**SECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549

**Form 20-F**

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

**OR**

**x****   ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2005**

**OR**

**o****   TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934for the transition period from      to**

**OR**

** **

**o****   SHELLCOMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THESECURITIES EXCHANGE ACT OF 1934**

**Date ofevent requiring this shell company report: N/A**

 

Commission File Number: 1-32229

**DesarrolladoraHomex, S.A.B. de C.V.**(Exactname of Registrant as specified in its charter)
| **Homex Development Corp.**(Translation of  Registrant’s name into English) | **United  Mexican States**(Jurisdiction of  incorporation or organization) |
|----------------------------------------------------------------------------------|----------------------------------------------------------------------------|

**Boulevard Alfonso ZaragozaM. 2204 Norte80020 Culiacán Sinaloa, MéxicoTelephone:  (52667) 758-5800**(Addressof 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 orto be registered pursuant to Section 12(g) of the Act:**

**None**

**Securitiesfor which there is a reporting obligation pursuant to Section 15(d) ofthe Act:**

**7.50% Senior Guaranteed ExchangeNotes due September 28, 2015**

**Indicate the number ofoutstanding shares of each of the issuer’s classes of capital or common stockas of the close of the period covered by the annual report:**

335,869,550 Common Shares,without par value

**Indicateby check mark whether the registrant is a well known seasoned issue as definedin Rule 405 of the Securities Act.**

| **Yes  ****x** | ** ** | **No  ****o** |
|--------------------------|------------|-------------------------|

 

**If this report is an annual or transition report,indicate by check mark if the registrant is not required to file reportspursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.**

| **Yes  ****o** | ** ** | **No  ****x** |
|--------------------------|------------|-------------------------|

**Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports) and (2) has been subject to such filing requirementsfor the past 90 days.**

| **Yes  ****x** | ** ** | **No  ****o** |
|--------------------------|------------|-------------------------|

 

**Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition ofaccelerated filer and large accelerated filer in Rule 12b-2 of the ExchangeAct.  (Check one):**

 
| **Large accelerated filer****o** | **Accelerated  Filer****x** | **Non  accelerated filer****o** |
|----------------------------------|-----------------------------|---------------------------------|

 

**Indicate by checkmark which financial statement item the registrant has elected to follow:**
| **Item 17  ****o****  ** | ** ** | **Item 18  ****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 for trading but only in connectionwith the registration of American Depositary Shares, pursuant to therequirements of the Securities and Exchange Commission.

 

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|                   | ** ** | ** **                                                                     | ** ** | **Page Number** |
|-------------------|------------|--------------------------------------------------------------------------------|------------|----------------------|
| **PART I**   |       | 3                                                                              |
| ITEM 1.           |       | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.                         |       | 3                    |
| ITEM 2.           |       | OFFER STATISTICS AND EXPECTED TIMETABLE.                                       |       | 3                    |
| ITEM 3.           |       | KEY INFORMATION.                                                               |       | 4                    |
| ITEM 4.           |       | INFORMATION ON THE COMPANY.                                                    |       | 16                   |
| ITEM 4a.          |       | UNRESOLVED STAFF COMMENTS                                                      |       |                 |
| ITEM 5.           |       | OPERATING AND FINANCIAL REVIEW AND PROSPECTS.                                  |       | 34                   |
| ITEM 6.           |       | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.                                    |       | 44                   |
| ITEM 7.           |       | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.                             |       | 51                   |
| ITEM 8.           |       | FINANCIAL INFORMATION.                                                         |       | 55                   |
| ITEM 9.           |       | THE OFFER AND LISTING.                                                         |       | 55                   |
| ITEM 10.          |       | ADDITIONAL INFORMATION.                                                        |       | 59                   |
| ITEM 11.          |       | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                    |       | 75                   |
| ITEM 12.          |       | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.                        |       | 76                   |
| **PART II**  |       | 76                                                                             |
| ITEM 13.          |       | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.                               |       | 76                   |
| ITEM 14.          |       | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE  OF PROCEEDS. |       | 76                   |
| ITEM 15.          |       | CONTROLS AND PROCEDURES.                                                       |       | 76                   |
| ITEM 16A.         |       | FINANCIAL EXPERT                                                               |       | 77                   |
| ITEM 16B.         |       | CODE OF ETHICS                                                                 |       | 77                   |
| ITEM 16C.         |       | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                         |       | 77                   |
| ITEM 16D.         |       | EXEMPTIONS FROM THE LISTING STANDARDS  FOR AUDIT COMMITTEES                    |       | 78                   |
| ITEM 16E.         |       | PURCHASES OF EQUITY SECURITIES BY THE  ISSUER AND AFFILIATED PURCHASERS        |       | 78                   |
| **PART III** |       | 78                                                                             |
| ITEM 17.          |       | FINANCIAL STATEMENTS.                                                          |       | 78                   |
| ITEM 18.          |       | FINANCIAL STATEMENTS.                                                          |       | 78                   |
| ITEM 19.          |       | EXHIBITS.                                                                      |       | 78                   |

 

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**PRESENTATIONOF FINANCIAL INFORMATION**

Throughout this annual report, unless the contextotherwise requires, the terms “we,” “us,” “our,” “the Company” and “Homex”refer to Desarrolladora 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, ControladoraCasas Beta, 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.”

