vertically integrated company engaged in thedevelopment, construction and sale of affordable entry level, middle income andupper-income housing in Mexico. The Company engages in land acquisition,constructing, marketing and selling homes, obtaining individual financing forits clients and developing communities to satisfy housing needs in Mexico.

The Company participates in housingsupply offers from the main housing funds in Mexico, such as the NationalWorkers’ Housing Fund, or INFONAVIT (Instituto Nacional del Fondo de Ahorropara la Vivienda de los Trabajadores), the Social Security and ServicesInstitute Public-Sector Workers’ Housing Fund, or FOVISSSTE (Fondo de laVivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadoresdel Estado) and the public mortgage providers such as the Federal MortgageSociety, or SHF (Sociedad Hipotecaria Federal). Additionally, the Companyparticipates in the middle-income housing market, where mortgage financing isprovided by commercial banks and *sofoles*, whichare special purpose financing entities that provide a substantial majority ofmortgage financing for the middle-income sector.

For the years ended December 31, 2005, 2004 and 2003,revenues obtained through INFONAVIT mortgage financing accounted for 61%, 36%,and 59%, respectively, of the Company’s total revenues for those years.

Operating cycle – The Company’soperations present a seasonal cycle: normally, the highest volume of salestakes place in the second half of the year. Construction times of real-estatedevelopments vary depending on the type of housing: entry-level, middle-incomeor upper-income; accordingly, construction revenues are recognized in differentfiscal years, and the revenues from work completed and generation of accountsreceivable fluctuate depending on the project construction starting date, andmay be cancelled in the subsequent period. 

**2.****                         ****Basis ofpresentation**

a.                             ***Explanationfor translation into English and convenience translation***– The accompanying consolidated financial statements have beentranslated from Spanish into English for use outside of Mexico. Theseconsolidated financial statements are presented on the basis of accountingprinciples generally accepted in Mexico (Mexican GAAP). 

The financialstatements are stated in Mexican pesos, the currency of the country in whichthe Company is incorporated and operates. The translations of Mexican pesoamounts into U.S. dollar amounts are included solely for the convenience ofreaders in the United States of America and have been made at the rate ofPs.10.6255 per one U.S. dollar, the noon buying rate of the Federal ReserveBank of New York on December 30, 2005. Such translations should not beconstrued as representations that the Mexican peso amounts have been, couldhave been, or could in the future, be converted into U.S. dollars at this orany other exchange rate.

***b.******                           ******Restatement of previously reported under MX GAAP*********

Subsequent to the issuance of its 2005consolidated financial statements, the Company identified various changes,mainly related to the purchase price allocation relating to the acquisition ofCasas Beta which occurred on July 1, 2005. The differences we identified, whichhave had an impact on our restated financial results included:  (i) the addition of the previouslyunrecognized deferred income tax liability associated with the intangible assetfor the Beta trademark; (ii) the addition of the previously unidentifiedintangible asset related to the value of the backlog of houses underconstruction as of the date of the Beta acquisition and the addition of thedeferred income tax liability associated with this backlog; and (iii) theaddition of the previously  

F-8

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unrecognized amortization ofthe intangible assets related to the Beta trademark and the backlog of housesunder construction from the date of the Beta acquisition to December 31, 2005and their related deferred income tax effects. The following table illustrates the effects of these adjustments on thepreviously reported amounts as of December 31, 2005 and the year then ended.
|                                                                    | ** ** | **Other Assets**(Intangibles) | ** ** | **Goodwill** | ** ** | **Deferred  Taxes Liab** | ** ** | **Majority Net  income** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------|------------|--------------|------------|-------------------------------|------------|-------------------------------|------------|
| As originally reported                                             |       | Ps.                                | 649,643    |         | Ps.        | 635,908                       |       | Ps.                           | 1,299,943  |   | Ps. | 998,320 |   |
| 1) Deferred tax effect  of  trademark                              |       |                               |       | 132,028      |       | 132,028                       |       |                          |       |
| 2) Backlog intangible                                              |       | 126,853                            |       | (90,065      | )          | 36,788                        |       |                          |       |
| 3) Amortization of  trademark  and backlog, net of deferred  taxes |       | (162,054                           | )          |         |       | (46,996                       | )          | (115,058                      | )          |
| As restated                                                        |       | Ps.                                | 614,442    |         | Ps.        | 677,871                       |       | Ps.                           | 1,421,763  |   | Ps. | 883,262 |   |

 

F-9

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c.                             ***Consolidationof financial statements*****–********The consolidated financialstatements include those of  Desarrolladora Homex, S.A. de C.V. and its subsidiaries, whoseshareholding percentage in their capital stock is shown below: 
|                                                                  | ** ** | **Ownership Percentage** | ** ** | ** ** |
|------------------------------------------------------------------|------------|-------------------------------|------------|------------|
| **Company**                                                      | ** ** | **2005**                      | ** ** | **2004**   | ** ** | **Activity** |
| Proyectos Inmobiliarios de Culiacán, S.A. de C.V.           |       | 100.00                        | %          | 100.00     | % | Promotion, design, construction and sale of  entry-level, middle-income and upper-income housing |
| Nacional Financiera, S.N.C. Fid.del Fideicomiso AAA  Homex 80284 |       | 100.00                        | %          | 100.00     | % | Rendering of financial services |
| Administradora Picsa, S.A. de C.V.                               |       | 100.00                        | %          | 100.00     | % | Rendering of administrative services and  professional services for affiliated companies |
| Altos Mandos de Negocios, S.A. de C.V.                           |       | 100.00                        | %          | 100.00     | % | Rendering of administrative services to affiliated  companies |
| Aerohomex, S.A. de C.V.                                          |       | 100.00                        | %          | 100.00     | % | Rendering of transportation services |
| Desarrolladora de Casas del Noroeste, S.A. de C.V.  (DECANO)     |       | 100.00                        | %          | 95.86      | % | Construction and development of housing complexes |
| Homex Atizapán, S.A. de C.V. 67.00%                         |       | 67.00                         | %          | 67.00      | % | Construction and development of housing complexes |
| Casas Beta del Centro, S.A. de C.V. (1)                          |       | 100.00                        | %          | —     |   | Promotion, design, construction and sale of  entry-level housing |
| Casas Beta del Norte, S.A. de C.V.                               |       | 100.00                        | %          | —     |   | Promotion, design, construction and sale of  entry-level housing |
| Casas Beta del Noroeste, S.A. de C.V.                            |       | 100.00                        | %          | —     |   | Promotion, design, construction and sale of  entry-level housing |
| Edificaciones Beta, S.A. de C.V. (2)                             |       | 100.00                        | %          | —     |   | Construction and design of housing |
| Edificaciones Beta del Noroeste, S.A. de C.V. (2)                |       | 100.00                        | %          | —     |   | Construction and design of housing |
| Edificaciones Beta del Norte, S.A. de C.V. (2)                   |       | 100.00                        | %          | —     |   | Construction and design of housing |

 

Significantintercompany balances and transactions have been eliminated in theseconsolidated financial statements.

----

(1) Casas Beta del Centro, S.A. de C.V. owns 100% of theoutstanding stock of Comercializadora Cántaros, S.A. de C.V. and Super AbastosCentrales y Comerciales, S.A. de C.V., which are engaged in the promotion,design, construction and sale of entry-level housing.

(2) To efficiently manage its operations, the Companydecided to reduce the number of subsidiaries. Therefore, these companies, as ofDecember 15, 2005, began a process of legal liquidation that entails thetransfer of all of their assets and liabilities, at book value, to othercompanies in the group.

d.                            ***Acquisitionof shares in Controladora Casas Beta, S.A. de C.V.******–*********On July 1, 2005, the Companyacquired 100% of the voting stock of Controladora Casas Beta, S.A. de C.V.(“BETA”), whose primary activity is the construction and sale of entry-levelhousing primarily in the Mexican states of Baja California, Nuevo León and theState of Mexico. The results of BETA’s operations starting July 1, 2005, havebeen included in the Company’s consolidated financial statements. Among themain reasons for the acquisition of BETA was that, prior to the acquisition,BETA was considered to be the sixth largest homebuilder in Mexico, in terms ofthe  

F-10

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number of unitssold. The acquisition of BETA is expected to significantly improve theCompany’s financial results and will strengthen its position in the domesticmarket, enhancing its presence in the three previously mentioned states, whichhave substantial housing markets where BETA has major constructiondevelopments. 

F-11

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The purchase price of BETA was 2.08 billion Mexican pesos(2.04 billion Mexican pesos at nominal value), and the acquisition included thecash purchase of 53% of the shares of BETA for 1.08 billion Mexican pesos (1.067 billion Mexican pesos at nominal value) and the purchase of theremaining 47% of the shares of BETA in exchange for 22,013,060 shares in theCompany with a value of 996 million pesos (977 million pesos at nominal value).Upon completion of the acquisition of BETA, it was merged with the Company. 

The condensed balance sheet of BETA on the acquisitiondate, adjusted for the assignment of the acquisition cost to the assets andliabilities assumed, was as follows:
|                                                | ** ** | **Balances as of  June 30, 2005** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                     | ** ** | **(As restated)**                                | ** ** |
| Current assets                                 |       | Ps.                                                   | 2,150,383  |   |
| Fixed assets,  net                             |       | 316,539                                               |       |
| Intangible asset  (BETA trademark and backlog) |       | 582,123                                               |       |
| Current  liabilities                           |       | (695,043                                              | )          |
| Long-term debt                                 |       | (868,822                                              | )          |
| Minority  interest                             |       | (82,829                                               | )          |
| Net assets  acquired                           |       | 1,402,351                                             |       |
| Cost of the  acquired entity                   |       | 2,080,222                                             |       |
|                                           |       |                                                  |       |
| Goodwill                                       |       | Ps.                                                   | 677,871    |   |

 

The intangible assets represent the valueassigned to the BETA trademark and backlog, Both intangibles were determined as part of the assessment performed by the Company toassign the purchase price to the assets acquired and the liabilities assumed. Backlog represents thehouses under construction at the date of the purchase of Casas Beta which areexpected to be sold in a subsequent period ranging between six and ninemonths.  The trademark  values was established by  independent appraisers and the backlog wasdetermined internally. 

The goodwill resulting from the acquisition of BETArepresents the benefit the Company expects to obtain from increasing itsposition in major housing markets in the State of Mexico and in the cities ofMonterrey and Tijuana, and expected future synergies from the combination ofthe businesses.

In the consolidated income statement for the Company forthe period from July 1, 2005 to December 31, 2005, BETA contributed netrevenues of Ps.1,981,082, operating income of Ps.596,763 and net income ofPs.358,453.

For the yearsended December 31, 2005 and 2004, proforma totalconsolidated revenues of the Company if Beta had been acquired on January1, 2004, are Ps.9,806,728and Ps.8,052,689, respectively; proforma operatingincome was Ps.2,111,252 and Ps.1,730,941, respectively; proforma net income was Ps.1,153,009and Ps.1,045,142, respectively; and basic and diluted earnings per share was Ps.3.54 and Ps.3.70, respectively. 

F-12

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e.                             ***Acquisitionof shares of Super Abastos Centrales y Comerciales, S.A. de C.V.***.  In February 2005, CasasBeta del Centro, S.A. de C.V. (“Beta del Centro”), a subsidiary of the Company,acquired 50% of the outstanding shares of Super Abastos Centrales yComerciales, S.A. de C.V. (“SACC”) in order to participate in a program ofentry-level housing construction in Mexico City. The excess cost of theacquired assets over their book value and the liabilities assumed totaledPs.12,204, which was identified and recorded in the inventory of thedevelopment project. With this percentage of stock acquired, under theagreements signed with SACC shareholders, Beta del Centro has a controllinginterest in SACC as of the acquisition date and consolidates SACC. 

On September 12, 2005, Beta del Centroacquired the remaining 50% of SACC’s outstanding shares. The excess cost of theshares acquired from minority owners totaled Ps.73,577, which was recorded as acapital distribution, since this was a transaction between common shareholders.

F-13

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f.                               ***Merger*****–** On May 16, 2004, Econoblock,S.A. de C.V. (affiliated company) merged with Desarrolladora de Casas delNoroeste, S.A. de C.V. (subsidiary company) with the latter assuming all therights and obligations of the merged company. As the companies were undercommon control, the merger was recorded by recognizing the assets andliabilities transferred at their carrying amounts in the accounts of thetransferring entity at the date of transfer, based on the guidance incorporatedin Statement of Financial Accounting Standards No. 141, “BusinessCombinations”, issued by the Financial Accounting Standards Board, and inaccordance with Bulletin A-8, “Supplemental Application of InternationalAccounting Standards” issued by the Mexican Institute of Public Accountants.Therefore, the accompanying financial statements include those of the mergedcompany as if the merger had taken place as of the beginning of the earliestperiod presented. This transaction resulted in a gain of Ps.10.949, which wasaccounted for as an increase in retained earnings. 

g.                            ***Saleof subsidiary*****–** In May 2004, the subsidiary Homex Cuautitlán, S.A. de C.V. wassold, generating a loss of Ps.1,180. 

h.                            ***Comprehensiveincome***– Represents changes instockholders’ equity during the year, for concepts other than distributions andactivity in contributed common stock, and is comprised of the net income of theyear, plus other comprehensive income (loss) items of the same period, whichare presented directly in stockholders’ equity without affecting theconsolidated statements of income. In 2005, 2004 and 2003, there were no othercomprehensive income or loss items. 

F-14

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**3.****                         ****Summary ofsignificant accounting policies**

The accountingpolicies followed by the Company are in conformity with Mexican GAAP, whichrequire that management make certain estimates and use certain assumptions thataffect the amounts reported in the consolidated financial statements and theaccompanying notes. Although these estimates are based on management’s bestknowledge of current events, actual results may differ. The significantaccounting policies of the Company are as follows:

a.            ***New accounting  policies:***

***Business acquisitions***  – As of January 1, 2005, the Company adopted theprovisions of Bulletin B-7, “Business Acquisitions”. Bulletin B-7provides rules for the accounting treatment of business acquisitions andinvestments in associated entities. It establishes, among others, that a) theadoption of the purchase method as the sole valuation rule for thesetransactions; b) goodwill arising from an acquired entity should not beamortized, but should be subject to impairment tests, at least on an annualbasis in conformity with Bulletin C-15, “Accounting for Impairment andDisposal of Long-lived Assets”; and******c) anyunamortized excess of recorded value over cost of subsidiaries and associatedcompanies should be immediately considered in the year’s results. It alsoprovides rules for the accounting treatment of asset transfers or shareexchanges between entities under common control and for the acquisition ofminority interest, the effects of which are recorded in stockholders’ equity. 

***Severance payments –***Effective January 1, 2005, the Company adopted the revised provisions toBulletin D-3, “Labor Obligations”, related to the recognition of theliability for severance payments for reasons other than restructuring, which isrecorded using the projected unit credit method, based on calculations byindependent actuaries. Bulletin D-3 grants the option to immediatelyrecognize, in current earnings, the resulting transition asset or liability, orto amortize it over the average remaining labor life of employees. ThroughDecember 31, 2004, severance payments were charged to results when theliability was determined to be payable. The accrued liability as of January 1,2005 calculated by independent actuaries is Ps.21,268. The Company chose torecord such amount as a transition liability to be amortized using thestraight-line method over 12 years, which represents the average labor life ofemployees expected to receive such benefits. 

F-15

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b.                              ***Recognitionof the effects of inflation –*** The Companyrestates its consolidated financial statements to Mexican peso purchasing powerof the most recent balance sheet date presented. Accordingly, the consolidatedfinancial statements of the prior years, that are presented for comparativepurposes, have also been restated to Mexican pesos of the same purchasing powerand, therefore, differ from those originally reported in the prior year.Recognition of the effects of inflation results mainly in inflationary gains orlosses on nonmonetary and monetary items that are presented in the financialstatements under the following two line items: 

***Excess in restatedstockholders’ equity –*** Excess inrestated stockholders’ equity represents the accumulated monetary positionresult through the initial restatement of the consolidated financial statementsand the gain from holding nonmonetary assets through December 31, 1996, whichresulted from restating certain nonmonetary assets above inflation utilizingappraisal values. 

***Monetary position result –*** Monetary position result, whichrepresents the erosion of purchasing power of monetary items caused byinflation, is calculated by applying National Consumer Price Index (“NCPI”)factors to the monthly net monetary position. Losses result from maintaining anet monetary asset position. 

c.                             ***Temporaryinvestments******–***Temporary investments representing cash equivalents are stated at the lower ofacquisition cost plus accrued yields, or estimated net realizable value. 

d.                            ***Inventoriesand costs of sales******–*** Finished construction,construction-in-process and land for development are recorded at acquisitioncost and restated using the NCPI. Cost of sales is also restated by applyingsuch index. 

Land for futuredevelopments refers to land reserves yet to be developed by the Company. Landfor future development is recorded at acquisition cost and is restated byapplying factors derived from the NCPI.

e.                        ***Propertyand equipment***– Property and equipment areinitially recorded at acquisition cost and restated using the NCPI.Depreciation is calculated using the straight-line method based on theremaining useful lives of the related assets, as follows: 
|                                 | ** ** | **Years**  | ** ** |
|---------------------------------|------------|------------|------------|
| ** **                      | ** ** | **2005**   | ** ** | **2004** | ** ** |
| ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Buildings                       |       | 20         |       | 20 |   |
| Machinery and  equipment        |       | 4 and 10   |       | 4 and 10 |   |
| Transportation  equipment       |       | 4          |       | 4 |   |
| Air transportation  equipment   |       | 10         |       | — |   |
| Office furniture  and equipment |       | 10         |       | 10 |   |
| Computers                       |       | 4          |       | 4 |   |
| Communication equipment         |       | 4          |       | 4 |   |

 

f.                               ***Goodwill******–*** Goodwillrepresents the excess of cost over recorded value of subsidiaries as of thedate of acquisition. It is restated using the NCPI and at least once a year, issubject to impairment tests. 

g.                            ***Impairmentof long-lived assets in use******–*** The Company reviews the carryingamounts of long-lived assets in use when an impairment indicator suggests thatsuch amounts might not be recoverable, considering the greater of the presentvalue of future net cash flows using an appropriate discount rate, or the netsales price upon disposal. Impairment is recorded when the carrying amountsexceed the greater of the amounts mentioned above. The impairment indicatorsconsidered for these purposes are, among others, the operating losses ornegative cash flows in the period if they are combined with a history orprojection of losses, depreciation and amortization charged to results, whichin percentage terms in relation to revenues are substantially higher than thatof previous years, obsolescence, reduction in the demand for the productsmanufactured, competition and other legal and economic factors. 

F-16

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h.                            ***Derivativefinancial instruments –***The Companyvalues all of its derivatives at fair value in the balance sheet, regardless ofthe purpose for holding them, based on market prices for derivatives traded onrecognized markets, and based on technical determinations of their fair value,estimated by means of technical valuation models, supported by sufficient,reliable and demonstrable information. The fair value is recorded on thebalance sheet as an asset or liability, according to the rights or obligationsstemming from the related derivative contract. 

Whentransactions meet all hedging requirements, the Company designates derivativesas hedging financial instruments at the start of the hedging relationship. Forfair value hedges, the Company recognizes any changes in value both of thederivative and the open risk position in the results of the period in which thechange occurs. For cash flow hedges, the effective portion is recognizedtemporarily under comprehensive income within stockholders’ equity and issubsequently reclassified to current earnings at the same time it is affectedby the hedged item. The ineffective portion is immediately recognized incurrent earnings, regardless of whether the derivative instrument is designatedas a fair value hedge or a cash flow hedge.

The Company usesforeign currency forward contracts to manage its exposure to foreign currencyfluctuations. As a policy, the Company does not carry out derivativetransactions of a speculative nature.

While certainderivative financial instruments are contracted for hedging from an economicpoint of view, they are not designated as hedges because they do not meet allof the requirements and are instead classified as trading for accountingpurposes. Changes in fair value are recognized in current earnings as acomponent of comprehensive financing cost.

F-17

----

i.                                ***Otherassets******–*** Thehousing development costs incurred that meet certain requirements and that the Company hasdetermined will have future economic benefits are capitalized and amortizedbased on the straight-line method over five years. Disbursements that do notmeet such requirements, as well as research costs, are recorded in results ofthe period in which they are incurred. Preoperating costs incurred are recordeddirectly to results of the period in which they are incurred. Debt issuancecosts are capitalized and restated by applying the NCPI. Amortization iscalculated using the straight-line method over the term of the loan. The valueassigned to the BETA trademark and backlog are restated byapplying the NCPI and amortized using the straight-line method over five years for thetrademark and between six and nine months for the backlog, which representtheir estimated useful lives. 

j.                                ***Employeeretirement obligations******–*** Seniority premiums and pensionplans, and beginning in 2005, severance payments, are recognized as costs overemployee years of service and are calculated by independent actuaries using theprojected unit credit method at net discount rates. Accordingly, the liabilityis being accrued which, at present value, will cover the obligation frombenefits projected to the estimated retirement date of the Company’s employees.

k.                             ***Businessacquisitions –*** All business acquisitions arerecognized and valued initially by the purchase method, which includes the cashdelivered or its fair value equivalent. 

l.                                ***Provisions******–***Provisions are recognized for current obligations that result from a pastevent, are probable to result in the use of economic resources, and can bereasonably estimated. 

m.                          ***Warranties******–*** TheCompany offers warranties against manufacturing defects in its housing for aperiod of two years, covering problems such as electrical installations,plumbing, gas, and waterproofing; and for ten years against hidden defects thataffect the safety of the homes (foundations and structure). The Company has aninsurance policy that covers these guarantees. 

n.                            ***Incometax, tax on assets and employee statutory profit sharing******–*** Incometax (ISR) and employee statutory profit sharing (PTU) are recorded in resultsof the year in which they are incurred. Deferred income tax assets andliabilities are recognized for temporary differences resulting from comparingthe book and tax values of assets and liabilities plus any future benefits fromtax loss carryforwards. Deferred ISR assets are reduced by any benefits aboutwhich there is uncertainty as to their realizability. Deferred PTU is derivedfrom temporary differences between the accounting result and income for PTUpurposes and is recognized only when it can be reasonably assumed that theywill generate a liability or benefit, and there is no indication thatcircumstances will change in such a way that the liabilities will not be paidor benefits will not be realized. 

F-18

----

The tax on assets paid that is expected to be recoverableis recorded as an advance payment of ISR and is presented in the balance sheetdecreasing the deferred ISR liability.

o.                            ***Foreigncurrency balances and transactions***– Foreigncurrency transactions are recorded at the applicable exchange rate in effect atthe transaction date. Monetary assets and liabilities denominated in foreigncurrency are translated into Mexican pesos at the applicable exchange rate ineffect at the balance sheet date. Exchange fluctuations are recorded as acomponent of net comprehensive financing cost (income) in the consolidatedstatements of income. 

p.                            ***Revenueand cost recognition***  —Revenues from the Company’s activities as a developer are recorded pursuant tothe percentage-of-completion method, measured by the percentage of actual costsincurred to total estimated costs for each development and each project. Underthis method, the estimated revenue for each development and project ismultiplied by such percentage to determine the amount of revenue to berecognized. Management periodically evaluates the fairness of estimates used todetermine percentage of completion. If, as a result of such evaluation, itbecomes apparent that estimated costs on non completed projects exceed expectedrevenues, a provision for estimated costs is recorder in the period in whichsuch costs are determined. The Company begins applying thepercentage-of-completion method when the following conditions have been met: 

·                               The homebuyerhas submitted all required documents in order to obtain the financing from themortgage lender;

·                               The Companyestablishes that the homebuyer will obtain the required financing from themortgage lender;

·                               The homebuyerhas signed a purchase agreement; and

·                               The homebuyerhas made a down payment, where down payments are required.

q.                            ***Earningsper share******–***Earnings per share is calculated by dividing net income of majority interest bythe weighted average number of shares outstanding during the year. The Companydoes not have any dilutive securities; therefore, basic and diluted earningsper share are the same. 

**4.****                         ****Cash andtemporary investments**
|                        | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|------------------------|------------|------------|------------|------------|------------|
| ** **             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash                   |       | Ps.        | 1,033,458  |       | Ps.        | 299,245 |   |
| Temporary  investments |       | 285,318    |       | 228,978    |       |
|                   |       | Ps.        | 1,318,776  |       | Ps.        | 528,223 |   |

 

F-19

----

**5.****                         ****Trade accounts receivable**
|                                                | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Due from  customers                            |       | Ps.        | 761,143    |       | Ps.        | 629,383 |   |
| Unbilled  revenues on developments in progress |       | 4,417,981  |       | 2,533,175  |       |
| Services                                       |       | 120,203    |       | 28,495     |       |
|                                           |       | 5,299,327  |       | 3,191,053  |       |
| Allowance for  doubtful accounts               |       | (26,888    | )          | (12,132    | )          |
|                                           |       | 5,272,439  |       | 3,178,921  |       |
| Other debtors                                  |       | 145,417    |       | 33,807     |       |
| Recoverable  value-added taxes                 |       | 169,470    |       | 83,953     |       |
|                                           |       | 5,587,326  |       | 3,296,681  |       |
| Trade accounts  receivable long-term (Note 9)  |       | (30,128    | )          | (20,217    | )          |
|                                           |       |       |       |       |       |
|                                           |       | Ps.        | 5,557,198  |       | Ps.        | 3,276,464 |   |

 

Unbilled revenues on developments in progress******represent revenues recognized oncosts incurred, in accordance with the percentage-of-completion method, whichhave not yet been billed.

The changes in the allowance for doubtful accounts are asfollows:
|                           | ** ** | **2005**  | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|---------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Initial balance           |       | Ps.12,132 |       | Ps. 6,635 |       | Ps. 5,259 |       |
| Provision for  the period |       | 14,756    |       | 5,497     |       | 1,376     |       |
| Ending balance            |       | Ps.26,888 |       | Ps.12,132 |       | Ps.6,635  |       |

 

**6.****                         ****Inventories**
|                                                 | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land held for  future developments              |       | Ps.        | 3,865,877  |       | Ps.        | 1,690,979 |   |
| Construction-in-process                         |       | 1,145,263  |       | 672,443    |       |
| Finished  construction                          |       | 3,158      |       | 3,264      |       |
| Construction  materials                         |       | 234,632    |       | 62,463     |       |
| Merchandise-in-transit                          |       | —     |       | 1,793      |       |
| Advances to  suppliers                          |       | 52,838     |       | 244,874    |       |
|                                            |       | 5,301,768  |       | 2,675,816  |       |
|                                            |       |       |       |       |       |
| Land for future  developments — noncurrent |       | (1,785,044 | )          | (520,853   | )          |
|                                            |       |       |       |       |       |
|                                            |       | Ps.        | 3,516,724  |       | Ps.        | 2,154,963 |   |

 

The Company’s policy is to locate and acquire land each year,classifying land currently being developed and land planned to be developedwithin the next year as a part of current assets, and classifying all remainingland as noncurrent assets.

F-20

----

**7.****        ****Other currentassets**
|                                                     | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-----------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sales  commissions                                  |       | Ps.142,107 |       | Ps. 62,411 |       |
| Commissions and  subscriptions pending amortization |       | 2,208      |       | 18,783     |       |
| Insurance and  bond contracts                       |       | 20,550     |       | 19,961     |       |
| Other                                               |       | 13,360     |       | 6,552      |       |
|                                                |       |       |       |       |       |
|                                                |       | Ps.        | 178,225    |       | Ps.        | 107,707 |   |
|                                                     |            |            |            |            |            |  |  |

F-21

----

**8.****            ****Property andequipment**
|                                 | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|---------------------------------|------------|------------|------------|------------|------------|
| ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Buildings                       |       | Ps.        | 23,887     |       | Ps.        | 16,153 |   |
| Machinery and  equipment        |       | 291,761    |       | 154,008    |       |
| Transportation  equipment       |       | 46,595     |       | 38,408     |       |
| Air  transportation equipment   |       | 35,038     |       | 35,038     |       |
| Office furniture  and equipment |       | 29,350     |       | 15,455     |       |
| Computers                       |       | 38,156     |       | 24,306     |       |
| Communication  equipment        |       | 10,691     |       | 7,191      |       |
| Construction-in-process         |       | 75,483     |       | 930        |       |
|                            |       | 550,961    |       | 291,489    |       |
| Accumulated  depreciation       |       | (118,375   | )          | (59,896    | )          |
|                            |       | 432,586    |       | 231,593    |       |
| Land                            |       | 28,245     |       | 28,245     |       |
|                            |       |       |       |       |       |
|                            |       | Ps.        | 460,831    |       | Ps.        | 259,838 |   |
|                                 |            |            |            |            |            |  |  |  |

 

**9.****            ****Other assets**
|                                                                           | ** ** | **2005**               | ** ** | **2004**   | ** ** |
|---------------------------------------------------------------------------|------------|------------------------|------------|------------|------------|
| ** **                                                                | ** ** | **(As restated)** | ** ** | ** ** | ** ** |
| ** **                                                                | ** ** | ** **             | ** ** | ** ** | ** ** |
| Net value of the “BETA” trademark  and net value for backlog    |       | Ps.                    | 420,069    |       | Ps.        | — |   |
| Accounts receivable from Proyectos y Servicios Alce  Blanco, S.A. de C.V. |       | 46,476                 |       | 48,038     |       |
| Trade accounts  receivable long-term (Note 5)                             |       | 30,128                 |       | 20,217     |       |
| Debt issuance  costs                                                      |       | 75,543                 |       | —     |       |
| Intangible asset  from employee retirement obligations                    |       | 23,272                 |       | —     |       |
| Investment in  associates                                                 |       | 2,369                  |       | —     |       |
| Other accounts  receivable                                                |       | 16,585                 |       | 19,204     |       |
|                                                                      |       |                   |       |       |       |
|                                                                      |       | Ps.                    | 614,442    |       | Ps.        | 87,459 |   |

 

F-22

----

**10.****         ****Long-term debt**
|                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Bonds  denominated in U.S. Dollars**                                                                                                                                                                                                                                                                                                                                       |       |     |       |     |       |
|                                                                                                                                                                                                                                                                                                                                                                         |       |     |       |     |       |
| **Bond  issuance (Senior Guaranteed Notes)**                                                                                                                                                                                                                                                                                                                                 |       |     |       |     |       |
| Bond issuance  (Senior guaranteed notes), guaranteed by PICSA, DECANO and other subsidiary  companies, for US$250 million, with a fixed annual interest rate of 7.5%,  payable on September 28, 2015. Interest is payable semiannually (1)                                                                                                                              |       | Ps.      | 2,656,375  |     | Ps.        | — |   |
|                                                                                                                                                                                                                                                                                                                                                                         |       |     |       |     |       |
| Derivative  financial instruments (SWAPS) (2)                                                                                                                                                                                                                                                                                                                                |       | 118,254  |       | —   |       |
|                                                                                                                                                                                                                                                                                                                                                                         |       |     |       |     |       |
| **Mexican Peso-Denominated Notes Payable**                                                                                                                                                                                                                                                                                                                                   |       |     |       |     |       |
| **HSBC México, S.A.**

A credit line of  Ps.1,081 million granted on July 1, 2005, with semiannual payments beginning  on March 14, 2008, maturing on September 14, 2010, bearing interest at the  Mexican Interbank Equilibrium Interest Rate (TIIE) plus 1%. Proceeds were  used to purchase BETA. In 2005, advance payments of Ps.540,500 were made on  this credit. |       | 540,500  |       | —   |       |
|                                                                                                                                                                                                                                                                                                                                                                              |            |          |            |          |            |  |  |

 

F-23

----

 
|                                                                                                                                                                                                                                                                 | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **GMAC Hipotecaria, S.A. de C.V.  **

Term loan secured by  land for development, payable on June 15, 2006, bearing interest at TIIE plus  2.5%. Paid in advance in 2005.                                                                                  |       | —     |       | 41,775     |       |
|                                                                                                                                                                                                                                                            |       |       |       |       |       |
| Term loan secured by  land for development, payable on April 15, 2006, bearing interest at TIIE  plus 2.5%. Paid in advance in 2005.                                                                                                                            |       | —     |       | 74,907     |       |
|                                                                                                                                                                                                                                                            |       |       |       |       |       |
| Term loan secured by  land for development, payable on June 25, 2006, bearing interest at TIIE plus  2.5%. Paid in advance in 2005.                                                                                                                             |       | —     |       | 29,155     |       |
|                                                                                                                                                                                                                                                            |       |       |       |       |       |
| **Commercial  Paper placed through:**                                                                                                                                                                                                                           |       |       |       |       |       |
|                                                                                                                                                                                                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| **IXE  Casa de Bolsa, S.A. de C.V.**

Promissory note issued  on November 17, 2003, renewable at maturity at an average annual rate of TIIE  plus 2.95% under a contract with IXE Casa de Bolsa, S.A. de C.V., maturing on  June 14, 2005.                      |       | —     |       | 118,761    |       |
|                                                                                                                                                                                                                                                            |       |       |       |       |       |
| **Multivalores  Casa de Bolsa, S.A. de C.V.**

Promissory note issued  on December 23, 2003, renewable at maturity at an average annual rate of TIIE  plus 2.7% under a contract with Multivalores Casa de Bolsa, S.A. de C.V.,  maturing on November 18, 2005. |       | —     |       | 258,401    |       |
|                                                                                                                                                                                                                                                            |       |       |       |       |       |
| **GE  Capital, S.A.**

Line of credit granted  by GE Capital to Aerohomex, S.A. de C.V., to purchase an executive jet for  US$2.3 million, on July 29, 2005, maturing on July 29, 2010, at an interest  rate of 7.4%.                                           |       | 23,316     |       | —     |       |
|                                                                                                                                                                                                                                                            |       |       |       |       |       |
| **Capital  lease obligations:**                                                                                                                                                                                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                                                                                                                                                                      |       |       |       |       |       |
| **Paccar  Arrendadora Financiera, S.A. de C.V.**

Capital lease  obligations for equipment with a net book value of Ps.11,591, payable on July  1, 2006.                                                                                                        |       | 8,851      |       | 11,023     |       |
|                                                                                                                                                                                                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Arrendadora  Financiera Navistar, S.A. de C.V.**

Capital lease  obligations for equipment with a net book value of Ps.23,603, payable on July  10, 2006. Paid in advance in 2005.                                                                            |       | —     |       | 25,268     |       |
|                                                                                                                                                                                                                                                            |       |       |       |       |       |
| Capital lease  obligations for equipment with a net book value of Ps.15,473, payable on July  10, 2006.                                                                                                                                                         |       | 1,683      |       | 16,566     |       |
|                                                                                                                                                                                                                                                            |       |       |       |       |       |
| Capital lease  obligations for machinery with an interest rate of 10.50%, maturing on July  10, 2007.                                                                                                                                                           |       | 2,611      |       | —     |       |
|                                                                                                                                                                                                                                                            |       |       |       |       |       |
| Capital lease  obligations for machinery with an interest rate of 6%, maturing on August 31,  2006.                                                                                                                                                             |       | 1,946      |       | —     |       |
|                                                                                                                                                                                                                                                            |       |       |       |       |       |
|                                                                                                                                                                                                                                                            |       | 3,353,536  |       | 575,856    |       |
| Less  current portion                                                                                                                                                                                                                                           |       | (17,386    | )          | (410,384   | )          |
|                                                                                                                                                                                                                                                            |       | 3,336,150  |       | 165,472    |       |
| Land  purchases — long-term (Note 12)                                                                                                                                                                                                                      |       | 11,029     |       | 20,761     |       |
|                                                                                                                                                                                                                                                            |       |       |       |       |       |
|                                                                                                                                                                                                                                                            |       | Ps.        | 3,347,179  |       | Ps.        | 186,233 |   |
|                                                                                                                                                                                                                                                                 |            |            |            |            |            |  |  |

 

F-24

----

The value of the inflation-indexed Investment Unit (UDI) asof December 31, 2005 and 2004 was Ps.3.6375 and Ps.3.534716, and the TIIE was8.54% and 8.95%, respectively. U.S. dollar-denominated debentures as ofDecember 31, 2005 were converted to Mexican pesos at the exchange rate ofPs.10.6255 per U.S. dollar.

----

(1)                        Covenants onloan contracts require the Company and its subsidiaries under guarantee to meetcertain obligations. These covenants cover changes in stock control,restrictions on taking on additional debt that does not meet certainrequirements established in the loan contracts, restrictions on the sale ofassets and the sale of capital stock in subsidiaries, unless they meet certainrequirements, restricted payments where dividends cannot be paid or capitalreimbursed to stockholders unless they are made between the guarantorsubsidiaries. In addition, the Company cannot pledge any of its assets orproperties to guarantee any additional debt.

(2)                        In order toconvert the principal of the U.S. dollar bonds to Mexican pesos, in September2005 the Company entered into two “Principal Only Swaps” with a notional valueof US$250 million, which entitles the Company to receive this amount in 2015 inreturn for a payment in Mexican pesos at a fixed exchange rate of Ps.10.83 perdollar. As part of the derivatives structure, the Company will pay interest of2.92% a year on the total notional amount in U.S. dollars, in semiannualpayments. The transaction is an economic hedge, but because it does not meetcurrent hedge accounting requirements, it was classified and recorded as atrading derivative. As of December 31, 2005, the fair value of this derivativewas Ps.118,254 (US$11.1 million), which represents the estimated present valueof future cash flows to be paid out by the Company.

As of December31, 2005, long-term debt matures as follows:
| 2007                                          |   | Ps.       | 18,549    |   |
|-----------------------------------------------|--------|-----------|-----------|--------|
| 2008                                          |   | 4,909     |      |
| 2009                                          |   | 185,076   |      |
| 2010                                          |   | 364,013   |      |
| Thereafter                                    |   | 2,774,632 |      |
|                                          |   | 3,347,179 |      |
| Less —  Derivative financial instruments |   | (118,254  | )         |
|                                          |   |      |      |
|                                          |   | Ps.       | 3,228,925 |   |

 

F-25

----

**11.****         ****Employeeretirement obligations**

The Company hasa plan for covering seniority premiums which consist of a lump sum payment of12 days’ wages for each year worked, calculated using the most recent salary,not to exceed twice the legal minimum wage established by law. Since 2005, theCompany has recognized a liability for personal severance pay. The relatedliability and annual cost of such benefits are calculated by an independentactuary on the basis of formulas defined in the plans using the projected unitcredit method.

F-26

----

As of December 31, 2005, the present values of theseobligations and the rate used for the calculations are:
| Accumulated benefit  obligation    |   | Ps.  (39,415            | )      |
|------------------------------------|--------|-----------------------------------|--------|
|                               |   |                              |   |
| Projected  benefit obligation      |   | Ps.  (44,931            | )      |
|                               |   |                              |   |
| Unrecognized  items:               |   |                              |   |
| Transition asset                   |   | 23,272                            |   |
| Non-recognized  actuarial losses   |   | 13,724                            |   |
| Net projected  liability           |   | (7,935                            | )      |
| Additional  liability              |   | (31,480                           | )      |
|                               |   | Ps.  (39,415            | )      |
|                               |   |                              |   |
| Net period cost                    |   | Ps.     7,935 |   |
| Contributions to  plan assets      |   | —                            |   |
|                               |   |                              |   |
| Real rate used in the  calculation |   | 3.30                              | %      |

 

**12.      Trade accounts payable**
|                                     | ** ** | **2005**                                 | ** ** | **2004**                     | ** ** |
|-------------------------------------|------------|------------------------------------------|------------|------------------------------|------------|
| ** **                          | ** ** | ** **                               | ** ** | ** **                   | ** ** |
| Suppliers                           |       | Ps. 1,185,289                            |       | Ps.  951,033            |       |
| Land purchases                      |       | 1,569,474                                |       | 775,724                      |       |
| Other                               |       | 263,315                                  |       | 8,380                        |       |
|                                |       | 3,018,078                                |       | 1,735,137                    |       |
| Less current  portion               |       | (3,007,049                               | )          | (1,714,376                   | )          |
|                                |       |                                     |       |                         |       |
| Land purchases  long-term (Note 10) |       | Ps.      11,029 |       | Ps.    20,761 |       |

 

The Company has lines of credit established for many of itssuppliers through a factoring program sponsored by Nacional Financiera(AAA-Homex, a non-bank financial intermediary trust with a revolving creditline for suppliers totaling Ps.260,000 with a guarantee fund of Ps.34,824 inthe investment account), and other financial institutions. This mechanismensures more timely payments to suppliers and reduces the need for furtherconstruction financing. As of December 31, 2005 and 2004, this factoringprogram encompassed approximately 1,000 suppliers and amounts of Ps.212,916 andPs.263,426, respectively, who’s financing was covered by the suppliersthemselves.

**13.****                  ****Stockholders’equity**

a.                             Common stock atpar value (historical pesos) as of December 31, is as follows:
|                | ** ** | **Number of Shares** | ** ** | **Amount**  | ** ** |
|----------------|------------|--------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2005**                       | ** ** | **2004**    | ** ** | **2005** | ** ** | **2004** | ** ** |
| Fixed capital: |       |                           |       |        |       |   |   |   |   |
| Sole series    |       | 335,869,550                    |       | 313,856,490 |       | Ps. 425,444 |   | Ps.  166,636 |   |

F-27

----

b.           Majority stockholders’ equityconsists of the following as of December 31, 2005 (As restated): 
| ** **                                          | ** ** | **Historical Amount**                            | ** ** | **Inflation Effects**               | ** ** | **Restated Amount**                  | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------|------------|
| Common stock                                        |       | Ps.        425,444 |       | Ps.      63,615 |       | Ps.      489,059 |       |
| Additional  paid-in capital                         |       | 2,807,076                                             |       | 231,160                                  |       | 3,038,236                                 |       |
| Retained  earnings                                  |       | 1,869,068                                             |       | 89,608                                   |       | 1,958,676                                 |       |
| Excess in  restated stockholders’ equity       |       |                                                  |       | 312,863                                  |       | 312,863                                   |       |
| Initial  cumulative effect of deferred income taxes |       | (116,956                                              | )          | (29,229                                  | )          | (146,185                                  | )          |
|                                                |       | Ps      4,984,632            |       | Ps.    668,017            |       | Ps.   5,652,649                 |       |

 

c.                                       Thestockholders’ general extraordinary meeting held on June 30, 2005 approved,among other resolutions, an increase in fixed capital derived from the mergerwith Controladora Casas Beta, S.A. de C.V. (see Note 2), for a total of22,013,060 common nominative single series shares at no-par value, which weredelivered to stockholders of the merged company as released stock in exchangefor the shares they owned in the merged company, which was canceled pursuant tosuch merger at a ratio of 134.7807 shares of the Company for every share of themerged company.  Accordingly, capitalstock increased by Ps.258,808, at par value, with a share subscription premiumof Ps.718,792 at par value, equivalent to Ps.264,681 and Ps.735,106 constantMexican pesos, respectively.

d.                                      At astockholders’ general ordinary meeting held on June 1, 2004, among others,resolutions were approved to convert the 256,666,490 shares of series “B”, subseries B1, B2 and B3, representing the Company’s variable capital, currentlyoutstanding, for the same number of ordinary, nominative shares, at no parvalue, representing the Company’s fixed capital without right of withdrawal byissuing 64,220,000 ordinary nominative shares at no par value, which may befreely subscribed, and will be made available in a placement through a primaryoffering of shares and ADR’S issued based on common stock shares;

At the sametime, a resolution was approved whereby the Company’s Board of Directors willbe empowered to determine the amount of the Company’s common stock as a resultof the offering, and then make the respective amendments to the corporatebylaws and the resulting cancellation of any shares issued, which were notplaced among public investors.

e.                                       A meeting ofthe Board of Directors of Desarrolladora Homex, S.A. de C. V. approved aresolution, among others, to increase common stock by Ps.40,792 (Ps.38,257historical pesos) to the amount of Ps.166,636, which is represented by 313,856,490shares. Consequently, the board approved the cancellation of 7,130,000 shares,which were issued by the stockholders’ ordinary and extraordinary meeting heldon June 1, 2004, which were not available for subscription in the publicoffering. Furthermore, it was agreed to modify the first paragraph of articlesix of the corporate bylaws to reflect the following:

Article Six.Common stock is variable. Fixed capital without right of withdrawal isPs.166,636 and will be represented by 313,856,490 ordinary, nominative shares,at no par value, fully subscribed and paid in, of a single series ( ̈singleseries ̈). The variable portion of common stock is unlimited and will berepresented by ordinary, nominative shares at no par value, of the singleseries. Except for the right of withdrawal to which the holders of sharesrepresenting the variable part of common stock are entitled, all common stockshares confer the same rights and obligations.

f.                                         At a meeting ofthe Board of Directors held on July 22, 2004, it was agreed that the totalnumber of the Company’s outstanding common shares after the public offering is313,856,490 shares, and a resolution was approved to increase common stock bythe amount resulting from decreasing the total proceeds from the placement bythe expenses incurred in relation to the public offering, and the amountapplicable to additional paid in capital.