**FinancialInformation**

This annual report includes our audited consolidatedfinancial statements as of December 31, 2004 and 2005 and for each of thethree years ended December 31, 2003, 2004 and 2005. Our consolidatedfinancial statements and other financial information included in this annualreport, unless otherwise specified, are restated in constant pesos as of December 31,2005.

We prepare our financial statements in constant pesosand in accordance with accounting principles generally accepted in Mexico,referred to 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 andconsolidated stockholders’ equity according to U.S. GAAP.

Under Bulletin B-10, issued by the MexicanInstitute of Public Accountants, we are required to present our respectivefinancial information in inflation-adjusted monetary units to allow for moreaccurate comparisons of financial line items over time and to mitigate thedistortive effects of inflation on our financial statements. Unless otherwiseindicated, all financial information in this annual report has been restated inpesos of constant purchasing power as of December 31, 2005. The MexicanNational Consumer Price Index, or NCPI, increased 3.4% from December 31,2004 to December 31, 2005.

We are also required to determine any gain or loss inour respective monetary positions to reflect the effect of inflation onmonetary assets and liabilities under Mexican GAAP. This is done by subtractingmonetary liabilities from monetary assets and then adjusting net monetaryposition by the appropriate inflation rate for the period with the resultingmonetary gain or loss reflected in earnings.

Pursuant to Mexican GAAP, we recognize revenues fromthe sale of homes based on the percentage of completion method of accounting,which requires us to recognize revenues as we incur the cost of construction. Inthis annual report, we use “sell” and refer to homes “sold” in connection withhomes where:

·                  thehome buyer has submitted all required documents in order to obtain financingfrom the mortgage lender;

·                  weestablish that the home buyer will obtain the required financing from themortgage lender;

·                  thehome buyer has signed a purchase application; and

·                  thehome buyer has made a down payment, where down payments are required.

Weuse “deliver” and refer to homes “delivered” in connection with homes for whichtitle has passed to the buyer and for which we have 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. Referencesto “Ps.” and “pesos” are to the lawful currency of Mexico. References to “UDI”and

1

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“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 variouspeso amounts into U.S. dollars at specified rates solely for the convenience ofthe reader. You should not understand these translations as representationsthat the 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 cabletransfers in pesos published by the Federal Reserve Bank of New York, expressedin pesos per U.S. dollar, on December 31, 2005. On June 23, 2006,such noon buying rate was Ps.11.44 to US$1.00.

Unless otherwise indicated, references to UDIs are toUDIs at the Banco de Mexico UDI conversion rate of Ps.3.64 to UDI 1.00 on December 31,2005. 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 are derivedfrom our review of internal surveys, as well as independent sources. Althoughwe believe these sources are reliable, we have not independently verified theinformation and cannot guarantee its accuracy or completeness.

2

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**MARKET SHARE AND OTHER INFORMATION**

***Other InformationPresented***

The standard measure of area in the real estate marketin Mexico is the square meter (m2). Unless otherwise specified, all units ofarea shown in this annual report are expressed in terms of square meters, acresor hectares. One square meter is equal to approximately 10.764 square feet. Approximately4,047 square meters (or 43,562 square feet) are equal to one acre and onehectare is equal to 10,000 square meters (or approximately 2.5 acres).

**FORWARDLOOKING 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 similarexpressions are intended to identify forward-looking statements, but are notthe exclusive means of identifying these statements. Examples of theseforward-looking statements include:

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

·                  statementsof our plans, objectives or goals, including those relating to anticipatedtrends, competition, regulation, government housing policy and rates;

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

·                  statementsof assumptions 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 in forward-lookingstatements. Many of the factors that will determine these results and valuesare beyond our ability to control or predict. All forward-looking statementsand risk factors included in this annual report are made as of the date on thefront cover of this annual report, based on information available to us as ofsuch date, and we assume no obligation to update any forward-looking statementor risk factor.

# **PART I**

**ITEM 1.**                    Identity ofDirectors, SeniorManagement and Advisors.

Not Applicable.

**ITEM 2.**                    OfferStatistics and ExpectedTimetable.

Not Applicable.