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g.                                      Pursuant to aresolution of the general ordinary stockholders’ meeting on May 26, 2004,variable common stock was increased by 8,481,673 no-par value Series B, SubSeries B1 shares for Ps.4,516 (Ps. 4,236 historical pesos) through cashcontributions. Shares were paid at Ps.0.49942646 each.

h.                                      Retainedearnings include the statutory legal reserve. The General Corporate Lawrequires that at least 5% of net income of the year be transferred to the legalreserve until the reserve equals 20% of capital stock at par value (historicalpesos). The legal reserve may be capitalized but may not be distributed unlessthe entity is dissolved. The legal reserve must be replenished if it is reducedfor any reason.

i.                                          Stockholders’equity, except restated paid-in capital and tax retained earnings, will besubject to income tax at the rate in effect when the dividend is distributed.In 2005 and 2004, the ISR rate was 30% and 33%, respectively; it will decreaseto 29% in 2006 and 28% in 2007 and thereafter. Any tax paid on suchdistribution, may be credited against the income tax payable of the year inwhich the tax on the dividend is paid and the two fiscal years following suchpayment.

j.                                          The balances ofthe stockholders’ equity tax account as of December 31 are:
|                              | ** ** | **2005**                             | ** ** | **2004**                  | ** ** |
|------------------------------|------------|--------------------------------------|------------|---------------------------|------------|
| Contributed  capital account |       | Ps.    3,527,295 |       | Ps.   2,527,508 |       |

 

**14.****                              ****Foreigncurrency balances and transactions**

a.                                       At December 31,the foreign currency monetary position is as follows:
|                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| **Thousands  of U.S. dollars:**  |       |     |       |     |       |
| Monetary assets                  |       | $        | 167        |     | $          | 1,458 |   |
| Monetary liabilities             |       | (341,360 | )          | (10,623  | )          |
|                             |       |     |       |     |       |
| Monetary liability position, net |       | $        | (341,193   | )        | $          | (9,165 | ) |
|                             |       |     |       |     |       |
| Equivalent in  Mexican pesos     |       | Ps.      | (3,625,346 | )        | Ps.        | (102,190 | ) |
|                                  |            |          |            |          |            |  |  |  |  |

 

b.                Nonmonetary assets of foreignorigin at December 31, 2005 are as follows:
|                               | ** ** | **Currency** | ** ** | **Foreign Currency  Balance (in thousands)** | ** ** | **Equivalent in  Mexican Pesos** | ** **                                                 |
|-------------------------------|------------|--------------|------------|-------------------------------------------------------------|------------|--------------------------------------------|------------------------------------------------------------|
| Air  transportation equipment |       | U.S. dollars |       | $                                                           | 3,040      |                                       | Ps.         32,015 |   |
|                               |            |              |            |                                                             |            |                                            |                                                            |  |

 

c.                                       The exchangerates in effect at the dates of the consolidated balance sheets and of issuanceof the consolidated financial statements were as follows:
|             | ** ** | **December 31,** | ** ** | **April 21,** | ** ** |
|-------------|------------|-----------------------|------------|--------------------|------------|
| ** **  | ** ** | **2005**              | ** ** | **2004**           | ** ** | **2003** | ** ** | **2006** | ** ** |
| U.S. dollar |       | 10.6255               |       | 11.15              |       | 11.24 |   | 10.9910 |   |

 

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**15.****                              ****Transactionswith related parties**

a.                                       Transactionswith related parties, carried out in the ordinary course of business, were asfollows:
|                  | ** ** | **2005**             | ** ** | **2004**                    | ** ** | **2003**                    | ** ** |
|------------------|------------|----------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Interest expense |       | Ps.  6,212 |       | Ps.   17,564 |       | Ps.   17,559 |       |

*** ***

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***b.***                            The Company is a party to anadministrative service agreement with two entities whose principal owners areofficers of the Company. The amounts paid for those services totaled Ps.48,139,Ps.48,630 and Ps.52,304 in 2005, 2004 and 2003, respectively.

**16.****                              ****Selling andadministrative expenses**

| ** **     | ** ** | **2005**                     | ** ** | **2004**                     | ** ** | **2003**                     | ** ** |
|----------------|------------|------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **     | ** ** | **(As restated)**       | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Administrative |       | Ps.   366,968 |       | Ps.   241,428 |       | Ps.   186,428 |       |
| Selling        |       | 478,831                      |       | 206,473                      |       | 89,215                       |       |
|           |       | Ps.   845,799 |       | Ps.   447,901 |       | Ps.   275,643 |       |

 

**17.****      ****Other income**

|                    | ** ** | **2005**                                                                    | ** ** | **2004**                                | ** ** | **2003**                                | ** ** |
|--------------------|------------|-----------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| Recovery of  taxes |       | Ps.           — |       | Ps.     35,774 |       | Ps.     75,749 |       |
| Other income,  net |       | 23,443                                                                      |       | 8,699                                   |       | 4,705                                   |       |
|               |       | Ps.    23,443                                           |       | Ps.     44,473 |       | Ps.     80,454 |       |

 

**18.****                              ****Interestexpense**

|                                 | ** ** | **2005**                                       | ** ** | **2004**                                       | ** ** | **2003**                                                  | ** ** |
|---------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Interest expense                |       | Ps.      356,682 |       | Ps.      104,584 |       | Ps.        73,087 |       |
| Commissions and financing costs |       | 62,445                                         |       | 32,049                                         |       | 48,591                                                    |       |
|                            |       | Ps.      419,127 |       | Ps.      136,633 |       | Ps.      121,678            |       |

 

**19.****                              ****Income taxes,tax on assets and employee statutory profit sharing**

In accordancewith Mexican tax law, the Company is subject to income tax (ISR) and tax on assets(IMPAC). ISR is computed taking into consideration the taxable and deductibleeffects of inflation, such as depreciation calculated on restated asset values.Taxable income is increased or reduced by the effects of inflation on certainmonetary assets and liabilities through the inflationary component, which issimilar to the gain or loss from monetary position.

On December 1,2004 certain amendments to the ISR and IMPAC laws were enacted and wereeffective in 2005. The most significant amendments were as follows: a) the ISRrate was reduced to 30% in 2005 and will be further reduced to 29% in 2006 and28% in 2007 and thereafter (the rate in 2004 was 33%); b) for income taxpurposes, cost of sales is deducted instead of inventory purchases and relatedconversion costs; c) taxpayers had the ability to elect, in 2005, to ratablyincrease taxable income over a period from 4 to 12 years by the tax basis ofinventories as of December 31, 2004 determined in conformity with therespective tax rules; when electing to amortize the tax basis of inventoriesinto taxable income, any remaining tax balance of inventories that had not beendeducted and any unamortized tax loss carryforwards were deducted from the taxbasis of the December 31, 2004 inventory balance; as a consequence, cost ofsales of such inventories were deducted; d) as of 2006, employee statutoryprofit sharing paid will be fully deductible; and e) bank liabilities andliabilities with foreign entities are included to determine the IMPAC taxablebase.

IMPAC iscalculated by applying 1.8% on the net average of the majority of restatedassets less certain liabilities and is payable only to the extent that itexceeds ISR payable for the same period; any required payment of IMPAC iscreditable against the excess of ISR over IMPAC of the following ten years.

The Companyfiles ISR and IMPAC tax returns on an individual entity basis and the relatedtax results are combined in the consolidated financial statements.

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a.                                       ISR and PTUconsist of the following:

|                                                   | ** ** | **2005**                          | ** ** | **2004**                          | ** **                        | **2003**                                          | ** **                                        |
|--------------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------|-----------------------------------|---------------------------------------------------|---------------------------------------------------|
| ** **                                             | ** ** | **(As Restated)**            | ** ** | ** **                        | ** **                        | ** **                                        | ** **                                        |
| ISR:                                                   |       |                              |       |                              |                              |                                              |                                              |
| Current                                                |       | Ps.                               | 179,834    |                              | Ps.     2,411 |                                              | Ps.        232 |   |
| Deferred                                               |       | 258,060                           |       | 406,487                           |                              | 189,242                                           |                                              |
| Effect of reduction in statutory rate on deferred  ISR |       | (12,846                           | )          | (57,953                           | )                                 | —                                            |                                              |
|                                                   |       | Ps.                               | 425,048    |                              | Ps. 350,945                       |                                              | Ps. 189,474                                       |   |
|                                                   |       |                              |       |                              |                              |                                              |                                              |
| PTU:                                                   |       |                              |       |                              |                              |                                              |                                              |
| Current                                                |       | Ps.   11,958            |       | Ps.     1,603 |                              | Ps.        285 |                                              |
| Deferred                                               |       | (2,368                            | )          | 7,203                             |                              | —                                            |                                              |
|                                                   |       | Ps.     9,590 |       | Ps.     8,806 |                              | Ps.        285 |                                              |

 

To determinedeferred ISR at December 31, 2005 and 2004, the Company applied the differenttax rates that will be in effect beginning in 2006 and 2005, respectively, totemporary differences according to their estimated dates of reversal. Theresult derived from applying the different tax rates is shown in the income taxprovision table above and in the rate reconciliation table below under thecaption effect of reduction in statutory rate on deferred ISR. In addition, inaccordance with tax regulations in effect as of 2005, certain subsidiarieselected to amortize the tax inventory of Ps 394,019 at December 31, 2004 intotaxable income over a 6-year period beginning in 2005, based on inventoryturnover. Accordingly, the initial effect of the new regulation of no longerdeducting inventory purchases is deferred.

b.                                      Thereconciliation of the statutory and effective ISR rates expressed as apercentage of income before ISR and PTU is: 
|                                                        | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                             | ** ** | **%**    | ** ** | **%**    | ** ** | **%**    | ** ** |
| Statutory rate                                         |       | 30       |       | 33       |       | 34       |       |
| Add (deduct)  effect of permanent differences mainly:  |       |     |       |     |       |     |       |
| Nondeductible expenses                                 |       | 1        |       | 1        |       | 1        |       |
| Difference between book and tax inflation effects      |       | 2        |       | 3        |       | 1        |       |
| Effect of  reduction in statutory rate on deferred ISR |       | (1       | )          | (5       | )          | —   |       |
| Effective tax rate                                     |       | 32       |       | 32       |       | 36       |       |

 

c.                 At December 31,the main items comprising the asset (liability) balance of deferred ISR and PTUare:
|                                  | ** ** | **2005**                     | ** ** | **2004**                     | ** ** |
|----------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                       | ** ** | **(As restated)**       | ** ** | ** **                   | ** ** |
| Deferred ISR  asset:             |       |                         |       |                         |       |
| Effect of tax loss carryforwards |       | Ps.   152,215 |       | Ps.   601,624 |       |
| Derivative financial instruments |       | 33,229                       |       | —                       |       |
| Accrued liabilities              |       | 28,502                       |       | 32,715                       |       |
| Advances from customers          |       | 21,447                       |       | —                       |       |
| Allowance for doubtful accounts  |       | 7,775                        |       | —                       |       |
| PTU liability incurred           |       | 5,530                        |       | 2,242                        |       |
| Others                           |       | 7,145                        |       | 4,408                        |       |
| Deferred ISR asset               |       | 255,843                      |       | 640,989                      |       |

 

F-32

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| ** **                            | ** ** | **2005**                   | ** ** | **2004**                 | ** ** |
|---------------------------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                            | ** ** | **(As Restated)**     | ** ** | ** **               | ** ** |
| Deferred ISR  liability:              |       |                       |       |                     |       |
| Trade accounts receivable             |       | (1,287,870                 | )          | (759,952                 | )          |
| Inventories                           |       | (229,628                   | )          | (521,814                 | )          |
| Property and equipment                |       | (24,959                    | )          | —                   |       |
| Other assets                          |       | (161,813                   | )          | —                   |       |
| Debt issuance costs                   |       | (19,609                    | )          | —                   |       |
| Labor obligations, net                |       | (6,601                     | )          | —                   |       |
| Prepaid expenses                      |       | (5,229                     | )          | (26,199                  | )          |
| Deferred ISR liability                |       | (1,735,709                 | )          | (1,307,965               | )          |
|                                  |       | (1,479,866                 | )          | (666,976                 | )          |
|                                  |       |                       |       |                     |       |
| Recoverable tax  on assets paid       |       | 58,103                     |       | 20,031                   |       |
|                                  |       |                       |       |                     |       |
| Net long-term  deferred ISR liability |       | (1,421,763                 | )          | (646,945                 | )          |
|                                  |       |                       |       |                     |       |
| Deferred PTU  liability:              |       |                       |       |                     |       |
| Inventories                           |       | —                     |       | (7,474                   | )          |
| Net long-term deferred PTU liability  |       | —                     |       | (7,474                   | )          |
|                                  |       |                       |       |                     |       |
| Total liability                       |       | Ps.  (1,421,763) |       | Ps.  (654,419) |       |

 

d.                       Tax losscarryforwards and recoverable IMPAC for which the deferred ISR asset andprepaid ISR, respectively, have been recognized can be recovered subject tocertain conditions. Restated amounts as of December 31, 2005 and expirationdates are:
|                                  | ** ** | **Tax Loss**                                                           | ** ** | **Recoverable**                                        | ** ** |
|----------------------------------|------------|-----------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **Year of Expiration** | ** ** | **Carryforwards**                                                           | ** ** | **IMPAC**                                              | ** ** |
| 2007                             |       | Ps.           — |       | Ps.        224 |       |
| 2008                             |       | —                                                                      |       | 512                                                    |       |
| 2009                             |       | 2,676                                                                       |       | 337                                                    |       |
| 2010                             |       | —                                                                      |       | 115                                                    |       |
| 2011                             |       | 53                                                                          |       | —                                                 |       |
| 2012                             |       | 1,399                                                                       |       | 3,220                                                  |       |
| 2013                             |       | —                                                                      |       | 3,943                                                  |       |
| 2014                             |       | 264,917                                                                     |       | 10,522                                                 |       |
| 2015                             |       | 257,483                                                                     |       | 39,230                                                 |       |
|                             |       |                                                                        |       |                                                   |       |
|                             |       | Ps.   526,528                                                |       | Ps.   58,103                            |       |

 

**20.****                  ****Commitments**

The Company has helped its suppliers to obtain financingfrom various financial institutions, in part through a factoring programsponsored by Nacional Financiera. In relation to this program, the Companyestablished a trust fund called Fiedicomiso AAA-Homex with Nacional Financiera,S,N.C. (“Nafinsa”), which granted a line of credit for Ps.260,000. Under thisprogram, the AAA-Homex trust can dispose of the Nafinsa line of credit tofinance a portion of the accounts receivable of the Company’s suppliers. TheCompany, as trustor of the AAA-Homex trust, was obligated to create a reservefund equivalent to 20% of the credits that Nafinsa grants the trust in itscapacity as trust beneficiary. In addition, the Company is obligated tocontribute to the trust for up to the amount of the balance drawn from theNafinsa lines of credit, to pay that balance when necessary, if it becomes dueand payable and is not covered with

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other trust resources. As of December 31, 2005 and 2004, Ps.34,824is invested in the reserve fund, in compliance with the trust contract. Asmentioned in Note 2, the AAA Homex trust is a consolidated subsidiary of theCompany.

Additionally,the Company established a factoring contract for suppliers with IXE Banco,S.A., through which the Company was obliged to create a securities collateralcontract to guarantee performance of the payment obligations derived from thefactoring contract. As of December 31, 2004, the amount of that collateral wasPs.44,374; this collateral was released in 2005.

**21.****                              ****Contingencies**

a.                                       The MexicanSocial Security Institute, in official letter 572/2004 addressed to NationalBanking and Securities Commission, ordered the identification and total seizureof all the bank accounts of DECANO (subsidiary company), which only affects theCompany’s bank account with IXE Bank, which contains a balance of Ps.21,162.Such action was taken to guarantee the liabilities assessed during theirreview, which includes the years 1997 to 2000. The Company believes that it hasmeritorious defenses to the assertion of the claim. On April 5, 2005, theCompany obtained an order to release its bank accounts.

b.                                      Twosubsidiaries of the Company have filed for a ruling with the Mexican taxauthorities to confirm that they are exempt from value-added taxes payable inconnection with work provided in order to construct infrastructure projects(such as roads and utility services) for various of the Company’s housingprojects, as well as value-added taxes derived from the acquisition ofdeveloped land. In addition, the Company applied for a refund in respect ofsuch value-added taxes paid for years 1997 through 2003. As of the date of thefinancial statements, the Company has obtained a refund in respect of suchtaxes paid for the years 1997 through 2003 in the amount of approximatelyPs.100,000 and is currently in the process of obtaining the ruling mentioned inthis paragraph.

**22.****                              ****Subsequentevent**

Secondary stockoffering. On January 19, 2006, the Company established the price per share forthe Global Secondary Stock Offering of approximately 40 million sharesrepresenting its capital stock. The National Banking and Securities Commissionauthorized that offering on January 18, 2006. Based on the authorization fromthat Commission, the offering was settled on January 25, 2006.

On February 23, 2007, the Company cancelled purchase agreements by$551,378 for the acquisition of land for which title was in process of beingtransferred, the amount made of our partial payment was reimbursed to us and,those agreements represent approximately 1.8 million square meters.

**23.****                              ****New accountingprinciples**

As of May 31,2004, the Mexican Institute of Public Accountants (“IMCP”) formally transferredthe function of establishing and issuing financial reporting standards to theMexican Board for Research and Development of Financial Reporting Standards(“CINIF”), consistent with the international trend of requiring this functionbe performed by an independent entity.

Accordingly, thetask of establishing bulletins of Mexican GAAP and circulars issued by the IMCPwas transferred to CINIF, who subsequently renamed standards of Mexican GAAP as“Normas de Información Financiera” (Financial Reporting Standards, or “NIFs”),and determined that NIFs encompass (i) new bulletins established under the newfunction; (ii) any interpretations issued thereon; (iii) any Mexican GAAPbulletins that have not been amended, replaced or revoked by the new NIFs; and(iv) International Financial Reporting Standards (“IFRS”) that aresupplementary guidance to be used when Mexican GAAP does not provide primaryguidance.

One of the mainobjectives of CINIF is to achieve greater concurrence with IFRS. To this end,it started by reviewing the theoretical concepts contained in Mexican GAAP andestablishing a Conceptual Framework (“CF”) to support the development offinancial reporting standards and to serve as a reference in solving issuesarising in the accounting practice. The CF is formed by eight financialreporting standards, which comprise the NIF-A series. The NIF-A series,

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together with NIF B-1, were issued on October 31,2005. Their provisions are effective for years beginning January 1, 2006,superseding all existing Mexican GAAP series A bulletins.

F-35

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The new NIFs are as follows:
| NIF A-1 |   | Structure of Financial Reporting Standards           |
|---------|--------|------------------------------------------------------|
| NIF A-2 |   | Fundamental Principles                               |
| NIF A-3 |   | Users’ Needs and Financial Statement Objectives |
| NIF A-4 |   | Qualitative Characteristics of Financial Statements  |
| NIF A-5 |   | Basic Elements of Financial Statements               |
| NIF A-6 |   | Recognition and Valuation                            |
| NIF A-7 |   | Presentation and Disclosure                          |
| NIF A-8 |   | Supplementary Standards to Mexican GAAP              |
| NIF B-1 |   | Accounting Changes                                   |

 

The most significant changes established by these standardsare as follows:

·                  In addition tothe statement of changes in financial position, NIF A-3 includes thestatement of cash flows, which should be issued when required by a particularstandard.

·                  NIF A-5includes a new classification for revenues and expenses: ordinary and notordinary. Ordinary revenues and expenses are derived from transactions orevents that are within the normal course of business or that are inherent inthe entity’s activities, whether frequent or not; revenues and expensesclassified as not ordinary refer to unusual transactions and events, whetherfrequent or not.

·                  NIF A-7requires the presentation of comparative financial statements for at least thepreceding period. Through December 31, 2004, the presentation of prior years’financial statements was optional. The financial statements must disclose theauthorized date for their issuance, and the name(s) of the officer(s) oradministrative body(ies) authorizing the related issuance.

·                  NIF B-1establishes that changes in particular standards, reclassifications andcorrection of errors must be recognized retroactively. Consequently, basicfinancial statements presented on a comparative basis with the current yearthat might be affected by the change, must be adjusted as of the beginning ofthe earliest period presented.

At the date ofissuance of these financial statements, the Company has not fully assessed theeffects of adopting these new standards on its financial information.

**24.****                              ****Summary ofdifferences between Mexican GAAP and U.S. GAAP**

The consolidatedfinancial statements of the Company are prepared in accordance with MexicanGAAP, which vary in certain significant respects from U.S. GAAP. Areconciliation of the reported majority net income, majority stockholders’equity and majority comprehensive income to U.S. GAAP is presented in Note 25.It should be noted that this reconciliation to U.S. GAAP does not include thereversal of the restatement of the financial statements for the effects ofinflation as required by Bulletin B-10, “Recognition of the Effects ofInflation in Financial Information”, of Mexican GAAP. The application of thisBulletin represents a comprehensive measure of the effects of price-levelchanges in the Mexican economy and, as such, is considered a more meaningfulpresentation than historical cost-based financial reporting in Mexican pesosfor purposes of both Mexican and U.S. GAAP.