3

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**ITEM 3.**                    KeyInformation.

**SELECTED FINANCIAL DATA**

The following tables present our selected consolidatedfinancial information as of and for the periods indicated. Certain informationpresented in these tables does not include our Beta subsidiary which weacquired on July 1, 2005. Information as of December 31, 2004 and2005 and for each of the three years ended December 31, 2003, 2004 and2005 are derived from and should be read together with our audited consolidatedfinancial statements provided in this annual report beginning on page F-1.Our consolidated financial statements and other financial information includedin this annual report, unless otherwise specified, are restated in constant pesosas of December 31, 2005.

The information in the following tables should also beread together with “Item 5. Operating and Financial Review and Prospects”

Our consolidated financial statements are prepared inaccordance with Mexican GAAP, which differs in certain significant respectsfrom U.S. GAAP. Notes 24 and 25 to our audited consolidated financialstatements provide information relating to the nature and effect of suchdifferences as they relate to us and provide a reconciliation to U.S. GAAP ofconsolidated net income and consolidated stockholders’ equity.

Pursuant to Mexican GAAP, our consolidated financialstatements and the selected consolidated financial data set forth below restatethe components of stockholders’ equity using NCPI factors and record gains andlosses in purchasing power from holding monetary assets or liabilities. UnderMexican GAAP, non-monetary assets, with the exception of inventories and fixedassets of non-Mexican origin, are restated using the NCPI factors. Inventoriesare restated at current replacement costs while fixed assets of foreign originare restated by the inflation rate of the country of origin prior totranslation to pesos at the period-end exchange rate. Mexican GAAP alsorequires restatement of all financial statements to pesos of constantpurchasing power as of the date of the most recent balance sheet presented, andaccordingly all data in the consolidated financial statements and in theselected consolidated financial data set forth below have been restated inpesos of constant purchasing power as of December 31, 2005. The effects ofinflation accounting under Mexican GAAP, other than for the use of a specificindex for the restatement of fixed assets of foreign origin, have not beenreversed in the reconciliation to U.S. GAAP. See Notes 24 and 25 to ourconsolidated financial statements.

On May 15, 2004, one of our affiliates,Econoblock, S.A. de C.V., merged with one of our subsidiaries, Desarrolladorade Casas del Noroeste, S.A. de C.V., or DECANO, with DECANO assuming all therights and obligations of the merged company. Because 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, in a manner similar to a poolingof interests, based on the guidance provided by Statement of FinancialAccounting Standards No. 141, “Business Combinations,” issued by theFinancial 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 for ratios, percentages, share, per share, perADS, and operating data, all amounts are presented in thousands of constantpesos.

For additional information regarding financialinformation presented in this annual report, see “Presentation of Financial andOther Information.”

4

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** **

**HomexSelected Consolidated Financial Information**.

 
| ** **                                                               | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                               | ** ** | **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                                                                    |       | 5,828,534                                  |       | 3,823,572 |   | 2,152,170 |   | 983,408 |   | 588,860 |   |
| Gross profit                                                             |       | 2,707,628                                  |       | 1,667,722 |   | 856,671 |   | 419,846 |   | 250,587 |   |
| Selling and  administrative expenses                                     |       | 800,272                                    |       | 447,901 |   | 275,643 |   | 173,173 |   | 127,830 |   |
| Income from  operations                                                  |       | 1,907,356                                  |       | 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 |       | 1,473,238                                  |       | 1,099,346 |   | 529,648 |   | 90,543 |   | (1,228 | ) |
| Income tax  expense                                                      |       | 472,044                                    |       | 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)                                          |       | 991,604                                    |       | 739,595 |   | 339,889 |   | 33,514 |   | (18,824 | ) |
| Net income  (loss) of majority stockholders                              |       | 998,320                                    |       | 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                             |       | 3.07                                       |       | 2.59 |   | 1.38 |   | 0.16 |   | (0.12 | ) |
| Basic and  diluted earnings (loss) per ADS (4)                           |       | 18.42                                      |       | 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                                                                    |       | 5,422,486                                  |       | 3,073,788 |   | 2,159,223 |   | 995,928 |   |   |   |
| Gross profit                                                             |       | 2,184,559                                  |       | 1,003,851 |   | 656,080 |   | 262,643 |   |   |   |
| Operating income  (5) (6)                                           |       | 1,378,152                                  |       | 539,636 |   | 380,105 |   | 89,084 |   |   |   |
| Net income                                                               |       | 1,215,998                                  |       | 436,311 |   | 254,567 |   | 66,475 |   |   |   |
| Weighted average  shares outstanding                                     |       | 324,953                                    |       | 281,997 |   | 241,521 |   | 191,896 |   |   |   |
| Basic and  diluted earnings per share                                    |       | 3.74                                       |       | 1.55 |   | 1.05 |   | 0.35 |   |   |   |
| Basic and diluted  earnings per ADS (4)                                  |       | 22.44                                      |       | 9.28 |   | 6.32 |   | 2.08 |   |   |   |