**Restatement of previously reported amounts under US GAAP******

 

Subsequent to the issuance of its 2005 consolidated financialstatements, the Company identified various changes, mainly related to thepurchase price allocation relating to the acquisition of Casas Beta whichoccurred on July 1, 2005. The differences we identified, which have had animpact on our restated financial results included:  (i) the addition of the previouslyunrecognized deferred income tax liability associated with the intangible assetfor the Beta trademark; (ii) the addition of the previously unidentifiedintangible asset related to the value of the backlog of houses under constructionas of the date of the Beta acquisition and the addition of the deferred incometax liability associated with 

F-36

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this backlog; (iii) theaddition of the previously unrecognized amortization of the intangible assetsrelated to the Beta trademark and the backlog of houses under construction fromthe date of the Beta acquisition to December 31, 2005 and their relateddeferred income tax effects; and (iv) an adjustment to the U.S. GAAPreconciliation associated with the effect of the additional deferred taxliability, relating to an interpretation of a change in the tax law starting2005. In addition, the condensed statement of sash flows was was restated, esexplained in Note 25(g). 

The following table illustrates the balance sheet and income statementeffects of these adjustments on the previously reported amounts as of December31, 2005 and the year then ended:
| ** **                                                                            | ** ** | **Other Assets  (Intangibles)** | ** ** | **Goodwill**                 | ** ** | **Deferred Tax  Liability** | ** ** | **Net income**          | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------|------------|----------------------------------|------------|------------------------------|------------|
| As originally reported                                                                |       | Ps.   870,435         |       | Ps.   635,908 |       | Ps.   768,852     |       | Ps.1,215,998                 |       |
| 1) Deferred tax liability due to reversal  of revenues under percentage-of-completion |       |                                 |       | 80,354                       |       | 283,209                          |       | (209,032                     | )          |
| 2) Deferred tax effect of trademark                                                   |       |                                 |       | 132,028                      |       | 132,028                          |       |                         |       |
| 3) Backlog intangible                                                                 |       | 346,370                              |       | (245,923                     | )          | 100,447                          |       |                         |       |
| 4) Amortization of trademark and backlog, net of  deferred taxes                      |       | (320,104                             | )          |                         |       | (92,830                          | )          | (227,274                     | )          |
| As restated                                                                           |       | Ps.   896,701         |       | Ps.   602,367 |       | Ps. 1,191,706                    |       | Ps.   779,692 |       |

 

The differences between Mexican GAAP andU.S. GAAP included in the reconciliation that affect the consolidated financialstatements of the Company are described as follows:

**a)****                                   ****Revenue and Cost Recognition**

Under Mexican GAAP, the Company uses the percentage-of-completionmethod of accounting to account for housing project revenues and costs relatedto housing construction, progress towards completion is measured in terms ofcomparing the actual costs incurred to the estimated total cost of a project.

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In accordance with U.S.GAAP sales are recognized when allof the following conditions are met: a sale is consummated, a significant downpayment is received, the earnings process is complete and the collection of anyremaining receivables is reasonably assured. All such conditions are met at thetime title passes to the buyer.

Accordingly, areconciling item for the additional revenues and additional costs recognizedunder the percentage-of-completion of accounting under Mexican GAAP is includedin the U.S. GAAP reconciliation of net income and stockholders’ equity.

**b)****                                   ****Recovery of Value-Added Taxes Paid**

Under MexicanGAAP the Company recognized other income in 2003 for the recovery ofvalue-added taxes paid and expensed by the Company in 2002 in the amount ofPs.18.9 million, since in the opinion of management and its tax advisors, thefuture recovery of these amounts was probable.

In accordancewith U.S. GAAP the recovery of such taxes was considered a contingent gain dueto the prolonged challenge faced by the Company in settling the related taxdispute and was not recorded as income until the cash was received, whichoccurred during the first quarter of 2004.

**c)****                                   ****Capitalization of Net Comprehensive FinancingCost**

Under MexicanGAAP, the capitalization of net comprehensive financing costs (interest,foreign exchange gains and losses and monetary position gains and losses)incurred to finance investment projects is optional. The Company does notcapitalize the integral cost of financing for Mexican GAAP reporting.

In accordancewith U.S. GAAP, if interest is incurred during the construction of qualifyingassets, capitalization is required as part of the cost of such assets. TheCompany applies the weighted-average interest rate on all outstanding debt tothe balance of construction-in-progress and such amount is reduced by the gainon monetary position associated with the debt to determine the amount ofinterest to be capitalized in accordance with U.S. GAAP.

Accordingly, areconciling item for the capitalization of interest is included in the U.S.GAAP reconciliation of net income and stockholders’ equity, and the effect ofinterest capitalized to the cost of inventories is included within operatingincome for U.S. GAAP purposes.

**d)****                                   ****Deferred Income Taxes and Employee StatutoryProfit Sharing**

The Companyfollows SFAS No. 109, “Accounting for Income Taxes”, for U.S. GAAP purposes,which differs from Mexican GAAP as follows:

a.                            Under Mexican GAAP the effects of inflation on the deferredtax balance generated by monetary items are recognized in the result onmonetary position. Under U.S. GAAP the deferred tax balance is classified as anonmonetary item. As a result, the consolidated statement of operations differswith respect to the presentation of the gain (loss) on monetary position anddeferred income tax provision.

b.                           Under Mexican GAAP deferred employee statutory profitsharing is calculated considering only those temporary differences that ariseduring the year and which are expected to reverse within a defined period andthe effect is recorded as a component of income tax expense. For purposes ofapplying U.S. GAAP the liability is determined using a methodology similar tothe liability method used in the calculation of deferred income taxes. Also,for U.S. GAAP purposes, employee statutory profit sharing is classified as anoperating expense.

F-38

----

As a result ofthe differences related to the recognition of revenue, costs and interestcapitalization as described above, the related deferred income tax presentedunder Mexican GAAP is different from the effect calculated in accordance withU.S. GAAP.

Reconciliation of deferred income taxes:
|                                                               | ** ** | **2005**                 | ** ** | **2004**                             | ** ** |
|---------------------------------------------------------------|------------|--------------------------|------------|--------------------------------------|------------|
| ** **                                                    | ** ** | **(As Restated)**        | ** ** | ** **                           | ** ** |
| Deferred income tax liability according to Mexican  GAAP, net |       | Ps.  1,421,763 |       | Ps.     646,944  |       |
|                                                          |       |                     |       |                                 |       |
| Effect of U.S. GAAP adjustments:                              |       |                     |       |                                 |       |
| Accounts receivable                                           |       | (1,281,214               | )          | (759,952                             | )          |
| Inventories                                                   |       | 1,034,334                |       | 547,973                              |       |
|                                                          |       |                     |       |                                 |       |
| Backlog                                                       |       | 17,825                   |       |                                 |       |
| Employee profit sharing                                       |       | (1,002                   | )          | (2,968                               | )          |
|                                                          |       |                     |       |                                 |       |
|                                                          |       |                     |       |                                 |       |
| Deferred income tax liability according to U.S.  GAAP, net    |       | Ps.  1,191,706 |       | Ps.      431,997 |       |

 

Deferred income tax balance sheet classification:
|                                    | ** ** | **2005**                                              | ** ** | **2004**                                 | ** ** |
|------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                         | ** ** | **(As Restated)**                                | ** ** | ** **                               | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **Current**                                           | ** ** | **Noncurrent**                           | ** ** | **Current** | ** ** | **Noncurrent** | ** ** |
| ** **                         | ** ** | ** **                                            | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Deferred tax assets                |       | Ps.         70,399 |       | Ps.     247,002 |       | Ps.              — |   | Ps.     349,940 |   |
|                               |       |                                                  |       |                                     |       |   |   |   |   |
| Deferred tax liability             |       | (1,482,897                                            | )          | (26,210                                  | )          | (781,937 | ) | — |   |
|                               |       |                                                  |       |                                     |       |   |   |   |   |
| Net deferred tax (liability) asset |       | Ps.    (1,412,498                           | )          | Ps.     220,792 |       | Ps.    (781,937 | ) | Ps.     349,940 |   |

 

Reconciliation of deferred employee profit sharing:
|                                                                            | ** ** | **2005**                                                              | ** ** | **2004**                     | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                 | ** ** | ** **                                                            | ** ** | ** **                   | ** ** |
| Deferred  employee profit sharing liability according to Mexican GAAP      |       | Ps.          — |       | Ps.   (7,474) |       |
| Effect of U.S. GAAP adjustments:                                           |       |                                                                  |       |                         |       |
| Accounts receivable                                                        |       | (11,444                                                               | )          | (14,574                      | )          |
| Prepaid expenses                                                           |       | 5,006                                                                 |       | (4,202                       | )          |
| Accounts payable                                                           |       | 5,952                                                                 |       | 8,885                        |       |
| Other                                                                      |       | 3,941                                                                 |       | —                       |       |
| Deferred employee profit sharing asset (liability)  according to U.S. GAAP |       | Ps.     3,455                                |       | Ps.  (17,365            | )          |

 

**e)****               ****Acquisition of Minority Interest**

As described in Note 2.e,on September 12, 2005, Beta del Centro acquired the remaining 50% of SuperAbastos Centrales y Comerciales, S.A. de C.V.’s outstanding shares. UnderMexican GAAP, the excess cost of the shares acquired from the minorityshareholders was recorded as a capital distribution, since this was atransaction between common shareholders.

F-39

----

Under U.S. GAAP the acquisition of theremaining outstanding shares from the minority shareholders was accounted forunder the purchase method of accounting.

Accordingly, a reconciling item for theacquisition of minority interest is included in the U.S. GAAP reconciliation ofstockholders’ equity.

F-40

----

**f)****                 ****Statement of Cash Flows**

Under Mexican GAAP, the Company presentsa consolidated statement of changes in financial position in accordance withBulletin B-12, “Statement of Changes in Financial Position” (B-12),which identifies the generation and application of resources by the differencesbetween beginning and ending financial statement balances in constant Mexicanpesos. B-12 also requires that monetary and foreign exchange gains andlosses be treated as cash items for the determination of resources generated byoperations.

In accordance with U.S. GAAP the Companyfollows the requirements of SFAS No. 95, “Statement of Cash Flows”, excludingthe effects of inflation (see Note 25g).

**g)****              ****Classification Differences**

Under Mexican GAAP advances for thepurchase of land and construction materials are recorded as part of the cost ofreal estate inventories. Under U.S. GAAP such advances are classified asprepaid expenses.

Under Mexican GAAP, deferred taxes areclassified as non-current; U.S. GAAP requires a current, non-currentclassification based on the classification of the related asset or liability.

Under Mexican GAAP, amounts due underthe Company’s factoring agreements are included in trade accounts payable; U.S.GAAP requires that such amounts be recorded as a borrowing from the financialintermediary.

**h)****              ****Backlog******

Theamount of backlog under US GAAP differs from the amount reported under MexicanGAAP.  Under Mexican GAAP, sales arerecognized using the percentage-of-completion method.  Accordingly, a greater portion of the housingcosts for houses in construction has already been recognized in costs ofoperations.  Under US GAAP, sales are notrecognized until collection has been assured; therefore the portion of thehousing costs that is included in the statement of operations under MexicanGAAP has not yet been recognized under US GAAP and is considered backlog,thereby resulting in a greater backlog under US GAAP.   

**i)****                 ****Goodwill**** **

The amount of goodwill under US GAAP is greater than that reportedunder Mexican GAAP, due to the difference in the revenue recognition methodsbetween Mexican and US GAAP.  For MexicanGAAP, accounts receivable is greater than the amount for US GAAP, in thecontrary, under Mexican GAAP the inventories are lower than the amount for USGAAP.  Accordingly, profit recognizedunder Mexican GAAP that has not yet been recognized for US GAAP purposes isincluded within goodwill under US GAAP, resulting in a higher goodwill for USGAAP purposes.  

**j)****                  FairValue of Financial Instruments**** **

In accordance with SFAS No.107, “Disclosures about Fair Value of Financial Instruments,” of U.S. GAAP itis necessary to provide information about the fair value of certain financialinstruments for which it is practicable to estimate that value.  

The fair values of theCompany’s financial instruments are based on quoted market prices, whereavailable, or are estimated. Fair value estimates are made at a specific pointin time based on relevant market information and information about thefinancial instrument. These estimates are subjective in nature, involve mattersof judgment and therefore, cannot be determined with precision. Estimated fairvalues are significantly affected by the assumptions used. The Company’smethods and assumptions used in estimating fair values are described below.  

F-41

----

The carrying amounts of cashand short-term investments, accounts receivable and accounts payable andaccrued liabilities approximate fair values due to the short-term maturity ofthese instruments.  Additionally, as ofDecember 31, 2005, the carrying value of fixed rate debt is Ps.3,338,445 whichapproximates its fair value of Ps. 3,348,853.

As of December 31, 2005, thefair value of the principal only swap was Ps.118,254 (US$11.3 million), whichrepresents the estimated present value of future cash flows to be paid out bythe Company.

**25.**          Reconciliation of Mexican GAAP net income and equity toU.S. GAAP net income and equity and the presentation ofcondensed financial statements in accordance with U.S. GAAP.

a.                        Reconciliation of majority net income for the year:
|                                                                                                | ** ** | **2005**               | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                     | ** ** | **(As Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Majority net income according to Mexican GAAP                                                  |       | Ps.                    | 883,262    |       | Ps.        | 730,227    |       | Ps. | 334,410 |   |
|                                                                                           |       |                   |       |       |       |       |       |
| U.S. GAAP adjustments:                                                                         |       |                   |       |       |       |       |       |
| Reversal of revenue recognized under  percentage-of-completion method of accounting (Note 24a) |       | (929,117               | )          | (1,413,655 | )          | (193,536   | )          |
| Reversal of cost recognized under percentage-of-completion  method of accounting (Note 24a)    |       | 614,846                |       | 822,316    |       | 99,473     |       |
| Amortization of Backlog  and Beta trademark (Note 24h and 24i)                                 |       | (158,050               | )          | —     |       | —     |       |
| Value-added tax recovery (Note 24b)                                                            |       | —                 |       | 19,578     |       | (19,579    | )          |
| Capitalization of interest (Note 24c)                                                          |       | 175,916                |       | 33,430     |       | (37,988    | )          |
| Deferred employee statutory profit sharing (Note  24d)                                         |       | —                 |       | (7,507     | )          | (186       | )          |
| Effects of inflation on U.S. GAAP adjustments                                                  |       | 133,148                |       | 113,284    |       | 45,234     |       |
| Total U.S. GAAP adjustments before tax effects                                                 |       | (163,257               | )          | (432,554   | )          | (106,582   | )          |
| Tax effects on U.S. GAAP adjustments                                                           |       | 59,687                 |       | 138,638    |       | 26,739     |       |
| Total U.S. GAAP adjustments                                                                    |       | (103,570               | )          | (293,916   | )          | (79,843    | )          |
|                                                                                           |       |                   |       |       |       |       |       |
| Net income according to U.S. GAAP                                                              |       | Ps.                    | 779,692    |       | Ps.        | 436,311    |       | Ps. | 254,567 |   |

 

F-42

----

b.                                    Reconciliation of majority stockholders’ equity:
|                                                                                                 | ** ** | **2005**               | ** ** | **2004**       | ** ** | **2003**       | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------|------------|----------------|------------|
| ** **                                                                                      | ** ** | **(As Restated)** | ** ** | ** **     | ** ** | ** **     | ** ** |
| Majority  stockholders’ equity according to Mexican GAAP                                   |       | Ps.  5,652,649         |       | Ps. 3,851,387  |       | Ps. 1,363,535  |       |
| U.S.  GAAP adjustments:                                                                         |       |                   |       |           |       |           |       |
| Dilution  effect of merger (Note 24e)                                                           |       | —                 |       | (10,949        | )          | —         |       |
| Reversal  of revenue recognized under percentage-of-completion method of accounting  (Note 24a) |       | (4,417,980             | )          | (2,533,175     | )          | (1,282,292     | )          |
| Reversal  of cost recognized under percentage-of-completion method of accounting (Note  24a)    |       | 3,307,311              |       | 1,728,014      |       | 936,879        |       |
| Backlog and Beta trademark (Note 24h)                                                           |       | (158,050               | )          | —         |       | —         |       |
| Goodwill (Note 24i)                                                                             |       | 80,353                 |       | —         |       | —         |       |
| Reversal  of value-added tax recovery (Note 24b)                                                |       | —                 |       | —         |       | (19,579        | )          |
| Acquisition  of minority interest (Note 24e)                                                    |       | 73,577                 |       |           |       |           |       |
| Capitalization  of interest (Note 24c)                                                          |       | 271,272                |       | 98,562         |       | 68,538         |       |
| Deferred  employee statutory profit sharing (Note 24d)                                          |       | 4,457                  |       | (9,891         | )          | (2,505         | )          |
| Total  U.S. GAAP adjustments before tax effects                                                 |       | (839,060               | )          | (727,439       | )          | (298,959       | )          |
| Tax  effects on U.S. GAAP adjustments                                                           |       | 289,259                |       | 214,947        |       | 91,333         |       |
| Total  U.S. GAAP adjustments                                                                    |       | (549,801               | )          | (512,492       | )          | (207,626       | )          |
|                                                                                            |       |                   |       |           |       |           |       |
| Stockholders’ equity  according to U.S. GAAP                                               |       | Ps.  5,102,848         |       | Ps.  3,338,895 |       | Ps.  1,155,909 |       |

 

c.                                     Reconciliation of majority comprehensive income:
|                                                          | ** ** | **2005**               | ** ** | **2004**     | ** ** | **2003**     | ** ** |
|----------------------------------------------------------|------------|------------------------|------------|--------------|------------|--------------|------------|
| ** **                                               | ** ** | **(As Restated)** | ** ** | ** **   | ** ** | ** **   | ** ** |
| Majority  comprehensive income according to Mexican GAAP |       | Ps.  883,262           |       | Ps. 730,227  |       | Ps. 334,410  |       |
|                                                     |       |                   |       |         |       |         |       |
| Net  U.S. GAAP adjustments:                              |       |                   |       |         |       |         |       |
| Net income                                               |       | (103,570               | )          | (293,916     | )          | (79,843      | )          |
|                                                     |       |                   |       |         |       |         |       |
| Net income according to  U.S. GAAP                       |       | Ps.  779,692           |       | Ps.  436,311 |       | Ps.  254,567 |       |

 

F-43

----

d.                                    Condensed balance sheets according to U.S. GAAP:
|                                                  | ** ** | **2005**                  | ** ** | **2004**            | ** ** |
|--------------------------------------------------|------------|---------------------------|------------|---------------------|------------|
| ** **                                       | ** ** | **(As Restated)**    | ** ** | ** **          | ** ** |
| **Assets**                                       | ** ** | ** **                | ** ** | ** **          | ** ** |
| Current  assets                                  |       | Ps.   9,805,414 |       | Ps.  5,731,857 |       |
| Land  for development                            |       | 1,785,044                 |       | 520,853             |       |
| Property  and equipment                          |       | 460,831                   |       | 259,838             |       |
| Goodwill                                         |       | 602,367                   |       | —              |       |
| Other  assets                                    |       | 896,701                   |       | 131,834             |       |
|                                             |       |                      |       |                |       |
| Total  assets                                    |       | Ps.  13,550,357           |       | Ps.  6,644,382 |       |
|                                             |       |                      |       |                |       |
| **Liabilities and stockholders’ equity**    | ** ** | ** **                | ** ** | ** **          | ** ** |
| Current  liabilities                             |       | Ps.   5,023,445 |       | Ps.  3,056,803 |       |
| Long-term  debt                                  |       | 3,347,179                 |       | 186,233             |       |
| Other  long-term liabilities                     |       | 39,415                    |       | —              |       |
| Minority  interest                               |       | 37,470                    |       | 62,451              |       |
| Stockholders’  equity                       |       | 5,102,848                 |       | 3,338,895           |       |
|                                             |       |                      |       |                |       |
| Total liabilities and  stockholders’ equity |       | Ps.  13,550,357           |       | Ps.  6,644,382 |       |

 

F-44

----

e.                                     Condensed statements of income according to U.S. GAAP:
|                                                                | ** ** | **2005**                                                       | ** ** | **2004**                                                       | ** ** | **2003**                                                       | ** ** |
|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                     | ** ** | **(As Restated)**                                         | ** ** | ** **                                                     | ** ** | ** **                                                     | ** ** |
| ** **                                                     | ** ** | ** **                                                     | ** ** | ** **                                                     | ** ** | ** **                                                     | ** ** |
| Revenues                                                       |       | Ps. 7,607,045                                                  |       | Ps. 4,077,639                                                  |       | Ps. 2,815,304                                                  |       |
| Costs                                                          |       | 5,697,063                                                      |       | 3,073,788                                                      |       | 2,159,223                                                      |       |
| Gross  profit                                                  |       | 1,909,982                                                      |       | 1,003,851                                                      |       | 656,081                                                        |       |
| Operating  income                                              |       | 1,058,048                                                      |       | 539,636                                                        |       | 380,105                                                        |       |
| Income  before income taxes                                    |       | 1,141,791                                                      |       | 657,984                                                        |       | 422,919                                                        |       |
| Income  taxes                                                  |       | 368,815                                                        |       | 212,306                                                        |       | 162,872                                                        |       |
| Minority  interest                                             |       | (6,716                                                         | )          | 9,368                                                          |       | 5,480                                                          |       |
| Net  income                                                    |       | Ps.    779,692                                  |       | Ps.    436,311                                  |       | Ps.    254,567                                  |       |
|                                                           |       |                                                           |       |                                                           |       |                                                           |       |
| Weighted  average shares outstanding (in thousands)            |       | 324,953                                                        |       | 281,997                                                        |       | 241,521                                                        |       |
|                                                           |       |                                                           |       |                                                           |       |                                                           |       |
| Earnings per share  according to U.S. GAAP (basic and diluted) |       | Ps.          2.40 |       | Ps.          1.55 |       | Ps.          1.05 |       |