 

 
| ** **                         | ** ** | **As of and for Year Ended December 31,** | ** ** |
|------------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                         | ** ** | **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                       |       | 14,102,660                                                                   |       | 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                     |       | 3,347,179                                                                    |       | 186,233 |   | — |   | — |   | — |   |
| Land purchases —  long-term   |       | 11,029                                                                       |       | 20,761 |   | — |   | — |   | — |   |
| Total long-term  liabilities       |       | 4,686,537                                                                    |       | 840,652 |   | 367,328 |   | 205,275 |   | 176,242 |   |
| Total  liabilities                 |       | 8,297,483                                                                    |       | 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   |       | 5,805,177                                                                    |       | 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              |       | 9,808,135                                                                    |       | 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 |   |   |   |

 

5

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| Total assets                                                            |   | 13,560,353 |   | 6,644,382 |   | 3,282,997 |   | 1,714,484 |   |    |   |
|-------------------------------------------------------------------------|--------|------------|--------|-----------|--------|-----------|--------|-----------|--------|---------|--------|
| Total current  liabilities                                              |   | 4,597,135  |   | 3,056,803 |   | 2,079,525 |   | 874,326   |   |    |   |
| Total  stockholders’ equity                                        |   | 5,539,154  |   | 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)                                                        |   | 31.7       | %      | 30.4      | %      | 28.5      | %      | 30.0      | %      | 30.0    | %      |
| Operating margin  (8)                                                   |   | 22.3       | %      | 22.2      | %      | 19.3      | %      | 17.6      | %      | 14.6    | %      |
| Net margin (9)                                                          |   | 11.7       | %      | 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)                                                        |   | 28.7       | %      | 24.6      | %      | 23.3      | %      | 20.9      | %      |    |   |
| Operating margin  (8)                                                   |   | 18.1       | %      | 13.2      | %      | 13.5      | %      | 7.1       | %      |    |   |
| Net margin (9)                                                          |   | 16.0       | %      | 10.7      | %      | 33.1      | %      | 5.3       | %      |    |   |
| Other financial data  derived from U.S. GAAP financial information:     |   |       |   |      |   |      |   |      |   |    |   |
| EBITDA (10)                                                             |   | 1,428,458  |   | 644,402   |   | 453,010   |   | 94,127    |   |    |   |

 

___________________

(1)               Thefinancial information as of and for the years ended December 31, 2003,2004 and 2005 have been derived from our audited consolidated financialstatements.

(2)               ForU.S. GAAP purposes, sales are recognized when title passes to the home buyer,as opposed to the percentage-of-completion method of accounting used forMexican GAAP purposes, under which we recognize income from homes we sell as weincur the cost of their construction.

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

(4)               Assumesall common shares are represented by ADSs. Each ADS represents six commonshares. Any discrepancies between per share and per ADS amounts in the tableare due to rounding.

(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)               Representsnet income divided by total revenues.

(10)         EBITDA is not a financialmeasure computed under Mexican or U.S. GAAP. EBITDA derived from our MexicanGAAP financial information means Mexican GAAP net income (loss) excluding (i) depreciation,(ii) net comprehensive financing costs (which is composed of net interestexpense, foreign exchange gain or loss and monetary position gain or loss), and(iii) income tax expense and employee statutory profit-sharing expense.

                             EBITDAderived from our U.S. GAAP financial information means U.S. GAAP net incomeexcluding (i) depreciation, (ii) interest expense and monetaryposition gain or loss, and (iii) income tax expense.

                             Webelieve that EBITDA can be useful to facilitate comparisons of operatingperformance between periods and with other companies in our industry because itexcludes the effect of (i) depreciation, which represents a

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non-cash charge toearnings, (ii) certain financing costs, which are significantly affectedby external 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.

                             EBITDAis also a useful basis of comparing our results with those of other companiesbecause it presents operating results on a basis unaffected by capitalstructure. You should review EBITDA, along with net income (loss) and cash flowfrom operating activities, investing activities and financing activities, whentrying to understand our operating performance. While EBITDA may provide auseful basis for comparison, our computation of EBITDA is not necessarilycomparable to EBITDA as reported by other companies, as each is calculated inits own way and must be read in conjunction with the explanations thataccompany it. While EBITDA is a relevant and widely used measure of operatingperformance, it does not represent cash generated from operating activities inaccordance with Mexican or U.S. GAAP and should not be considered as analternative to net income (loss), determined in accordance with Mexican or U.S.GAAP, as an indication of our financial performance, or to cash flow fromoperating activities, determined in accordance with Mexican or U.S. GAAP, as ameasure of our liquidity, nor is it indicative of funds available to fund ourcash needs.