 

f.                                       Reconciliation of changes in stockholders’ equity accordingto U.S. GAAP:
|                                                 | ** ** | **2005**               | ** ** | **2004**       | ** ** | **2003**                      | ** ** |
|-------------------------------------------------|------------|------------------------|------------|----------------|------------|-------------------------------|------------|
| ** **                                      | ** ** | **(As Restated)** | ** ** | ** **     | ** ** | ** **                    | ** ** |
| ** **                                      | ** ** | ** **             | ** ** | ** **     | ** ** | ** **                    | ** ** |
| Stockholders’  equity at beginning of year |       | Ps. 3,338,895          |       | Ps. 1,155,909  |       | Ps.    834,792 |       |
| Net  income                                     |       | 779,692                |       | 436,311        |       | 254,567                       |       |
| Issuance  of common stock                       |       | 999,787                |       | 1,746,675      |       | 66,550                        |       |
| Other                                           |       | (15,526                | )          | —         |       | —                        |       |
|                                            |       |                   |       |           |       |                          |       |
| Stockholders’ equity at  end of year       |       | Ps.  5,102,848         |       | Ps.  3,338,895 |       | Ps.  1,155,909                |       |

 

F-45

----

g.                                    Condensedstatements of cash flows according to U.S. GAAP 
| ** **                                              | ** ** | **2005**                                                  | ** ** | **2004**                                                                      | ** ** | **2003**                                                                      | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                              | ** ** | **(As Restated)**                                    | ** ** | **(As Restated)**                                                        | ** ** | ** **                                                                    | ** ** |
| Operating  activities:                                  |       |                                                      |       |                                                                          |       |                                                                          |       |
| Consolidated  net income                                |       | Ps.     838,924                       |       | Ps.   446,443                                                       |       | Ps.   274,421                                                       |       |
| Non-cash  items:                                        |       |                                                      |       |                                                                          |       |                                                                          |       |
| Depreciation                                            |       | 59,913                                                    |       | 22,141                                                                        |       | 8,228                                                                         |       |
| Allowance for doubtful accounts                         |       | —                                                    |       | 5,244                                                                         |       | 1,439                                                                         |       |
| Amortization of  trademark and backlog                  |       | 320,103                                                   |       | —                                                                        |       | —                                                                        |       |
| Deferred income tax and statutory profit sharing        |       | 288,391                                                   |       | 153,384                                                                       |       | 127,171                                                                       |       |
| Working  capital investment                             |       | (1,666,824                                                | )          | (2,119,809                                                                    | )          | (830,949                                                                      | )          |
| Recoverable  taxes, net                                 |       | (90,808                                                   | )          | 28,306                                                                        |       | 36,780                                                                        |       |
| Interest  payable                                       |       | —                                                    |       | 1,244                                                                         |       | (799                                                                          | )          |
| Net  cash flows used in operating activities            |       | (250,301                                                  | )          | (1,463,047                                                                    | )          | (383,709                                                                      | )          |
|                                                    |       |                                                      |       |                                                                          |       |                                                                          |       |
| Investing  activities:                                  |       |                                                      |       |                                                                          |       |                                                                          |       |
| Investments  in:                                        |       |                                                      |       |                                                                          |       |                                                                          |       |
| Property and equipment                                  |       | (141,048                                                  | )          | (211,125                                                                      | )          | (33,477                                                                       | )          |
| Restricted cash                                         |       | 20,851                                                    |       | (21,162                                                                       | )          | —                                                                        |       |
| Acquisition of Beta                                     |       | (1,063,739                                                | )          | —                                                                        |       | —                                                                        |       |
| Other assets                                            |       | (106,914                                                  | )          | (16,807                                                                       | )          | (26,124                                                                       | )          |
| Net cash flows used in investing activities             |       | (1,290,850                                                | )          | (249,094                                                                      | )          | (59,601                                                                       | )          |
|                                                    |       |                                                      |       |                                                                          |       |                                                                          |       |
| Financing  activities:                                  |       |                                                      |       |                                                                          |       |                                                                          |       |
| Supplier factoring agreement                            |       | —                                                    |       | 461,842                                                                       |       | 251,688                                                                       |       |
| Restricted investments                                  |       | 169,470                                                   |       | —                                                                        |       | —                                                                        |       |
| Proceeds from new borrowings                            |       | 3,899,298                                                 |       | 404,416                                                                       |       | 460,278                                                                       |       |
| Payments of notes payable to financial institutions     |       | (1,737,064                                                | )          | (348,708                                                                      | )          | (182,990                                                                      | )          |
| Loans from related parties                              |       | —                                                    |       | 30,000                                                                        |       | 387,939                                                                       |       |
| Payments of related party loans                         |       | —                                                    |       | (167,076                                                                      | )          | (415,292                                                                      | )          |
| Proceeds from issuance of common stock                  |       | —                                                    |       | 1,643,469                                                                     |       | 95,109                                                                        |       |
| Net cash flows from financing activities                |       | 2,331,704                                                 |       | 2,023,943                                                                     |       | 596,732                                                                       |       |
|                                                    |       |                                                      |       |                                                                          |       |                                                                          |       |
| Net  increase in cash and cash equivalents              |       | 790,553                                                   |       | 311,802                                                                       |       | 153,422                                                                       |       |
| Cash  and cash equivalents at the beginning of the year |       | 528,223                                                   |       | 216,421                                                                       |       | 62,999                                                                        |       |
| Cash  and cash equivalents at the end of the year       |       | Ps.  1,318,776                                       |       | Ps.   528,223                                                       |       | Ps.   216,421                                                       |       |
|                                                    |       |                                                      |       |                                                                          |       |                                                                          |       |
| Supplemental  cash flow information:                    |       |                                                      |       |                                                                          |       |                                                                          |       |
| Interest paid                                           |       | Ps.     125,421                       |       | Ps.     59,535                                            |       | Ps.     53,181                                            |       |
|                                                    |       |                                                      |       |                                                                          |       |                                                                          |       |
| Income tax and tax on assets paid                       |       | Ps.         6,212 |       | Ps.       3,268                                 |       | Ps.       4,145                                 |       |
| Non-cash financing  activities:                         |       |                                                      |       |                                                                          |       |                                                                          |       |
| Issuance of common stock for the acquisition of Beta    |       | Ps.     977,469                       |       | Ps.             — |       | Ps.             — |       |

 

F-46

----

The Company restated its2005 and 2004 U.S. GAAP consolidated statements of cash flows related to thefinancial statement line items, “Amortization of trademark and backlog”,“Deferred income tax and statutory profit sharing”, “Restricted cash”, Cash andcash equivalents at the beginning of the year”, “Other assets and acquisitionof Beta” and “Proceeds from issuance of common stock”. 

The “Amortization of trademark and backlog” and“Deferred income tax and statutory profit sharing” were previously included in“Other assets and acquisition of Beta” in the operating activities and shouldhave been presented as part of the non-cash items. 

The balance of “Proceeds from issuance of commonstock” in the financing activities were netted with “Acquisition of Beta” ininvesting activities 

For 2005 and 2004, the change in the balance ofrestricted cash, previously presented as part of “Cash and cash equivalents”,was reclassified to investing activities. 

The caption “Other assets and acquisition of Beta” isnow presented in two separate line items, “Other assets” and “Acquisition ofBeta”. 

The table below discloses the 2005 and 2004 totals foroperating activities, investing activities and financing activities as previouslypresented and as restated. 
|                                                         | ** ** | **2005**                | ** ** | **2005**               | ** **      | **2004**                | ** ** | **2004**               | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|------------------------|-----------------|-------------------------|------------|------------------------|------------|
| ** **                                              | ** ** | **(As Presented)** | ** ** | **(As Restated)** | ** **      | **(As Presented)** | ** ** | **(As Restated)** | ** ** |
| Net cash flows used in operating activities             |       | Ps.           | (448,982   | )                      | Ps.   | (250,301                | )          | Ps.                    | (1,480,908 | ) | Ps. | (1,463,047 | ) |
| Net cash flows used in investing activities             |       | (2,069,173              | )          | (1,290,850             | )               | (227,932                | )          | (249,094               | )          |
| Net cash flows from financing activities                |       | 3,309,174               |       | 2,331,704              |            | 2,023,943               |       | 2,023,943              |       |
| Net increase in cash and cash equivalents               |       | 791,019                 |       | 790,553                |            | 315,103                 |       | 311,802                |       |
| Cash and Cash equivalents at the beginning of the  year |       | 531,524                 |       | 528,223                |            | 216,421                 |       | 216,421                |       |
| Cash and Cash  equivalents at the end of the year       |       | 1,322,543               |       | 1,318,776              |            | 531,524                 |       | 528,223                |       |
|                                                         |            |                         |            |                        |                 |                         |            |                        |            |  |  |  |  |

 

F-47

----

**26.          Additional U.S.GAAP disclosure information**

**Recently Issued Accounting Standards.**

**U.S. GAAP**

In November2004, the Financial Accounting Standards Board (“FASB”) issued Statement ofFinancial Accounting Standards (“SFAS”) No. 151, *InventoryCosts — an amendment of ARB No. 43, Chapter 4*. SFAS No. 151 amendsthe guidance in Accounting Research Bulletin (“ARB”) No. 43, *Inventory Pricing*, to clarify the accounting for abnormalcosts related to idle facility expense, freight, handling costs and spoilage.SFAS No. 151 requires that these costs and expenses be recognized ascurrent-period charges regardless of whether they meet the criterion of “soabnormal” as previously defined under ARB No. 43. In addition, SFAS No. 151requires that the allocation of fixed production overhead to the costs ofconversion be based on the normal capacity of the production facilities. Thisstatement is effective for inventory costs incurred during fiscal yearsbeginning after June 15, 2005. The Company does not anticipate the adoption ofthis new accounting principle will have a material effect on its financialposition, results of operations or cash flows.

In December2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payments orSFAS No. 123®. This statement eliminates theoption to apply the intrinsic value measurement provisions of AccountingPrinciples Board (“APB”) Opinion No. 25, Accounting for Stock Issued toEmployees to stock compensation awards issued to employees. Rather, SFAS No.123(R) requires companies to measure the cost of employee services received inexchange for an award of equity instruments based on the grant-date fair valueof the award. That cost will be recognized over the period during which anemployee is required to provide services in exchange for the award—therequisite service period (usually the vesting period). SFAS No. 123(R) appliesto all awards granted after the required effective date as well as to existingawards that are modified, repurchased, or cancelled after the effective date.SFAS No. 123(R) will be effective for the Company’s fiscal year ending December31, 2006. This Financial Accounting Standard is non-applicable to us becausethe company does not have any stock compensation plans. 

In December2004, the FASB issued SFAS No. 153, *Exchanges of Nonmonetary**Asse–s**- an amendment of APB Opinion No. 29*, which amends APB Opinion No. 29, *Accountingfor Nonmonetary Transactions*, to eliminate the exception fornonmonetary exchanges of similar productive assets and replaces it with ageneral exception for exchanges of nonmonetary assets that do not havecommercial substance. SFAS No. 153 is effective for nonmonetary assetsexchanges occurring in fiscal periods beginning after June 15, 2005. TheCompany does not anticipate that the adoption of this statement will have amaterial effect on its financial position, results of operations or cash flows.

In May 2005, theFASB issued SFAS No. 154, *Accounting Changes andError Corrections — a replacement of APB Opinion No. 20 and FASB Statement No.3*. SFAS No. 154 requires retrospective application to prior periods’financial statements of changes in accounting principles, unless impracticable.The statement defines retrospective application as the application of adifferent accounting principle to prior accounting periods as if that principlehad always been used and redefines restatement as the revising of previouslyissued financial statements to reflect the correction of an error. SFAS No. 154also requires that retrospective application of a change in accountingprinciple be limited to the direct effects of the change. Indirect effects of achange in accounting principle should be recognized in the period of theaccounting change. The new standard is effective for accounting changes made infiscal years beginning after December 15, 2005. The Company does not anticipatethat the adoption of this standard will have a material effect on its financialposition, results of operations or cash flows.

On November 2,2005, the FASB issued Financial Staff Position (“FSP”) FAS 115-1 and FAS124-1, *The Meaning of Other-Than-TemporaryImpairment and Its Application to Certain Investments*, whichnullifies certain requirements of Emerging Issues Task Force Issue (“EITF”) No.03-1, *The Meaning of Other-Than Temporary Impairment andIts Application to Certain Investments* and supersedes EITF AbstractsTopic No. D-44, *Recognition ofOther-Than-Temporary Impairment Upon the Planned Sale of a Security whose CostExceeds Fair Value*. The guidance in this FSP shall be applied toreporting periods beginning after December 15, 2005. The Company does notexpect the adoption of this guidance will have a material effect on itsfinancial position, results of operations or cash flows.

F-48

----

At the September29 and 30, 2004 and November 17 and 18, 2004 Emerging Issues Task Force(“EITF”) meetings, the EITF discussed Issue 04-10, *DeterminingWhether to Aggregate Operating Segments That Do Not Meet the QuantitativeThresholds* (“EITF 04-10”). EITF 04-10 concludes that acompany, when determining if operating segments that do not meet thequantitative thresholds of SFAS No. 131, *Disclosures about Segmentsof an Enterprise and Related Information*, should be aggregated, mayaggregate such operating segments only if aggregation is consistent with theobjective and basic principle of SFAS No. 131, that they have similar economiccharacteristics, and that the segments share a majority of the aggregationcriteria listed in (a) through (e) of paragraph 17 of SFAS No. 131. Theconsensus in EITF 04-10 should be applied for fiscal years ending afterSeptember 15, 2005. The Company does not anticipate that the application ofthis consensus will affect the presentation or aggregation of its operatingsegments.

At the September15, 2005 EITF meeting, the EITF discussed Issue 04-13, *Accounting for Purchases and Sales of Inventory with the SameCounterparty*, (“EITF 04-13”). At the meeting, it was agreedthat that in situations in which an inventory transaction is legally contingentupon the performance of another inventory transaction with the samecounterparty, the two transactions are deemed to have been entered into are incontemplation of one another and would be considered a single exchangetransaction subject to Accounting Principles Board Opinion 29, *Accounting for Nonmonetary Transactions*. The Task Force alsostated indicators of when a purchase transaction and a sales transaction wouldnot be considered as entered into in contemplation of one another, and thus,may have the ability to be recorded as separate purchases and sales. EITF 04-13is effective for new arrangements entered into, or modifications orrenegotiations of existing arrangements, beginning in the first annualreporting period beginning after March 15, 2006. The Company has not yetdetermined the effects of adoption of EITF 04-13 on its financialposition, results of operations or cash flows.

At the June 15and 16 EITF meeting, and further modified at the September 15, 2005 meeting,the EITF discussed Issue 05-6, Determining the Amortization Period forLeasehold Improvements Purchased after Lease Inception or Acquired in aBusiness Combination, (“EITF 05-6”), and concluded on the appropriateamortization periods for leasehold improvements either acquired in a businesscombination or which were not preexisting and were placed in servicesignificantly after, and not contemplated at, the beginning of the lease term.This Issue is effective for leasehold improvements (that are within the scopeof this Issue) that are purchased or acquired in reporting periods beginningafter June 29, 2005. The Company does not anticipate the adoption of EITF 05-6will have a material effect on its financial position, results of operations orcash flows.

For the fiscalyear ending December 31, 2005 the Company adopted FASB Interpretation No. 47, *Accounting for**conditional**Asset Retirement Obligations* (“FIN 47”), which clarifies theterm “conditional asset retirement obligation” as defined in SFAS No. 143, *Accounting for Asset Retirement Obligations*, and clarifieswhen an entity would have sufficient information to reasonably estimate thefair value of an asset retirement obligations. The adoption of FIN 47 did nothave a material effect on the Company’s financial position, results ofoperations or cash flows. 

At the June 15and 16 meeting of the EITF, the EITF agreed to amend Item 4 of the ProtectiveRights section of Issue No. 96-16, *Investor’s Accounting foran Investee When the Investor Has a majority of the Voting Interest but theMinority Shareholder or Shareholders Have Certain Approval or Veto Rights*,as well as amend Example 1 of Exhibit 96-16, in order to be consistentwith the consensus reached in EITF Issue No. 04-5, *DeterminingWhether a General Partner, or the General Partners, as a Group, Controls aLimited Partnership or Similar Entity when the Limited Partners Have CertainRights*. These amendments were effective for new investments andinvestment agreements that are modified after June 29, 2005. The adoption ofthese amendments did not have a material impact on the Company’s financialposition, results of operations or cash flows.

**27.**       Supplemental guarantorinformation

The SeniorGuaranteed Notes are fully and unconditionally guaranteed, on an unsecuredsenior, joint and several basis, by each of the Company’s significantsubsidiaries. Each of the guarantor subsidiaries (Proyectos Inmobiliarias deCuliacán, S. A. de C. V., Desarrollodora de Casas del Noroeste, S. A. de C. V.,Casas Beta del Centro, S.A. de C.V., Casas Beta del Norte, S.A. de C.V.,  Casas Beta del Noroeste, S.A. de C.V.,Edificaciones Beta, S.A. de C.V., Edificaciones Beta del Norte, S.A. de C.V.and Edificaciones Beta del Norte, S.A. de C.V.) is a wholly-owned subsidiary.The following condensed combining financial information includes the guarantorsubsidiaries, non-guarantor-subsidiaries and the parent company.

F-49

----

Investments insubsidiaries are accounted for by the parent company under the equity methodfor purpose of the supplemental combining presentation. Earnings of subsidiariesare therefore reflected in the parent company’s investment account andearnings. The principal elimination entries eliminate the parent company’sinvestment in subsidiaries and intercompany balances and transactions.

F-50

----

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**Supplemental Condensed CombiningFinancial Information**

**Balance Sheet as of December 31,2005** As Restated

**(In thousands of Mexican pesos (Ps.)of purchasing power of December 31, 2005)**
| ** **                                                   | ** ** | **Parent  Company** | ** **    | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Parent  Company and  Wholly-  Owned  Guarantor  Subsidiaries** | ** **     | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** **    |
|--------------------------------------------------------------|------------|---------------------|---------------|---------------------------------------------|------------|------------------|------------|-----------------------------------------------------------------------|----------------|-----------------------------------|------------|------------------|------------|------------------|---------------|
| Assets                                                       |       |                |          |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |          |
| Currents assets:                                             |       |                |          |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |          |
| Cash and  temporary investments                              |       | Ps.                 | 146,519       |                                        | Ps.        | 1,095,498        |       | Ps.                                                                   | —         |                              | Ps.        | 1,242,017        |       | Ps.              | 76,759        |   | Ps. | — |   | Ps. | 1,318,776 |   |
| Restricted cash                                              |       | 311                 |          | —                                      |       | —           |       | 311                                                                   |           | —                            |       | —           |       | 311              |          |
| Trade accounts  receivable, net                              |       | 6,575               |          | 5,424,477                                   |       | (30,129          | )          | 5,400,923                                                             |           | 369,191                           |       | (212,916         | )          | 5,557,198        |          |
| Accounts  receivable from affiliates                         |       | 1,481,254           |          | 735,114                                     |       | (1,921,319       | )          | 295,049                                                               |           | 66,475                            |       | (361,524         | )          | —           |          |
| Inventories                                                  |       | 84,645              |          | 3,212,333                                   |       | —           |       | 3,296,978                                                             |           | 219,746                           |       | —           |       | 3,516,724        |          |
| Other current  assets, net                                   |       | 9,987               |          | 24,483                                      |       | —           |       | 34,470                                                                |           | 143,755                           |       | —           |       | 178,225          |          |
| Total current  assets                                        |       | 1,729,291           |          | 10,491,905                                  |       | (1,951,448       | )          | 10,269,748                                                            |           | 875,926                           |       | (574,440         | )          | 10,571,234       |          |
| Land held for  future development                            |       | —              |          | 1,785,044                                   |       | —           |       | 1,785,044                                                             |           | —                            |       | —           |       | 1,785,044        |          |
| Property and  equipment, net                                 |       | —              |          | 281,463                                     |       |             |       | 281,463                                                               |           | 179,368                           |       | —           |       | 460,831          |          |
| Investment in  shares                                        |       | 5,637,940           |          | 2,807                                       |       | (5,419,473       | )          | 221,274                                                               |           | 1                                 |       | (221,275         | )          | —           |          |
| Other assets                                                 |       | 614,442             |          |                                        |       |             |       | 614,442                                                               |           |                              |       |             |       | 614,442          |          |
| Goodwill                                                     |       | 605,517             |          | 20,313                                      |       |             |       | 625,830                                                               |           | 43,339                            |       | 8,702            |       | 677,871          |          |
| **Total**                                                    | ** ** | **Ps.**             | **8,587,190** | ** **                                  | **Ps.**    | **12,581,532**   | ** ** | **Ps.**                                                               | **(7,370,921** | **)**                             | **Ps.**    | **13,797,801**   | ** ** | **Ps.**          | **1,098,634** | ** ** | **Ps.** | **(787,013** | **)** | **Ps.** | **14,109,422** | ** ** |
|                                                         |       |                |          |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |          |
| Liabilities and  stockholders’ equity                   |       |                |          |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |          |
| Current  liabilities:                                        |       |                |          |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |          |
| Current portion  of long-term debt                           |       | Ps.                 | —        |                                        | Ps.        | 17,386           |       | Ps.                                                                   | —         |                              | Ps.        | 17,386           |       | Ps.              | —        |   | Ps. | — |   | Ps. | 17,386 |   |
| Trade accounts  payable                                      |       | 3,304               |          | 2,928,170                                   |       |             |       | 2,931,474                                                             |           | 286,354                           |       | (210,779         | )          | 3,007,049        |          |
| Advance from  customers                                      |       | —              |          | 61,237                                      |       | —           |       | 61,237                                                                |           | 149,761                           |       | —           |       | 210,998          |          |
| Accrued expenses  and taxes other than income taxes          |       | 12,508              |          | 235,249                                     |       | —           |       | 247,757                                                               |           | 8,537                             |       | —           |       | 256,294          |          |
| Due to related  parties                                      |       | 5,391               |          | 1,926,959                                   |       | (1,932,350       | )          |                                                                  |           | 352,632                           |       | (352,632         | )          | —           |          |
| Income tax  payable                                          |       | 1,524               |          | 97,532                                      |       | —           |       | 99,056                                                                |           | —                            |       | —           |       | 99,056           |          |
| Employee  statutory profit sharing                           |       | —              |          | 20,044                                      |       | —           |       | 20,044                                                                |           | 119                               |       | —           |       | 20,163           |          |
| Total current  liabilities                                   |       | 22,727              |          | 5,286,577                                   |       | (1,932,350       | )          | 3,376,954                                                             |           | 797,403                           |       | (563,411         | )          | 3,610,946        |          |
| Long-term debt                                               |       | 2,880,584           |          | 443,279                                     |       | —           |       | 3,323,863                                                             |           | 23,316                            |       | —           |       | 3,347,179        |          |
| Employee  retirement obligations                             |       | —              |          | 25,221                                      |       | —           |       | 25,221                                                                |           | 14,194                            |       | —           |       | 39,415           |          |
| Deferred income  taxes and employee statutory profit sharing |       | 31,231              |          | 1,385,154                                   |       | —           |       | 1,416,385                                                             |           | 5,378                             |       | —           |       | 1,421,763        |          |
| Total liabilities                                            |       | 2,934,542           |          | 7,140,231                                   |       | (1,932,350       | )          | 8,142,423                                                             |           | 840,291                           |       | (563,411         | )          | 8,419,303        |          |
| Stockholders’  equity:                                  |       |                |          |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |          |
| Common stock                                                 |       | 489,059             |          | 2,483,793                                   |       | (2,483,793       | )          | 489,059                                                               |           | 206,501                           |       | (206,501         | )          | 489,059          |          |
| Additional  paid-in capital                                  |       | 3,038,236           |          | —                                      |       | —           |       | 3,038,236                                                             |           | —                            |       | —           |       | 3,038,236        |          |
| Retained earnings                                            |       | 1,958,675           |          | 2,973,205                                   |       | (2,970,547       | )          | 1,961,333                                                             |           | 51,867                            |       | (54,524          | )          | 1,958,676        |          |
| Excess in  restated stockholders’ equity                |       | 312,863             |          | 131,847                                     |       | (131,847         | )          | 312,863                                                               |           | 80                                |       | (80              | )          | 312,863          |          |
| Initial cumulative  effect of deferred income taxes          |       | (146,185            | )             | (147,616                                    | )          | 147,616          |       | (146,185                                                              | )              | (105                              | )          | 105              |       | (146,185         | )             |
| Majority  stockholders’ equity                          |       | 5,652,648           |          | 5,441,229                                   |       | (5,438,571       | )          | 5,655,305                                                             |           | 258,343                           |       | (261,000         | )          | 5,652,649        |          |
| Minority interest  in consolidated subsidiaries              |       | —              |          | 72                                          |       | —           |       | 72                                                                    |           | —                            |       | 37,398           |       | 37,470           |          |
| Total  stockholders’ equity                             |       | 5,652,648           |          | 5,441,301                                   |       | (5,438,571       | )          | 5,655,377                                                             |           | 258,343                           |       | (223,602         | )          | 5,690,119        |          |
| **Total**                                                    | ** ** | **Ps.**             | **8,587,190** | ** **                                  | **Ps.**    | **12,581,532**   | ** ** | **Ps.**                                                               | **(7,370,921** | **)**                             | **Ps.**    | **13,797,801**   | ** ** | **Ps.**          | **1,098,634** | ** ** | **Ps.** | **(787,013** | **)** | **Ps.** | **14,109,422** | ** ** |

 

F-51

----

**Desarrolladora Homex, S.A. de C.V. andSubsidiaries**

**SupplementalCondensed Combining Financial Information**

**BalanceSheet as of December 31, 2004**

**(Inthousands of Mexican pesos (Ps.) of purchasing power of December 31, 2005)**
| ** **                                                   | ** ** | **Parent  Company** | ** **    | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Parent  Company and  Wholly-  Owned  Guarantor  Subsidiaries** | ** **     | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** **  |
|--------------------------------------------------------------|------------|---------------------|---------------|---------------------------------------------|------------|------------------|------------|-----------------------------------------------------------------------|----------------|-----------------------------------|------------|------------------|------------|------------------|-------------|
| Assets                                                       |       |                |          |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |        |
| Currents assets:                                             |       |                |          |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |        |
| Cash and  temporary investments                              |       | Ps.                 | 21,805        |                                        | Ps.        | 452,955          |       | Ps.                                                                   | —         |                              | Ps.        | 474,760          |       | Ps.              | 53,463      |   | Ps. | — |   | Ps. | 528,223 |   |
| Restricted cash                                              |       | —              |          | 21,162                                      |       | —           |       | 21,162                                                                |           | —                            |       | —           |       | 21,162           |        |
| Trade accounts  receivable, net                              |       | 1,015               |          | 3,121,128                                   |       | —           |       | 3,122,143                                                             |           | 417,746                           |       | (263,425         | )          | 3,276,464        |        |
| Accounts  receivable from affiliates                         |       | 342,640             |          | 848,108                                     |       | (1,056,910       | )          | 133,838                                                               |           | 7,650                             |       | (141,488         | )          | —           |        |
| Inventories                                                  |       | —              |          | 2,047,872                                   |       | (23,915          | )          | 2,023,957                                                             |           | 131,006                           |       | —           |       | 2,154,963        |        |
| Other current  assets, net                                   |       | 4,069               |          | 38,390                                      |       | —           |       | 42,459                                                                |           | 65,251                            |       | (3               | )          | 107,707          |        |
| Total current  assets                                        |       | 369,529             |          | 6,529,615                                   |       | (1,080,825       | )          | 5,818,319                                                             |           | 675,116                           |       | (404,916         | )          | 6,088,519        |        |
| Land held for  future development                            |       | —              |          | 520,853                                     |       | —           |       | 520,853                                                               |           | —                            |       | —           |       | 520,853          |        |
| Restricted  investments                                      |       | 44,374              |          | —                                      |       | —           |       | 44,374                                                                |           | —                            |       | —           |       | 44,374           |        |
| Property and  equipment, net                                 |       | —              |          | 174,528                                     |       | (1,835           | )          | 172,693                                                               |           | 87,145                            |       | —           |       | 259,838          |        |
| Investment in  shares                                        |       | 3,715,291           |          | 182                                         |       | (3,484,519       | )          | 230,954                                                               |           | —                            |       | 230,954          |       | —           |        |
| Other assets                                                 |       | 48,038              |          | 39,421                                      |       |             |       | 87,459                                                                |           | —                            |       | —           |       | 87,459           |        |
| **Total**                                                    | ** ** | **Ps.**             | **4,177,232** | ** **                                  | **Ps.**    | **7,264,599**    | ** ** | **Ps.**                                                               | **(4,567,179** | **)**                             | **Ps.**    | **6,874,652**    | ** ** | **Ps.**          | **762,261** | ** ** | **Ps.** | **635,870** | ** ** | **Ps.** | **7,001,043** | ** ** |
|                                                         |       |                |          |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |        |
| Liabilities and  stockholders’ equity                   |       |                |          |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |        |
| Current  liabilities:                                        |       |                |          |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |        |
| Current portion  of long-term debt                           |       | Ps.                 | 377,163       |                                        | Ps.        | 33,221           |       | Ps.                                                                   | —         |                              | Ps.        | 410,384          |       | Ps.              | —      |   | Ps. | — |   | Ps. | 410,384 |   |
| Trade accounts  payable                                      |       | 1,211               |          | 1,715,364                                   |       | (817             | )          | 1,715,758                                                             |           | 262,047                           |       | (263,429         | )          | 1,714,376        |        |
| Advance from  customers                                      |       | —              |          | —                                      |       | —           |       | —                                                                |           | 61,803                            |       | —           |       | 61,803           |        |
| Accrued expenses  and taxes other than income taxes          |       | 8,900               |          | 51,792                                      |       | —           |       | 60,692                                                                |           | 7,840                             |       | —           |       | 68,532           |        |
| Due to related  parties                                      |       | —              |          | 1,056,093                                   |       | (1,056,093       | )          | —                                                                |           | 141,488                           |       | (141,488         | )          |             |        |
| Income tax  payable                                          |       | —              |          | 305                                         |       | —           |       | 305                                                                   |           | 54                                |       | —           |       | 359              |        |
| Employee  statutory profit sharing                           |       | —              |          | 1,979                                       |       | —           |       | 1,979                                                                 |           | 69                                |       | —           |       | 2,048            |        |
| Total current  liabilities                                   |       | 387,274             |          | 2,858,754                                   |       | (1,056,910       | )          | 2,189,118                                                             |           | 473,301                           |       | (404,917         | )          | 2,257,502        |        |
| Long-term debt                                               |       | —              |          | 186,233                                     |       | —           |       | 186,233                                                               |           | —                            |       | —           |       | 186,233          |        |
| Deferred income  taxes and employee statutory profit sharing |       | (61,429             | )             | 701,956                                     |       | —           |       | 640,527                                                               |           | 13,892                            |       | —           |       | 654,419          |        |
| Total liabilities                                            |       | 325,845             |          | 3,746,943                                   |       | (1,056,910       | )          | 3,015,878                                                             |           | 487,193                           |       | (404,917         | )          | 3,098,154        |        |
| Stockholders’  equity:                                  |       |                |          |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |        |
| Common stock                                                 |       | 224,378             |          | 2,185,548                                   |       | (2,185,548       | )          | 224,378                                                               |           | 207,672                           |       | (207,672         | )          | 224,378          |        |
| Additional  paid-in capital                                  |       | 2,303,130           |          | —                                      |       | —           |       | 2,303,130                                                             |           | —                            |       | —           |       | 2,303,130        |        |
| Contributions for  future common stock increases             |       | —              |          | —                                      |       | —           |       | —                                                                |           | 20,741                            |       | (20,741          | )          | —           |        |
| Retained earnings                                            |       | 1,148,991           |          | 1,347,881                                   |       | (1,347,881       | )          | 1,148,991                                                             |           | 46,679                            |       | (46,679          | )          | 1,148,991        |        |
| Excess in  restated stockholders’ equity                |       | 321,073             |          | 131,842                                     |       | (131,842         | )          | 321,073                                                               |           | 80                                |       | (80              | )          | 321,073          |        |
| Initial  cumulative effect of deferred income taxes          |       | (146,185            | )             | (147,615                                    | )          | 147,615          |       | (146,185                                                              | )              | (104                              | )          | 104              |       | (146,185         | )           |
| Majority  stockholders’ equity                          |       | 3,851,387           |          | 3,517,656                                   |       | (3,517,656       | )          | 3,851,387                                                             |           | 275,068                           |       | (275,068         | )          | 3,851,387        |        |
| Minority interest  in consolidated subsidiaries              |       | —              |          | —                                      |       | 7,387            |       | 7,387                                                                 |           | —                            |       | 44,115           |       | 51,502           |        |
| Total  stockholders’ equity                             |       | 3,851,387           |          | 3,517,656                                   |       | (3,510,269       | )          | 3,858,774                                                             |           | 275,068                           |       | (230,953         | )          | 3,902,889        |        |
| **Total**                                                    | ** ** | **Ps.**             | **4,177,232** | ** **                                  | **Ps.**    | **7,264,599**    | ** ** | **Ps.**                                                               | **(4,567,179** | **)**                             | **Ps.**    | **6,874,652**    | ** ** | **Ps.**          | **762,261** | ** ** | **Ps.** | **(635,870** | **)** | **Ps.** | **7,001,043** | ** ** |

 

F-52

----

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**Supplemental Condensed CombiningFinancial Information**

**Statement of Income for the YearEnded December 31, 2005**As Restated

**(In thousands of Mexican pesos (Ps.)of purchasing power of December 31, 2005)**
| ** **                                                               | ** ** | **Parent  Company** | ** **  | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Parent  Company and  Wholly-  Owned  Guarantor  Subsidiaries** | ** **     | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------|-------------|---------------------------------------------|------------|------------------|------------|-----------------------------------------------------------------------|----------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| Revenues                                                                 |       | Ps.                 | —      |                                        | Ps.        | 12,361,870       |       | Ps.                                                                   | 3,830,615      |                              | Ps.        | 8,531,255        |       | Ps.              | 476,188    |   | Ps. | (471,281 | ) | Ps. | 8,536,162 |   |
| Costs                                                                    |       | 116,527             |        | 9,614,515                                   |       | 3,806,818        |       | 5,924,224                                                             |           | 20,837                            |       |             |       | 5,945,061        |       |
| Gross profit                                                             |       | (116,527            | )           | 2,747,355                                   |       | 23,797           |       | 2,607,031                                                             |           | 455,351                           |       | 471,281          |       | 2,591,101        |       |
| Selling and  administrative expenses                                     |       | 71,720              |        | 786,893                                     |       | —           |       | 858,613                                                               |           | 458,467                           |       | (471,281         | )          | 845,799          |       |
| Income (loss)  from operations                                           |       | (188,247            | )           | 1,960,462                                   |       | (23,797          | )          | 1,748,418                                                             |           | (3,116                            | )          | —           |       | 1,745,302        |       |
| Other income —  net                                                 |       | —              |        | 21,449                                      |       | —           |       | 21,449                                                                |           | 1,994                             |       | —           |       | 23,443           |       |
| Net comprehensive  financing cost:                                       |       |                |        |                                        |       |             |       |                                                                  |           |                              |       |             |       |             |       |
| Interest expense                                                         |       | 177,238             |        | 298,636                                     |       | (86,170          | )          | 389,704                                                               |           | 31,695                            |       | (2,272           | )          | 419,127          |       |
| Interest income                                                          |       | (85,709             | )           | (26,580                                     | )          | 86,170           |       | (26,119                                                               | )              | (34,463                           | )          | 2,272            |       | (58,310          | )          |
| Exchange loss                                                            |       | 54,488              |        | 10,921                                      |       | —           |       | 65,409                                                                |           | 52                                |       | —           |       | 65,461           |       |
| Monetary position  loss (gain)                                           |       | 9,950               |        | 102,489                                     |       | (81,028          | )          | 31,411                                                                |           | (128                              | )          | —           |       | 31,283           |       |
|                                                                     |       | 155,967             |        | 385,466                                     |       | (81,028          | )          | 460,405                                                               |           | (2,844                            | )          | —           |       | 457,561          |       |
| Income (loss)  before income taxes and employee statutory profit sharing |       | (344,214            | )           | 1,596,445                                   |       | 57,231           |       | 1,309,462                                                             |           | 1,722                             |       | —           |       | 1,311,184        |       |
| Income tax  (benefit) expense                                            |       | (103,548            | )           | 535,435                                     |       | —           |       | 431,887                                                               |           | (6,839                            | )          | —           |       | 425,048          |       |
| Employee  statutory profit-sharing expense                               |       | —              |        | 9,471                                       |       | —           |       | 9,471                                                                 |           | 119                               |       |             |       | 9,590            |       |
| Equity in income  of associated companies                                |       | 1,117,212           |        | 2,422                                       |       | (1,119,634       | )          | —                                                                |           | —                            |       | —           |       | —           |       |
| Consolidated net  income                                                 |       | Ps.                 | 876,546     |                                        | Ps.        | 1,053,961        |       | Ps.                                                                   | (1,062,403     | )                                 | Ps.        | 868,104          |       | Ps.              | 8,442      |   | Ps. | — |   | Ps. | 876,546 |   |
| Net income of  majority stockholders                                     |       | 883,262             |        | 1,053,961                                   |       | (1,062,403       | )          | 874,820                                                               |           | 8,442                             |       | —           |       | 883,262          |       |
| Net income of  minority stockholders                                     |       | (6,716              | )           | —                                      |       | —           |       | (6,716                                                                | )              | —                            |       | —           |       | (6,716           | )          |
| Consolidated net income                                                  | ** ** | **Ps.**             | **876,546** | ** **                                  | **Ps.**    | **1,053,961**    | ** ** | **Ps.**                                                               | **(1,062,403** | **)**                             | **Ps.**    | **868,104**      | ** ** | **Ps.**          | **8,442**  | ** ** | **Ps.** | **—** | ** ** | **Ps.** | **876,546** | ** ** |
|                                                                          |            |                     |             |                                             |            |                  |            |                                                                       |                |                                   |            |                  |            |                  |            |  |  |  |  |  |  |  |  |

 

F-53

----

**Desarrolladora Homex, S.A. de C.V. and Subsidiaries**

**Supplemental Condensed CombiningFinancial Information**

**Statement of Income for the YearEnded December 31, 2004**

**(In thousands of Mexican pesos (Ps.)of purchasing power of December 31, 2005)**
| ** **                                                               | ** ** | **Parent  Company** | ** **  | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Parent  Company and  Wholly-  Owned  Guarantor  Subsidiaries** | ** **   | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------|-------------|---------------------------------------------|------------|------------------|------------|-----------------------------------------------------------------------|--------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| Revenues                                                                 |       | Ps.                 | —      |                                        | Ps.        | 8,949,265        |       | Ps.                                                                   | 3,581,568    |                              | Ps.        | 5,367,697        |       | Ps.              | 440,193    |   | Ps. | (316,596) |   | Ps. | 5,491,294 |   |
| Costs                                                                    |       | —              |        | 7,302,178                                   |       | 3,557,653        |       | 3,744,525                                                             |         | 79,047                            |       |             |       | 3,823,572        |       |
| Gross profit                                                             |       | —              |        | 1,647,087                                   |       | 23,915           |       | 1,623,172                                                             |         | 361,146                           |       | (316,596         | )          | 1,667,722        |       |
| Selling and  administrative expenses                                     |       | 7,013               |        | 447,343                                     |       | —           |       | 454,356                                                               |         | 310,141                           |       | (316,596         | )          | 447,901          |       |
| Income (loss)  from operations                                           |       | (7,013              | )           | 1,199,744                                   |       | (23,915          | )          | 1,168,816                                                             |         | 51,005                            |       | —           |       | 1,219,821        |       |
| Other income —  net                                                 |       | (899                | )           | 45,196                                      |       | —           |       | 44,297                                                                |         | 176                               |       | —           |       | 44,473           |       |
| Net comprehensive  financing cost:                                       |       |                |        |                                        |       |             |       |                                                                  |         |                              |       |             |       |             |       |
| Interest expense                                                         |       | 56,665              |        | 97,528                                      |       | (32,894          | )          | 121,299                                                               |         | 15,334                            |       | —           |       | 136,633          |       |
| Interest income                                                          |       | (43,575             | )           | (6,996                                      | )          | 32,894           |       | (17,677                                                               | )            | (30,671                           | )          | —           |       | (48,348          | )          |
| Exchange loss  (gain) — net                                         |       | (1,802              | )           | (5,553                                      | )          | —           |       | (7,355                                                                | )            | 1                                 |       | —           |       | (7,354           | )          |
| Monetary position  loss                                                  |       | 8,405               |        | 75,416                                      |       | —           |       | 83,821                                                                |         | 196                               |       | —           |       | 84,017           |       |
|                                                                     |       | 19,693              |        | 160,395                                     |       | —           |       | 180,088                                                               |         | (15,140                           | )          | —           |       | 164,948          |       |
| Income (loss)  before income taxes and employee statutory profit sharing |       | (27,605             | )           | 1,084,545                                   |       | (23,915          | )          | 1,033,025                                                             |         | 66,321                            |       | —           |       | 1,099,346        |       |
| Income tax  (benefit) expense                                            |       | (5,659              | )           | 339,324                                     |       | —           |       | 333,665                                                               |         | 17,280                            |       | —           |       | 350,945          |       |
| Employee  statutory profit sharing expense                               |       | —              |        | 8,739                                       |       | —           |       | 8,739                                                                 |         | 67                                |       | —           |       | 8,806            |       |
| Equity in income  of associated companies                                |       | 752,159             |        | (22                                         | )          | (709,576         | )          | 42,561                                                                |         | —                            |       | (42,561          | )          | —           |       |
| Consolidated net  income                                                 |       | Ps.                 | 730,213     |                                        | Ps.        | 736,460          |       | Ps.                                                                   | (733,491     | )                                 | Ps.        | 733,182          |       | Ps.              | 48,974     |   | Ps. | (42,561 | ) | Ps. | 739,595 |   |
| Net income of  majority stockholders                                     |       | 730,213             |        | 736,460                                     |       | (736,446         | )          | 730,227                                                               |         | 48,974                            |       | (48,974          | )          | 730,227          |       |
| Net income of  minority stockholders                                     |       | —              |        | —                                      |       | 2,955            |       | 2,955                                                                 |         | —                            |       | 6,413            |       | 9,368            |       |
| Consolidated net income                                                  | ** ** | **Ps.**             | **730,213** | ** **                                  | **Ps.**    | **736,460**      | ** ** | **Ps.**                                                               | **(733,491** | **)**                             | **Ps.**    | **733,182**      | ** ** | **Ps.**          | **48,974** | ** ** | **Ps.** | **(42,561** | **)** | **Ps.** | **739,595** | ** ** |

 

F-54

----

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**SupplementalCondensed Combining Financial Information**