                             EBITDAhas certain material limitations as follows: (i) it does not include interest expense, which, because we haveborrowed money to finance some of our operations, is a necessary and ongoingpart of our costs and assisted us in generating revenue; (ii) it does notinclude taxes, which are a necessary and ongoing part of our operations; and (iii) itdoes not include depreciation, which, because we must utilize property andequipment in order to generate revenues in our operations, is a necessary andongoing part of our costs. Therefore, any measure that excludes any or all ofinterest expense, taxes and depreciation has material limitations.

***Reconciliation of NetIncome (Loss) to EBITDA Computed from Our Mexican GAAP Financial Information.***
| ** **                                                        | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                        | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| Net income  (loss)                                                |       | Ps.991,604                                 |       | 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 |   |
| Income tax  expense and employee statutory profit sharing expense |       | 481,634                                    |       | 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 |   |

*** ***

***Reconciliationof Net Income to EBITDA Computed from Our U.S. GAAP Financial Information.***
| ** **          | ** ** | **Year Ended December 31,** | ** ** |
|---------------------|------------|--------------------------------------------|------------|
| ** **          | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net income          |       | Ps.1,215,998                               |       | 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 | ) |
| Income tax  expense |       | 252,614                                    |       | 212,306 |   | 162,872 |   | 38,794 |   |
| EBITDA              |       | Ps. 1,428,458                              |       | Ps.644,402 |   | Ps. 453,010 |   | Ps. 94,127 |   |

 

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(11)               Net debt is not a financial measure computed under Mexican GAAP.We compute net debt as the sum of all debt less cash and temporary investments,each of which is computed in accordance with Mexican GAAP. Management uses netdebt as a measure of our total amount of leverage, as it gives effect to cashaccumulated on our balance sheets. Management believes net debt provides usefulinformation to investors because it reflects our actual debt as well as ouravailable cash and temporary investments that could be used to reduce this debt.Net debt has certain material limitations in that it assumes the use of ourcash and temporary investments to repay debt that is actually still outstandingand not to fund operating activities or for investment.

***Reconciliation of Total Debt to Net Debt Derivedfrom 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.     67,734 |   | Ps. 466,984 |   | Ps. 359,752 |   | Ps. 451,588 |   |

 

**DIVIDENDS**

A vote by the majority of our shareholders present ata shareholders’ 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 in1998 and we do not currently expect to pay dividends. We intend to devote asubstantial 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.

**EXCHANGERATE INFORMATION**

The following table sets forth, for the periodsindicated, the period-end, average, high and low exchange rate between the pesoand 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.

 
| **Year Ended December 31,** | ** ** | ** **       | ** ** | **Noon Buying Rate (Ps. Per US$)** | ** ** |
|--------------------------------------------|------------|------------------|------------|-------------------------------------------------------------|------------|
| ** **                                 | ** ** | **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  |   |

___________________

(1)               Ratesshown are the actual low and high, on a day-by-day basis for each period.

(2)               Averageof month-end rates.

On June 23, 2006, the noon buying rate for pesoswas Ps.11.44 to US$1.00. On June 23, 2006 the Banco de Mexico UDIconversion rate was Ps.3.67 to UDI 1.00.

Except during a liquidity crisis lasting from September throughDecember 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 be availablefor purchase in the open market without substantial additional cost.

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**RISKFACTORS**

***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 industryin Mexico has been characterized by a significant shortage of mortgagefinancing. Historically, the limited availability of financing has restrictedhome building and contributed to the current shortage of affordable entry-levelhousing. Substantially all financing for affordable entry-level housing inMexico is provided by government-administrated housing funds such as:

·                  the National Workers’ Housing Fund Institute, or INFONAVIT (Instituto delFondo Nacional para la Vivienda de los Trabajadores), which is financedprimarily through mandatory contributions from the gross wages of privatesector workers, and securitization of mortgages in the capital markets;

·                  the Social Security and Services Institute Public Sector Workers’ HousingFund, or FOVISSSTE (Fondo para la Vivienda y la Seguridad y Servicios Socialespara los Trabajadores del Estado), which is financed primarily throughmandatory contributions from the gross wages of public sector workers; and

·                  public mortgage providers such as the Federal Mortgage Society, or SHF(Sociedad Hipotecaria Federal, S.N.C., Institucion de Banca de Desarrollo),which is financed through its own funds as well as funds provided by the WorldBank and a trust managed by Banco de Mexico.