**Statementof Income for the Year Ended December 31, 2003**

**(Inthousands of Mexican pesos (Ps.) of purchasing power of December 31, 2005)**
| ** **                                                               | ** ** | **Parent  Company** | ** **  | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Parent  Company and  Wholly-  Owned  Guarantor  Subsidiaries** | ** **   | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------|-------------|---------------------------------------------|------------|------------------|------------|-----------------------------------------------------------------------|--------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| Revenues                                                                 |       | Ps.                 | —      |                                        | Ps.        | 4,717,843        |       | Ps.                                                                   | 1,723,971    |                              | Ps.        | 2,993,872        |       | Ps.              | 199,522    |   | Ps. | (184,553 | ) | Ps. | 3,008,841 |   |
| Costs                                                                    |       | —              |        | 3,861,545                                   |       | 1,723,971        |       | 2,137,574                                                             |         | 14,596                            |       | —           |       | 2,152,170        |       |
| Gross profit                                                             |       | —              |        | 856,298                                     |       | —           |       | 856,298                                                               |         | 184,926                           |       | (184,553         | )          | 856,671          |       |
| Selling and  administrative expenses                                     |       | 71                  |        | 278,050                                     |       | 1,379            |       | 279,500                                                               |         | 180,696                           |       | (184,553         | )          | 275,643          |       |
| Income (loss) from  operations                                           |       | (71                 | )           | 578,248                                     |       | 1,379            |       | 576,798                                                               |         | 4,230                             |       | —           |       | 581,028          |       |
| Other income — net                                                  |       | —              |        | 78,660                                      |       | —           |       | 78,660                                                                |         | 1,794                             |       | —           |       | 80,454           |       |
| Net comprehensive  financing cost:                                       |       |                |        |                                        |       |             |       |                                                                  |         |                              |       |             |       |             |       |
| Interest expense                                                         |       | 24,016              |        | 120,063                                     |       | (24,394          | )          | 119,685                                                               |         | 1,993                             |       | —           |       | 121,678          |       |
| Interest income                                                          |       | (28,734             | )           | (643                                        | )          | 24,394           |       | (4,983                                                                | )            | (1,749                            | )          | —           |       | (6,732           | )          |
| Exchange gain                                                            |       | (1,349              | )           | —                                      |       | (1,349           | )          | —                                                                |         | —                            |       | (1,349           | )          |             |       |
| Monetary position loss                                                   |       | 6,026               |        | 11,040                                      |       | —           |       | 17,066                                                                |         | 1,171                             |       | —           |       | 18,237           |       |
|                                                                     |       | (41                 | )           | 130,460                                     |       | —           |       | 130,419                                                               |         | 1,415                             |       | —           |       | 131,834          |       |
| Income (loss) before  income taxes and employee statutory profit sharing |       | (30                 | )           | 526,448                                     |       | 1,379            |       | 525,039                                                               |         | 4,609                             |       | —           |       | 529,648          |       |
| Income tax (benefit)  expense                                            |       | (1,245              | )           | 189,692                                     |       | —           |       | 188,447                                                               |         | 1,027                             |       | —           |       | 189,474          |       |
| Employee statutory  profit sharing expense                               |       | —              |        | 285                                         |       | —           |       | 285                                                                   |         | —                            |       | —           |       | 285              |       |
| Equity in income of  associated companies                                |       | 335,685             |        | 18                                          |       | (331,760         | )          | 3,943                                                                 |         | —                            |       | (3,943           | )          | —           |       |
| Consolidated net income                                                  |       | Ps.                 | 336,900     |                                        | Ps.        | 336,489          |       | Ps.                                                                   | (333,139     | )                                 | Ps.        | 340,250          |       | Ps.              | 3,582      |   | Ps. | (3,943 | ) | Ps. | 339,889 |   |
| Net income of majority  stockholders                                     |       | 336,900             |        | 336,489                                     |       | (338,979         | )          | 334,410                                                               |         | 3,582                             |       | (3,582           | )          | 334,410          |       |
| Net income of minority  stockholders                                     |       | —              |        | —                                      |       | 5,840            |       | 5,840                                                                 |         | —                            |       | (361             | )          | 5,479            |       |
| Consolidated net income                                                  | ** ** | **Ps.**             | **336,900** | ** **                                  | **Ps.**    | **336,489**      | ** ** | **Ps.**                                                               | **(333,139** | **)**                             | **Ps.**    | **340,250**      | ** ** | **Ps.**          | **3,582**  | ** ** | **Ps.** | **(3,943** | **)** | **Ps.** | **339,889** | ** ** |
|                                                                          |            |                     |             |                                             |            |                  |            |                                                                       |              |                                   |            |                  |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-55

----

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**Supplemental Condensed CombiningFinancial Information**

**Statement of Changes in FinancialPosition for the Year Ended December 31, 2005**

**(In thousands of Mexican pesos (Ps.) of purchasing power ofDecember 31, 2005)**
| ** **                                           | ** ** | **Parent  Company** | ** ** | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Parent  Company and  Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** **    | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|---------------------------------------------|------------|------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------|---------------|------------------|------------|------------------|------------|
| Operating  activities:                               |       |                |       |                                        |       |             |       |                                                                  |       |                              |          |             |       |             |       |
| Consolidated net  income                             |       | Ps.                 | 876,546    |                                        | Ps.        | 1,053,962        |       | Ps.                                                                   | (1,062,404 | )                                 | Ps.           | 868,104          |       | Ps.              | 8,442      |   |   |   | Ps. | 876,546 |   |
| Add items that  did not require resources:           |       |                |       |                                        |       |             |       |                                                                  |       |                              |          |             |       |             |       |
| Depreciation                                         |       |                |       | 47,984                                      |       |             |       | 47,984                                                                |       | 13,727                            |          |             |       | 61,711           |       |
| Equity in income  subsidiaries                       |       | (1,117,209          | )          | (2,422                                      | )          | 1,119,631        |       | —                                                                |       |                              |          |             |       | —           |       |
| Amortization of Beta trademark and backlog           |       | 162,054             |       |                                        |       |             |       | 162,054                                                               |       |                              |          |             |       | 162,054          |       |
| Deferred income  taxes                               |       | 92,657              |       | 288,544                                     |       |             |       | 381,201                                                               |       | (8,514                            | )             |             |       | 372,687          |       |
|                                                 |       | 14,048              |       | 1,388,068                                   |       | 57,227           |       | 1,459,343                                                             |       | 13,655                            |          |             |       | 1,472,998        |       |
| Changes in  operating assets and liabilities         |       |                |       |                                        |       |             |       |                                                                  |       |                              |          |             |       |             |       |
| (Increase)  decrease in:                             |       |                |       |                                        |       |             |       |                                                                  |       |                              |          |             |       |             |       |
| Trade accounts  receivables                          |       | (5,551              | )          | (653,504                                    | )          | 12,718           |       | (646,337                                                              | )          | 48,555                            |          | (50,508          | )          | (648,290         | )          |
| Accounts receivable from affiliates                  |       | (1,138,614          | )          | 113,006                                     |       | 844,309          |       | (181,299                                                              | )          | (58,825                           | )             | 240,124          |       | —           |       |
| Inventories and  land held for future development    |       | (84,646             | )          | (1,871,764                                  | )          |             |       | (1,956,410                                                            | )          | (88,740                           | )             |             |       | (2,045,150       | )          |
| Prepaid assets                                       |       | (5,923              | )          | 16,640                                      |       |             |       | 10,717                                                                |       | (78,504                           | )             |             |       | (67,787          | )          |
| Other assets                                         |       | (242,797            | )          | 20,059                                      |       |             |       | (222,738                                                              | )          | (43,934                           | )             |             |       | (266,672         | )          |
| Increase  (decrease) in:                             |       |                |       |                                        |       |             |       |                                                                  |       |                              |          |             |       |             |       |
| Trade accounts  payable                              |       | 7,228               |       | 857,755                                     |       |             |       | 864,983                                                               |       | 112,957                           |          |             |       | 977,940          |       |
| Accrued expenses and taxes                           |       |                |       | 269,410                                     |       |             |       | 269,410                                                               |       |                              |          |             |       | 269,410          |       |
| Employee  retirement obligations                     |       |                |       | 25,222                                      |       |             |       | 25,222                                                                |       | 14,193                            |          |             |       | 39,415           |       |
| Due to related  parties                              |       | 5,387               |       | 847,330                                     |       | (852,717         | )          | —                                                                |       | 211,144                           |          | (211,144         | )          | —           |       |
| Other  liabilities                                   |       |                |       | 128,111                                     |       |             |       | 128,111                                                               |       |                              |          |             |       | 128,111          |       |
| Net resources  used in operating activities          |       | (1,450,868          | )          | 1,140,333                                   |       | 61,537           |       | (248,998                                                              | )          | 130,501                           |          | (21,528          | )          | (140,025         | )          |
|                                                 |       |                |       |                                        |       |             |       |                                                                  |       |                              |          |             |       |             |       |
| Financing  activities:                               |       |                |       |                                        |       |             |       |                                                                  |       |                              |          |             |       |             |       |
| Proceeds from new  borrowings                        |       | 1,704,693           |       | 1,345,326                                   |       | 805,611          |       | 3,855,630                                                             |       | 23,316                            |          | (1               | )          | 3,878,945        |       |
| Payments of notes  payable to financial institutions |       |                |       | (1,737,064                                  | )          |             |       | (1,737,064                                                            | )          |                              |          |             |       | (1,737,064       | )          |
| Related parties:                                     |       |                |       |                                        |       |             |       |                                                                  |       |                              |          |             |       |             |       |
| Other                                                |       | (8,210              | )          | (5,554                                      | )          | 5,554            |       | (8,210                                                                | )          | (2,656                            | )             | 2,656            |       | (8,210           | )          |
| Proceeds from  issuance of common stock              |       | 999,787             |       |                                        |       |             |       | 999,787                                                               |       | (21,912                           | )             | 21,912           |       | 999,787          |       |
| Net resources  generated by financing activities     |       | 2,696,270           |       | (397,292                                    | )          | 811,165          |       | 3,110,143                                                             |       | (1,252                            | )             | 24,567           |       | 3,133,458        |       |
|                                                 |       |                |       |                                        |       |             |       |                                                                  |       |                              |          |             |       |             |       |
| Investing  activities:                               |       |                |       |                                        |       |             |       |                                                                  |       |                              |          |             |       |             |       |
| Restricted  investments                              |       | 44,374              |       |                                        |       |             |       | 44,374                                                                |       |                              |          |             |       | 44,374           |       |
| Acquisition of  property and equipment               |       |                |       | (40,767                                     | )          |             |       | (40,767                                                               | )          | (105,950                          | )             | (3,039           | )          | (149,756         | )          |
| Acquisition of  minority interest                    |       | (73,577             | )          | (80,892                                     | )          | 73,577           |       | (80,892                                                               | )          |                              |          |             |       | (80,892          | )          |
| Acquisition of  Beta                                 |       | (1,091,178          | )          |                                        |       | (989,044         | )          | (2,080,222                                                            | )          |                              |          |             |       | (2,080,222       | )          |
| Net resources  used in investing activities          |       | (1,120,381          | )          | (121,659                                    | )          | (915,467         | )          | (2,157,507                                                            | )          | (105,950                          | )             | (3,039           | )          | (2,266,496       | )          |
|                                                 |       |                |       |                                        |       |             |       |                                                                  |       |                              |          |             |       |             |       |
| Cash, temporary  investments and restricted cash:    |       |                |       |                                        |       |             |       |                                                                  |       |                              |          |             |       |             |       |
| Net increase                                         |       | 125,025             |       | 621,381                                     |       | (42,765          | )          | 703,641                                                               |       | 23,296                            |          |             |       | 726,937          |       |
| Effect of  acquisition of subsidiaries               |       |                |       |                                        |       | 42,765           |       | 42,765                                                                |       |                              |          |             |       | 42,765           |       |
| Balance at  beginning of year                        |       | 21,805              |       | 474,117                                     |       |             |       | 495,924                                                               |       | 53,463                            |          |             |       | 549,385          |       |
| Balance at end of year                               | ** ** | **Ps.**             | **46,830** | ** **                                  | **Ps.**    | **1,095,498**    | ** ** | ** **                                                            | ** ** | **Ps.**                           | **1,242,328** | ** **       | **Ps.**    | **76,759**       | ** ** | ** ** | ** ** | **Ps.** | **1,319,087** | ** ** |
|                                                      |            |                     |            |                                             |            |                  |            |                                                                       |            |                                   |               |                  |            |                  |            |  |  |  |  |  |  |  |  |  |  |

 

F-56

----

**Desarrolladora Homex, S.A. de C.V. and Subsidiaries**

**Supplemental Condensed Combining Financial Information**

**Statement of Changes in FinancialPosition for the Year Ended December 31, 2004**

**(In thousands of Mexican pesos (Ps.) of purchasing power ofDecember 31, 2005)**
| ** **                                        | ** ** | **Parent  Company** | ** ** | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Parent  Company and  Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------|------------|---------------------|------------|---------------------------------------------|------------|------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| Operating  activities:                            |       |                |       |                                        |       |             |       |                                                                  |       |                              |       |             |       |             |       |
| Consolidated net  income                          |       | Ps.                 | 730,213    |                                        | Ps.        | 736,393          |       | Ps.                                                                   | (733,491   | )                                 | Ps.        | 733,115          |       | Ps.              | 49,041     |   | Ps. | (42,561 | ) | Ps. | 739,595 |   |
| Add items that  did not require resources:        |       |                |       |                                        |       |             |       |                                                                  |       |                              |       |             |       |             |       |
| Depreciation                                      |       | —              |       | 16,574                                      |       |             |       | 16,574                                                                |       | 8,480                             |       | —           |       | 25,054           |       |
| Equity in income  subsidiaries                    |       | (752,159            | )          | 22                                          |       | 709,576          |       | (42,561                                                               | )          | —                            |       | 42,561           |       | —           |       |
| Loss from sale of  subsidiary                     |       |                |       | —                                      |       |             |       |                                                                  |       | 1,180                             |       |             |       | 1,180            |       |
| Deferred income  taxes                            |       | (53,159             | )          | 326,274                                     |       | —           |       | 273,115                                                               |       | 13,976                            |       | —           |       | 287,091          |       |
|                                              |       | (75,105             | )          | 1,079,263                                   |       | (23,915          | )          | 980,243                                                               |       | 72,677                            |       |             |       | 1,052,920        |       |
| Changes in  operating assets and liabilities      |       |                |       |                                        |       |             |       |                                                                  |       |                              |       |             |       |             |       |
| (Increase)  decrease in:                          |       |                |       |                                        |       |             |       |                                                                  |       |                              |       |             |       |             |       |
| Trade accounts  receivable                        |       | (48,932             | )          | (1,251,479                                  | )          | —           |       | (1,300,411                                                            | )          | (237,951                          | )          | 168,459          |       | (1,369,903       | )          |
| Accounts  receivable from affiliates              |       | 1                   |       | (394,835                                    | )          | 266,957          |       | (127,877                                                              | )          | (7,256                            | )          | 135,133          |       |             |       |
| Inventories and  land held for future development |       | 10,882              |       | (1,419,463                                  | )          | 23,915           |       | (1,384,666                                                            | )          | (45,960                           | )          | (1               | )          | (1,430,627       | )          |
| Prepaid expenses                                  |       |                |       | (17,594                                     | )          |             |       | (17,594                                                               | )          | (58,990                           | )          | —           |       | (76,584          | )          |
| Increase  (decrease) in:                          |       |                |       |                                        |       |             |       |                                                                  |       |                              |       |             |       |             |       |
| Trade accounts  payable                           |       | (16,380             | )          | 727,360                                     |       | (1,298           | )          | 709,682                                                               |       | 116,634                           |       | (128,593         | )          | 697,723          |       |
| Due to related  parties                           |       | 88,487              |       | 177,173                                     |       | (265,660         | )          |                                                                  |       | 135,133                           |       | (135,133         | )          |             |       |
| Other, net                                        |       | 4,786               |       | (13,598                                     | )          | —           |       | (8,812                                                                | )          | 7,666                             |       |             |       | (1,146           | )          |
| Net resources  used in operating activities       |       | (36,261             | )          | (1,113,173                                  | )          | (1               | )          | (1,149,435                                                            | )          | (18,047                           | )          | 39,865           |       | (1,127,617       | )          |
|                                              |       |                |       |                                        |       |             |       |                                                                  |       |                              |       |             |       |             |       |
| Financing  activities:                            |       |                |       |                                        |       |             |       |                                                                  |       |                              |       |             |       |             |       |
| Proceeds from new  borrowings                     |       |                |       | 418,006                                     |       |             |       | 418,006                                                               |       |                              |       |             |       | 418,006          |       |
| Payments of notes  payable                        |       | (127,254            | )          | (260,291                                    | )          | —           |       | (387,545                                                              | )          | —                            |       | —           |       | (387,545         | )          |
| Loans from  related parties                       |       | —              |       | 31,008                                      |       | —           |       | 31,008                                                                |       | —                            |       | —           |       | 31,008           |       |
| Payments of  elated party loans                   |       |                |       | (180,104                                    | )          |             |       | (180,104                                                              | )          |                              |       |             |       | (180,104         | )          |
| Proceeds from  issuance of common stock           |       | 1,746,679           |       | 1,631,188                                   |       | (1,625,670       | )          | 1,752,197                                                             |       | 65,686                            |       | (65,686          | )          | 1,752,197        |       |
| Net resources  generated by financing activities  |       | 1,619,425           |       | 1,639,807                                   |       | (1,625,670       | )          | 1,633,562                                                             |       | 65,686                            |       | (65,686          | )          | 1,633,562        |       |
|                                              |       |                |       |                                        |       |             |       |                                                                  |       |                              |       |             |       |             |       |
| Investing  activities:                            |       |                |       |                                        |       |             |       |                                                                  |       |                              |       |             |       |             |       |
| Restricted  investments                           |       | (8,067              | )          |                                        |       |             |       | (8,067                                                                | )          |                              |       |             |       | (8,067           | )          |
| Proceeds from  sale of machinery and equipment    |       |                |       |                                        |       |             |       |                                                                  |       | 49,716                            |       |             |       | 49,716           |       |
| Acquisition of  property and equipment — net |       | —              |       | (148,147                                    | )          | —           |       | (148,147                                                              | )          | (77,569                           | )          | —           |       | (225,716         | )          |
| Restricted cash                                   |       |                |       | (21,167                                     | )          |             |       | (21,167                                                               | )          |                              |       |             |       | (21,162          | )          |
| Investment in  shares                             |       | (1,651,490          | )          |                                        |       | 1,625,670        |       | (25,821                                                               | )          |                              |       | 25,821           |       |             |       |
| Net resources  used in investing activities       |       | (1,659,557          | )          | (169,314                                    | )          | 1,625,670        |       | (203,201                                                              | )          | (27,853                           | )          | 25,821           |       | (205,229         | )          |
|                                              |       |                |       |                                        |       |             |       |                                                                  |       |                              |       |             |       |             |       |
| Cash, temporary  investments and restricted cash: |       |                |       |                                        |       |             |       |                                                                  |       |                              |       |             |       |             |       |
| Net increase                                      |       | (76,393             | )          | 357,319                                     |       | —           |       | 280,926                                                               |       | 19,786                            |       | —           |       | 300,716          |       |
| Balance at beginning  of year                     |       | 98,198              |       | 95,631                                      |       | —           |       | 193,829                                                               |       | 33,677                            |       | —           |       | 227,507          |       |
| Balance at end of year                            | ** ** | **Ps.**             | **21,805** | ** **                                  | **Ps.**    | **452,950**      | ** ** | **Ps.**                                                               | **—** | ** **                        | **Ps.**    | **474,755**      | ** ** | **Ps.**          | **53,463** | ** ** | **Ps.** | **—** | ** ** | **Ps.** | **528,223** | ** ** |
|                                                   |            |                     |            |                                             |            |                  |            |                                                                       |            |                                   |            |                  |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-57