See “Business—The MexicanHousing Market.”

The amount of fundingavailable and the level of mortgage financing from these sources is limited andmay vary from year to year.

These government-sponsoredentities have significant discretion in terms of the allocation and timing ofdisbursement of mortgage funds. We depend on the availability of mortgagefinancing provided by these government-sponsored entities for substantially allof our sales of affordable entry-level housing, which sales represented 78.1%of our revenues and 72.1% of our operating income for 2005, and 78.2% of ourrevenues and 67.6% of our operating income for 2004.

Accordingly, our financialresults are affected by policies and administrative procedures of INFONAVIT,FOVISSSTE, and SHF, as well as by the Mexican government’s housing policy. Theavailability of mortgage financing granted by INFONAVIT AND FOVISSSTE hasincreased significantly during the past five years as compared to historicallevels while financing from the SHF has decreased due to a change in policy atSHF in 2005. From 2001 through 2005, the amount of mortgage financing grantedin terms of number of homes by these government-sponsored entities increased by81.5% according to Softec, S.C. (“Softec”). However, future Mexican governmenthousing finance policy may limit or delay the availability of mortgagefinancing provided by these agencies or otherwise institute changes, includingchanges in the methods by which these agencies grant mortgages and, in the caseof INFONAVIT, the geographic allocation of mortgage financing, that couldresult in a decrease in our sales and revenues.

Additionally, in 2001 weexperienced delays of up to three months in the disbursement of mortgage fundsfor homes that were financed by INFONAVIT. Due to the change in thepresidential administration following the 2000 elections in Mexico and theresulting change in the administration of INFONAVIT, the agency suspendedprocessing mortgages pending the appointment of its new general director. Althoughwe have not experienced delays of this magnitude since 2001, there is apossibility of delays at the end of 2006 and in early 2007 as a result of theupcoming 2006 presidential election. Disruptions in the operations ofgovernment-sponsored lenders, for any reason, may occur and result in adecrease in our sales and revenues.

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Decreases or delays in theamount of funds available from INFONAVIT, FOVISSSTE, SHF or other sources, orsubstantially increased competition for these funds, could result in a decreasein our sales and revenues. These funds may not continue to be allocated attheir current levels or in regions in which we have or can quickly establish asignificant presence.

***A Slowdown in the Mexican EconomyCould Limit the Availability of Private-Sector Financing in Mexico, on which WeDepend for Our Sales of Middle-Income Housing, which Could Result in a Decreasein Our Sales and Revenues***

One of our principalstrategies is to expand our operations in the middle-income housing sectorwhile maintaining our margins and without adverse affecting our financialcondition. Our expansion into this market depends on private sector lenders,such as commercial banks and Limited Purpose Financial Companies (SociedadesFinancieras de Objeto Limitado, or “sofoles”), which provide a substantialmajority of mortgage financing for the middle-income sector. The availabilityof private sector mortgage financing in Mexico has been severely constrained inthe past as a result of volatile economic conditions in Mexico, the level ofliquidity and stability of the Mexican banking system, and the resultingadoption of more stringent lending criteria and bank regulations. From 1995through 2001, commercial bank mortgage lending was generally unavailable inMexico. However, during the same period a number of sofoles were formed,serving the mostly middle-income market. Since 2002, private sector lendershave gradually increased their mortgage financing activities as a result ofimproved economic conditions and increasing consumer demand. However, it ispossible that the amount of mortgage financing provided by private sectorentities for the middle-income housing market will not increase or bemaintained at current levels.

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

The Mexican affordableentry-level housing industry experiences significant seasonality during theyear, principally due to the operational and lending cycles of INFONAVIT andFOVISSSTE. The programs, budgets, and changes in the authorized policies ofthese mortgage lenders are approved during the first quarter of the year. Paymentby these lenders for home deliveries is slow at the beginning of the year andincreases gradually through the second and third quarters with a rapidacceleration in the fourth quarter. We build and deliver affordable entry-levelhomes based on the seasonality of this cycle because we do not beginconstruction of these homes until a mortgage provider commits mortgage financingto a qualified home buyer in a particular development. Accordingly, we alsotend to recognize significantly higher levels of revenue in the third andfourth quarters and our debt levels tend to be highest in the first and secondquarters. We anticipate that our quarterly results of operations and our levelof indebtedness will continue to experience variability from quarter to quarterin the future.

***We May Experience Difficultyin Finding Desirable Land Tracts or Increases in the Price of Land May IncreaseOur Cost of Sales and Decrease Our Earnings***

Our continued growth dependsin large part on our ability to continue to be able to acquire land and to doso at a reasonable cost. As more developers enter or expand their operations inthe Mexican home building industry, land prices could rise significantly andsuitable land could become scarce due to increased demand or decreased supply. Aresulting rise in land prices may increase our cost of sales and decrease ourearnings. We may not be able to continue to acquire suitable land at reasonableprices in the future.

***Increases in thePrice of Raw Materials May Increase Our Cost of Sales and Reduce Our NetEarnings***

The basic raw materials used in the construction ofour homes 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 RecognizeIncome From Sales of Homes Under the Percentage-of-Completion Method ofAccounting Before Receiving Cash Revenue, Failed Closings Could Result in aShortfall of Actual Cash Received and Require an Adjustment to RevenuePreviously Recorded***

In accordance with MexicanGAAP, and consistent with industry practice in Mexico, we recognize income fromthe sale of homes based on the percentage-of-completion method of accounting,which in Mexico requires us to recognize income as we incur the cost ofconstruction. See Note 3 to our consolidated financial statements for adiscussion of the percentage-of-completion method. However, we do not receivethe proceeds from these sales until the homes are delivered. As a result, thereis a risk that revenue in respect of the income recognized for accountingpurposes will not be received due to the failure of a sale to close. Historically,an immaterial amount of our home sales have failed to close.

***Loss of Services ofOur Key Management Personnel Could Result in Disruptions to Our BusinessOperations***

Our management andoperations are dependent in large part upon the contributions of a small numberof key senior management personnel, including Eustaquio Tomas de NicolasGutierrez, our chairman, and Gerardo de Nicolas Gutierrez, our CEO. We do nothave employment or non-compete agreements with or maintain key-man lifeinsurance in respect of either of these individuals. Because of their knowledgeof the industry and our operations and their experience with Homex, we believethat our future results will depend upon their efforts, and the loss of theservices of any of these individuals for any reason could result in disruptionsto our business operations.

***Competition fromOther Home Builders Could Result in a Decrease in Our Sales and Revenues***

The home building industryin Mexico is highly competitive. Our principal competitors include CorporacionGEO, 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. and Grupo SADASI. Our ability to maintain existinglevels of home sales depends to some extent on competitive conditions,including price competition, competition for available mortgage financing, andcompetition for available land. Competition is likely to continue or intensify.Competitive conditions may prevent us from achieving our goal of increasing ourvolumes of sales, or increased competition may result in a decrease in oursales and revenues.

***Changes in Buildingand Zoning Regulations to which We Are Subject Could Cause Delays inConstruction and Result 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 varysignificantly from region to region in Mexico. We are required to obtain theapproval of numerous federal, state, and local governmental authorities for ourdevelopment activities. Changes in local circumstances or applicable law orregulations of such entities may require modifying or applying for additionalapprovals or changing our processes and procedures to comply with them. It ispossible that these factors could cause delays in construction and result inincreased costs.

***Changes toEnvironmental Laws and Regulations to which We Are Subject Could Cause Delaysin Construction and Result in Increased Costs***

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

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***Our Uninsured HousingDevelopments under Construction Could Suffer Unforeseen Casualties, which CouldResult in Significant Losses to Us***

We do not generally obtain liability insurance tocover housing developments under construction unless it is required byproviders of construction financing. In the event that our uninsured housingdevelopments suffer unforeseen casualties, we may experience significantlosses.

***The Increase in OurLeverage Could Significantly Affect Our Growth and Operating Results***

Our level of debt is significantly higher thanhistorical levels. The increase in the debt service costs could reduce theamount of cash which would otherwise be available to invest in land acquisitionfor new -developments or to meet other obligations. A high level of leveragecould reduce our access to new financing sources on favorable terms and withit, adversely affect our growth prospects, operating results and financialcondition.

***Reduction indistributions from our operating subsidiaries could limit our ability to paydividends and service our debt obligations***

We are a holding company with no substantialoperations and no significant assets other than the common shares of ourmajority-owned subsidiaries. We depend on receiving sufficient funds from oursubsidiaries for virtually all our internal cash flow, including cash flow topay dividends and service our debt obligations. As a result, our cash flow willbe affected if we do not receive dividends and other income from oursubsidiaries. The ability of our subsidiaries to pay dividends and make othertransfers to us is limited by requirements that need to be satisfied underMexican law. This ability may also be limited by credit agreements entered intoby our subsidiaries.

**RiskFactors Related to the Acquisition of Beta**

***We May Fail toRealize the Anticipated Benefits of Our Merger with Beta which will PresentSignificant Challenges-Risks Relating to the ADSs and the Common Shares***

On July 1, 2005 we acquired Controladora CasasBeta, S.A. de C.V., which has now been merged into our Company. The success ofthe merger will depend, in part, on our ability to realize the anticipatedgrowth opportunities and cost savings from combining our business with Beta’sbusiness.