----

**Desarrolladora Homex, S.A. de C.V. and Subsidiaries**

**SupplementalCondensed Combining Financial Information**

**Statementof Changes in Financial Position for the Year Ended December 31, 2003**

**(In thousands of Mexican pesos (Ps.)of purchasing power of December 31, 2005)**
| ** **                                           | ** ** | **Parent  Company** | ** ** | **Wholly-  Owned   Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Parent   Company and  Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|---------------------------------------------------|------------|------------------|------------|-----------------------------------------------------------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| Operating  activities:                               |       |                |       |                                              |       |             |       |                                                                        |       |                              |       |             |       |             |       |
| Consolidated net  income                             |       | Ps.                 | 336,900    |                                              | Ps.        | 336,489          |       | Ps.                                                                         | (333,139   | )                                 | Ps.        | 340,250          |       | Ps.              | 3,582      |   | Ps. | (3,943 | ) | Ps. | 339,889 |   |
| Add items that  did not require resources:           |       |                |       |                                              |       |             |       |                                                                        |       |                              |       |             |       |             |       |
| Depreciation                                         |       | —              |       | 8,868                                             |       | (1,379           | )          | 7,489                                                                       |       | 3,947                             |       | —           |       | 11,436           |       |
| Equity in income  subsidiaries                       |       | (338,479            | )          | (18                                               | )          | 334,554          |       | (3,943                                                                      | )          | (2                                | )          | 3,943            |       | —           |       |
| Loss on sale of  subsidiary                          |       | —              |       | —                                            |       | —           |       | —                                                                      |       | —                            |       | —           |       | —           |       |
| Deferred income  taxes                               |       | (7,412              | )          | 169,122                                           |       | (36              | )          | 161,674                                                                     |       | 472                               |       | —           |       | 162,144          |       |
|                                                 |       | (8,991              | )          | 514,461                                           |       | —           |       | 505,470                                                                     |       | 7,999                             |       |             |       | 513,469          |       |
| Changes in  operating assets and liabilities         |       |                |       |                                              |       |             |       |                                                                        |       |                              |       |             |       |             |       |
| (Increase)  decrease in:                             |       |                |       |                                              |       |             |       |                                                                        |       |                              |       |             |       |             |       |
| Trade accounts  receivable                           |       | 135                 |       | (572,850                                          | )          | —           |       | (572,715                                                                    | )          | (156,459                          | )          | 134,779          |       | (594,395         | )          |
| Accounts  receivable from affiliates                 |       | —              |       | (232,551                                          | )          | 202,362          |       | (30,189                                                                     | )          | 24,138                            |       | 6,051            |       |             |       |
| Inventories and  land held for future development    |       | 20,101              |       | (759,508                                          | )          | —           |       | (739,407                                                                    | )          | (123,922                          | )          | —           |       | (863,329         | )          |
| Prepaid expenses                                     |       |                |       | (41                                               | )          |             |       | (41                                                                         | )          | (521                              | )          | —           |       | (562             | )          |
| Increase  (decrease) in:                             |       |                |       |                                              |       |             |       |                                                                        |       |                              |       |             |       |             |       |
| Trade accounts  payable                              |       | 17,419              |       | 796,074                                           |       | (18,978          | )          | 794,515                                                                     |       | 152,098                           |       | (137,798         | )          | 808,815          |       |
| Due to related  parties                              |       | (257,311            | )          | 440,695                                           |       | (183,384         | )          | —                                                                      |       | 6,051                             |       | (3,032           | )          | 3,019            |       |
| Other, net                                           |       | 1,601               |       | 11,127                                            |       | —           |       | 12,728                                                                      |       | (35,568                           | )          | —           |       | (22,840          | )          |
| Net resources  used in operating activities          |       | (227,048            | )          | 197,407                                           |       | —           |       | (29,639                                                                     | )          | (126,184                          | )          |             |       | (155,823         | )          |
|                                                 |       |                |       |                                              |       |             |       |                                                                        |       |                              |       |             |       |             |       |
| Financing  activities:                               |       |                |       |                                              |       |             |       |                                                                        |       |                              |       |             |       |             |       |
| Proceeds from new  borrowings                        |       | 368,794             |       | 156,124                                           |       |             |       | 524,918                                                                     |       |                              |       |             |       | 524,918          |       |
| Payments of notes  payable to financial institutions |       |                |       | (227,904                                          | )          | —           |       | (227,904                                                                    | )          | —                            |       | —           |       | (227,904         | )          |
| Related parties:                                     |       |                |       |                                              |       |             |       |                                                                        |       |                              |       |             |       |             |       |
| Loans from  related parties                          |       | —              |       | 421,956                                           |       | —           |       | 421,956                                                                     |       | —                            |       | —           |       | 421,956          |       |
| Payments of related  party loans                     |       |                |       | (431,155                                          | )          |             |       | (431,155                                                                    | )          |                              |       |             |       | (431,155         | )          |
| Proceeds from  issuance of common stock              |       | 66,548              |       | —                                            |       | (130,645         | )          | (64,097                                                                     | )          | 167,332                           |       | —           |       | 103,235          |       |
| Net resources  generated by financing activities     |       | 435,342             |       | (80,979                                           | )          | (130,645         | )          | 223,718                                                                     |       | 167,332                           |       | —           |       | 391,050          |       |
|                                                 |       |                |       |                                              |       |             |       |                                                                        |       |                              |       |             |       |             |       |
| Investing  activities:                               |       |                |       |                                              |       |             |       |                                                                        |       |                              |       |             |       |             |       |
| Restricted  investments                              |       | (36,306             | )          | —                                            |       | —           |       | (36,306                                                                     | )          | —                            |       | —           |       | (36,306          | )          |
| Acquisition of  property and equipment — net    |       | —              |       | (33,394                                           | )          | —           |       | (33,394                                                                     | )          | (9,221                            | )          | —           |       | (42,615          | )          |
| Investment in  shares                                |       | (130,645            | )          | —                                            |       | 130,645          |       | —                                                                      |       | —                            |       | —           |       | —           |       |
| Net resources  used in investing activities          |       | (166,951            | )          | (33,394                                           | )          | 130,645          |       | (69,700                                                                     | )          | (9,221                            | )          | —           |       | (78,921          | )          |
|                                                 |       |                |       |                                              |       |             |       |                                                                        |       |                              |       |             |       |             |       |
| Cash, temporary  investments and restricted cash:    |       |                |       |                                              |       |             |       |                                                                        |       |                              |       |             |       |             |       |
| Net increase                                         |       | 41,343              |       | 83,034                                            |       | —           |       | 124,377                                                                     |       | 31,986                            |       | —           |       | 156,306          |       |
| Balance at  beginning of year                        |       | 56,855              |       | 12,597                                            |       | —           |       | 69,452                                                                      |       | 1,749                             |       | —           |       | 71,201           |       |
| Balance at end of year                               | ** ** | **Ps.**             | **98,198** | ** **                                        | **Ps.**    | **95,631**       | ** ** | **Ps.**                                                                     | **—** | ** **                        | **Ps.**    | **193,829**      | ** ** | **Ps.**          | **33,677** | ** ** | **Ps.** | **—** | ** ** | **Ps.** | **227,507** | ** ** |
|                                                      |            |                     |            |                                                   |            |                  |            |                                                                             |            |                                   |            |                  |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-58

----

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**Supplemental CondensedCombining Reconciliation of Mexican GAAP to US GAAP**

**As of and for the Year Ended December 31,2005 As Restated**

**(Inthousands of Mexican pesos (Ps.)of purchasing power of December 31, 2005)**
| ** **                                                                          | ** ** | **Parent   Company** | ** **    | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Parent   Company and  Wholly-  Owned  Guarantor  Subsidiaries** | ** **     | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** **  |
|-------------------------------------------------------------------------------------|------------|---------------------------|---------------|---------------------------------------------|------------|------------------|------------|-----------------------------------------------------------------------------|----------------|-----------------------------------|------------|------------------|------------|------------------|-------------|
| Majority net income  according to Mexican GAAP                                      |       | Ps.                       | 883,262       |                                        | Ps.        | 1,053,961        |       | Ps.                                                                         | (1,062,403     | )                                 | Ps.        | 874,820          |       | Ps.              | 8,442       |   | Ps. | — |   | Ps. | 883,262 |   |
| U.S. GAAP adjustments:                                                              |       |                      |          |                                        |       |             |       |                                                                        |           |                              |       |             |       |             |        |
| Reversal or revenue  recognized under percentage of completion method of accounting |       | —                    |          | (929,117                                    | )          | —           |       | (929,117                                                                    | )              | —                            |       | —           |       | (929,117         | )           |
| Reversal of cost  recognized under percentage of completion method of accounting    |       | —                    |          | 614,846                                     |       | —           |       | 614,846                                                                     |           | —                            |       | —           |       | 614,846          |        |
| Backlog and Beta  trademark                                                         |       | (158,050                  | )             |                                        |       |             |       | (158,050                                                                    | )              |                              |       |             |       | (158,050         | )           |
| Capitalization of  interest                                                         |       | 50,830                    |          | 125,086                                     |       | —           |       | 175,916                                                                     |           | —                            |       | —           |       | 175,916          |        |
| Effects of inflation on  U.S. GAAP adjustments                                      |       | —                    |          | 133,148                                     |       | —           |       | 133,148                                                                     |           | —                            |       | —           |       | 133,148          |        |
| Tax effects on U.S. GAAP  adjustments                                               |       | (151,605                  | )             | 211,292                                     |       | —           |       | 59,687                                                                      |           | —                            |       | —           |       | 59,687           |        |
| Total adjustments                                                                   |       | (258,825                  | )             | 155,255                                     |       | —           |       | (103,570                                                                    | )              | —                            |       | —           |       | (103,570         | )           |
| Net income according to  U.S. GAAP                                                  | ** ** | **Ps.**                   | **624,437**   | ** **                                  | **Ps.**    | **1,209,216**    | ** ** | **Ps.**                                                                     | **(1,062,403** | **)**                             | **Ps.**    | **771,250**      | ** ** | **Ps.**          | **8,442**   | ** ** | **Ps.** | **—** | ** ** | **Ps.** | **779,692** | ** ** |
| ** **                                                                          | ** ** | ** **                |          |                                        |       |             |       |                                                                        |           |                              |       |             |       |             |        |
| Majority stockholders’  equity according to Mexican GAAP                       |       | Ps.                       | 5,652,648     |                                        | Ps.        | 5,441,229        |       | Ps.                                                                         | (5,438,571     | )                                 | Ps         | 5,655,306        |       | Ps.              | 258,343     |   | Ps. | (261,000 | ) | Ps. | 5,652,649 |   |
| U.S. GAAP adjustments:                                                              |       |                      |          |                                        |       |             |       |                                                                        |           |                              |       |             |       |             |        |
| Reversal of revenue  recognized under percentage of completion method of accounting |       | —                    |          | (4,293,998                                  | )          | —           |       | (4,293,998                                                                  | )              | (123,982                          | )          | —           |       | (4,417,980       | )           |
| Reversal of cost  recognized under percentage of completion method of accounting    |       | —                    |          | 3,209,029                                   |       | —           |       | 3,209,029                                                                   |           | 98,282                            |       | —           |       | 3,307,311        |        |
| Backlog and Beta  trademark                                                         |       | (158,050                  | )             |                                        | ** ** | ** **       |       | (158,050                                                                    | )              | ** **                        | ** ** | ** **       |       | (158,050         | )           |
| Goodwill                                                                            |       | 80,353                    |          |                                        | ** ** | ** **       |       | 80,353                                                                      | ** **     | ** **                        | ** ** | ** **       |       | 80,353           |        |
| Acquisition of minority  interest                                                   |       |                      |          | 73,577                                      | ** ** | ** **       |       | 73,577                                                                      | ** **     | ** **                        | ** ** | ** **       |       | 73,577           |        |
| Capitalization of  interest                                                         |       | 94,830                    |          | 176,442                                     |       | —           |       | 271,272                                                                     |           | —                            |       | —           |       | 271,272          |        |
| Deferred employee  statutory profit sharing                                         |       |                      |          | (4,353                                      | )          |             |       | (4,353                                                                      | )              | 8,810                             | ** ** | ** **       |       | (4,457           | )           |
| Total U.S. GAAP  adjustments before tax effects                                     |       | 17,133                    |          | (839,303                                    | )          | —           |       | (822,170                                                                    | )              | (16,890                           | )          | —           |       | (839,060         | )           |
| Tax effects on U.S. GAAP  adjustments                                               |       | 97,460                    |          | 188,925                                     |       | —           |       | 286,385                                                                     |           | 2,874                             |       | —           |       | 289,259          |        |
| Total adjustments                                                                   |       | 114,593                   |          | (650,378                                    | )          | —           |       | (535,785                                                                    | )              | (14,016                           | )          | —           |       | (549,801         | )           |
| Stockholders’ equity according to U.S. GAAP                               | ** ** | **Ps.**                   | **5,767,241** | ** **                                  | **Ps.**    | **4,790,851**    | ** ** | **Ps.**                                                                     | **(5,438,571** | **)**                             | **Ps.**    | **5,119,521**    | ** ** | **Ps.**          | **244,327** | ** ** | **Ps.** | **(261,000** | **)** | **Ps.** | **5,102,848** | ** ** |
|                                                                                     |            |                           |               |                                             |            |                  |            |                                                                             |                |                                   |            |                  |            |                  |             |  |  |  |  |  |  |  |  |  |

 

F-59

----

**Desarrolladora Homex, S.A. de C.V. and Subsidiaries**

** **SupplementalCondensed Combining Reconciliation of Mexican GAAP to US GAAP

**As of and for the Year Ended December 31,2004**

**(Inthousands of Mexican pesos (Ps.)of purchasing power of December 31, 2005)**
| ** **                                                                          | ** ** | **Parent  Company** | ** **    | **Wholly-  Owned   Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Parent   Company and  Wholly-  Owned   Guarantor  Subsidiaries** | ** **     | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** **  |
|-------------------------------------------------------------------------------------|------------|---------------------|---------------|---------------------------------------------------|------------|------------------|------------|-----------------------------------------------------------------------------------|----------------|-----------------------------------|------------|------------------|------------|------------------|-------------|
| Majority net  income according to Mexican GAAP                                      |       | Ps.                 | 730,213       |                                              | Ps.        | 736,393          |       | Ps.                                                                               | (736,446       | )                                 | Ps.        | 730,160          |       | Ps.              | 49,041      |   | Ps. | (48,974 | ) | Ps. | 730,227 |   |
| U.S. GAAP  adjustments:                                                             |       |                |          |                                              |       |             |       |                                                                              |           |                              |       |             |       |             |        |
| Reversal or  revenue recognized under percentage of completion method of accounting |       | —              |          | (1,294,193                                        | )          | —           |       | (1,294,193                                                                        | )              | (119,462                          | )          | —           |       | (1,413,655       | )           |
| Reversal of cost  recognized under percentage of completion method of accounting    |       | —              |          | 741,962                                           |       | —           |       | 741,962                                                                           |           | 80,354                            |       | —           |       | 822,316          |        |
| Reversal of  value-added tax accounting                                             |       | —              |          | 19,578                                            |       | —           |       | 19,578                                                                            |           | —                            |       | —           |       | 19,578           |        |
| Capitalization of  interest                                                         |       | 13,865              |          | 15,814                                            |       | —           |       | 29,679                                                                            |           | 3,751                             |       | —           |       | 33,430           |        |
| Deferred employee  statutory profit sharing                                         |       | —              |          | (4,521                                            | )          | —           |       | (4,521                                                                            | )              | (2,986                            | )          | —           |       | (7,507           | )           |
| Effects of  inflation on U.S. GAAP adjustments                                      |       | —              |          | 107,554                                           |       | —           |       | 107,554                                                                           |           | 5,730                             |       | —           |       | 113,284          |        |
| Tax effects on  U.S. GAAP adjustments                                               |       | (4,159              | )             | 132,902                                           |       | —           |       | 128,743                                                                           |           | 9,894                             |       | —           |       | 138,637          |        |
| Total adjustments                                                                   |       | 9,706               |          | (280,904                                          | )          | —           |       | (271,198                                                                          | )              | (22,719                           | )          |             |       | (293,916         | )           |
| Net income  according to U.S. GAAP                                                  |       | Ps.                 | 739,919       |                                              | Ps.        | 455,489          |       | Ps.                                                                               | 736,446        | )                                 | Ps.        | 458,962          |       | Ps.              | 26,322      |   | Ps. | (48,974 | ) | Ps. | 436,311 |   |
| Majority  stockholders’ equity according to Mexican GAAP                       |       | Ps.                 | 3,851,387     |                                              | Ps.        | 3,517,656        |       | Ps.                                                                               | (3,517,656     | )                                 | Ps.        | 3,851,387        |       | Ps.              | 275,068     |   | Ps. | (275,068 | ) | Ps. | 3,851,387 |   |
| U.S. GAAP  adjustments:                                                             |       |                |          |                                              |       |             |       |                                                                              |           |                              |       |             |       |             |        |
| Reversal of  revenue recognized under percentage of completion method of accounting |       | —              |          | (2,405,025                                        | )          | —           |       | (2,405,025                                                                        | )              | (128,150                          | )          | —           |       | (2,533,175       | )           |
| Reversal of cost  recognized under percentage of completion method of accounting    |       | —              |          | 1,641,817                                         |       | —           |       | 1,641,817                                                                         |           | 86,197                            |       | —           |       | 1,728,014        |        |
| Capitalization of  interest                                                         |       | 40,876              |          | 46,626                                            |       | —           |       | 87,502                                                                            |           | 11,060                            |       | —           |       | 98,562           |        |
| Deferred employee  statutory profit sharing                                         |       | —              |          | (5,955                                            | )          | —           |       | (5,955                                                                            | )              | (3,936                            | )          | —           |       | (9,891           | )           |
| Other                                                                               |       | —              |          | (10,949                                           | )          | —           |       | (10,949                                                                           | )              | —                            |       | —           |       | (10,949          | )           |
| Total U.S. GAAP  adjustments before tax effects                                     |       | 40,876              |          | (733,486                                          | )          | —           |       | (692,610                                                                          | )              | (34,829                           | )          | —           |       | (727,439         | )           |
| Tax effects on  U.S. GAAP adjustments                                               |       | (12,262             | )             | 216,761                                           |       | —           |       | 204,499                                                                           |           | 10,448                            |       | —           |       | 214,947          |        |
| Total adjustments                                                                   |       | 28,614              |          | (516,725                                          | )          | —           |       | (488,111                                                                          | )              | (24,381                           | )          | —           |       | (512,492         | )           |
| Stockholders’ equity according  to U.S. GAAP                                   | ** ** | **Ps.**             | **3,880,001** |                                              | **Ps.**    | **3,000,931**    |       | **Ps.**                                                                           | **(3,517,656** | **)**                             | **Ps.**    | **3,363,276**    |       | **Ps.**          | **250,687** |   | **Ps.** | **(275,068** | **)** | **Ps.** | **3,338,895** |   |
|                                                                                     |            |                     |               |                                                   |            |                  |            |                                                                                   |                |                                   |            |                  |            |                  |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

** **

F-60

----

**Desarrolladora Homex, S.A. de C.V. and Subsidiaries**

**Supplemental CondensedCombining Reconciliation of Mexican GAAP to US GAAP**

**As of and for the Year EndedDecember 31, 2003**

**In thousands of Mexican pesos (Ps.)of purchasing power of December 31, 2005)**
| ** **                                                                          | ** ** | **Parent   Company** | ** **    | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Parent   Company and  Wholly-  Owned   Guarantor   Subsidiaries** | ** **     | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** **  |
|-------------------------------------------------------------------------------------|------------|---------------------------|---------------|---------------------------------------------|------------|------------------|------------|-----------------------------------------------------------------------------------------|----------------|-----------------------------------|------------|------------------|------------|------------------|-------------|
| Majority net  income according to Mexican GAAP                                      |       | Ps.                       | 336,900       |                                        | Ps.        | 336,489          |       | Ps.                                                                                     | (338,979       | )                                 | Ps.        | 334,410          |       | Ps.              | 3,582       |   | Ps. | (3,582 | ) | Ps. | 334,410 |   |
| U.S. GAAP  adjustments:                                                             |       |                      |          |                                        |       |             |       |                                                                                    |           |                              |       |             |       |             |        |
| Reversal or  revenue recognized under percentage of completion method of accounting |       | —                    |          | (178,500                                    | )          | —           |       | (178,500                                                                                | )              | (15,036                           | )          | —           |       | (193,536         | )           |
| Reversal of cost  recognized under percentage of completion method of accounting    |       | —                    |          | 89,360                                      |       | —           |       | 89,360                                                                                  |           | 10,113                            |       | —           |       | 99,473           |        |
| Reversal of value-added  tax accounting                                             |       | —                    |          | (19,579                                     | )          | —           |       | (19,579                                                                                 | )              | —                            |       | —           |       | (19,579          | )           |
| Capitalization of  interest                                                         |       | (7,497                    | )             | (29,868                                     | )          | —           |       | (37,365                                                                                 | )              | (623                              | )          | —           |       | (37,988          | )           |
| Deferred employee  statutory profit sharing                                         |       | —                    |          | (186                                        | )          | —           |       | (186                                                                                    | )              | —                            |       | —           |       | (186             | )           |
| Effects of  inflation on U.S. GAAP adjustments                                      |       | —                    |          | 45,234                                      |       | —           |       | 45,234                                                                                  |           | —                            |       | —           |       | 45,234           |        |
| Tax effects on  U.S. GAAP adjustments                                               |       | 2,685                     |          | 22,377                                      |       | —           |       | 25,062                                                                                  |           | 1,678                             |       | —           |       | 26,739           |        |
| Total adjustments                                                                   |       | (4,812                    | )             | (71,162                                     | )          | —           |       | (75,974                                                                                 | )              | (3,868                            | )          |             |       | (79,843          | )           |
| Net income  according to U.S. GAAP                                                  |       | Ps.                       | 332,088       |                                        | Ps.        | 265,327          |       | Ps.                                                                                     | (338,979       | )                                 | Ps.        | 258,436          |       | Ps.              | 286         |   | Ps. | (3,582 | ) | Ps. | 254,567 |   |
| Majority  stockholders’ equity according to Mexican GAAP                       |       | Ps.                       | 1,363,536     |                                        | Ps.        | 1,149,991        |       | Ps.                                                                                     | (1,149,991     | )                                 | Ps.        | 1,363,536        |       | Ps.              | 200,731     |   | Ps. | (200,731 | ) | Ps. | 1,363,536 |   |
| U.S. GAAP adjustments:                                                              |       |                      |          |                                        |       |             |       |                                                                                    |           |                              |       |             |       |             |        |
| Reversal of  revenue recognized under percentage of completion method of accounting |       | —                    |          | (1,267,769                                  | )          | —           |       | (1,267,769                                                                              | )              | (14,523                           | )          | —           |       | (1,282,292       | )           |
| Reversal of cost  recognized under percentage of completion method of accounting    |       | —                    |          | 927,110                                     |       | —           |       | 927,110                                                                                 |           | 9,769                             |       | —           |       | 936,879          |        |
| Reversal of  value-added tax accounting                                             |       | —                    |          | (19,579                                     | )          | —           |       | (19,579                                                                                 | )              | —                            |       | —           |       | (19,579          | )           |
| Capitalization of  interest                                                         |       | 13,527                    |          | 53,887                                      |       | —           |       | 67,414                                                                                  |           | 1,124                             |       | —           |       | 68,538           |        |
| Deferred employee  statutory profit sharing                                         |       | —                    |          | (2,506                                      | )          | —           |       | (2,506                                                                                  | )              | —                            |       | —           |       | (2,506           | )           |
| Total U.S. GAAP  adjustments before tax effects                                     |       | 13,527                    |          | (308,857                                    | )          | —           |       | (295,330                                                                                | )              | (3,630                            | )          | —           |       | (298,960         | )           |
| Tax effects on  U.S. GAAP adjustments                                               |       | (4,464                    | )             | 94,600                                      |       | —           |       | 90,136                                                                                  |           | 1,197                             |       | —           |       | 91,333           |        |
| Total adjustments                                                                   |       | 9,063                     |          | (214,257                                    | )          | —           |       | (205,194                                                                                | )              | (2,433                            | )          | —           |       | (207,627         | )           |
| Stockholders’ equity  according to U.S. GAAP                                   | ** ** | **Ps.**                   | **1,372,599** | ** **                                  | **Ps.**    | **935,734**      | ** ** | **Ps.**                                                                                 | **(1,149,991** | **)**                             | **Ps.**    | **1,158,342**    | ** ** | **Ps.**          | **198,298** | ** ** | **Ps.** | **(200,731** | **)** | **Ps.** | **1,155,909** | ** ** |
|                                                                                     |            |                           |               |                                             |            |                  |            |                                                                                         |                |                                   |            |                  |            |                  |             |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

* * * * * *

F-61

----