**Risk Factors Related to Mexico**

***Adverse EconomicConditions in Mexico 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 2001through 2003 primarily as a result of the downturn in the U.S. economy. In2001, Mexico’s gross domestic product, or GDP, declined by 0.3%, whileinflation reached 4.4%. In 2002, GDP grew by 0.9% and inflation reached 5.7%. In2003, GDP grew by 1.2% and inflation declined to 4.0%. In 2004, GDP grew by4.2% and inflation 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,high real and nominal interest rates. The interest rates on 28-dayMexican government treasury securities (Certificados de la Tesoreria de laFederacion) 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 weincur peso-denominated debt in the future, it could be at high interest rates.

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

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affect our operations to the extent that we are unableto reduce our costs and expenses in response to falling demand. These factorscould result in a decrease in our sales and revenues.

***Fluctuations of thePeso Relative to the U.S. Dollar Could Result in an Increase in Our Cost ofFinancing and Limit Our Ability to Make Timely Payments on Foreign CurrencyDenominated 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.dollars and other currencies for the purpose of making timely payments ofinterest and principal on our securities and any U.S. dollar-denominated debtthat we may incur in the future. While the Mexican government has notrestricted the right or ability of Mexican or foreign individuals to convertpesos into U.S. dollars or to transfer other currencies out of Mexico since1982, the Mexican government could institute restrictive exchange rate policiesin the future.

***Political Events inMexico May Result in Disruptions to Our Business Operations and Decreasesin Our Sales and Revenues***

The Mexican government exercises significant influenceover many aspects of the Mexican economy. In addition, we depend on Mexican governmenthousing policy, especially with regard to the operation of government-sponsoredmortgage providers, for a large portion of our business. As a result, theactions of the Mexican government concerning the economy and regulating certainindustries could have a significant effect on Mexican private sector entities,including Homex, and on market conditions, prices, and returns on Mexicansecurities.

The Mexican national elections held on July 2,2000 ended 71 years of rule by the Institutional Revolutionary Party(Partido Revolucionario Institucional) with the election of President VicenteFox Quesada, a member of the National Action Party (Partido Accion Nacional),and resulted in the increased representation of opposition parties in theMexican national congress and in municipal and gubernatorial positions. As aresult of these elections and legislative elections held on July 6, 2003,no political party has a majority in the Mexican national congress. This shiftin political power has transformed Mexico from a one-party state to amulti-party democracy.

Although there have not yet been any material adverserepercussions resulting from this political change, multi-party rule isstill relatively 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 andcongressional elections will be held. We cannot assure you that the nextadministration will continue to support the current housing policies, althoughall of the three main candidates have emphasized that these policies willremain. Any change in such policies could have a significant effect on Mexicanhomebuilders, including Homex, as well as on housing finance, demand forhousing, market conditions, and the prices of and returns on Mexican securitiesor that results of the 2006 presidential elections and presidential successionwill not adversely affect the Mexican economy, including the stability of itscurrency, which in turn could have a material adverse effect on our business,financial condition and results of operations, as well as market conditions andprices for 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 OtherCountries May Result in Decreases in the Price of Our Securities***

As is the case with respect to securities of issuersfrom other emerging markets, the market value of securities of Mexicancompanies is, to varying degrees, affected by economic and market conditions inother

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emerging market countries. Although economicconditions in these countries may differ significantly from economic conditionsin Mexico, investors’ reactions to developments in any of these other countriesmay have an adverse effect on the market value of securities of Mexican issuers.In recent years, for example, prices of both Mexican debt securities andMexican equity securities dropped substantially as a result of developments inRussia, 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 toDifferent Corporate Disclosure and Accounting Standards than U.S. Companies***

A principal objective of the securities laws of theUnited States, Mexico, and other countries is to promote full and fairdisclosure of all material corporate information. However, there may be less ordifferent publicly available information about foreign issuers of securitiesthan is regularly published by or about U.S. issuers of listed securities.

**Risk Factors Related to OurCommon Shares and ADSs**

***Future Issuances ofShares May Result in a Decrease of the Market Price of the ADSs and CommonShares***

In the future, we may issue additional equitysecurities for financing and other general corporate purposes, although thereis no present intention to do so. Any such sales or the prospect of any suchsales could result in a decrease of the market price of the ADSs and commonshares.

***Future Sales of OurShares by Our Principal Shareholders May Result in a Decrease of the SharePrice of Our Securities***

Our principal shareholders, including the de Nicolasfamily and Equity International Properties, hold 54% of our outstanding sharecapital. Actions by these shareholders with respect to the disposition of theshares they beneficially own, or the perception that such actions might occur,may decrease the trading price of our shares on the Mexican Stock Exchange andthe price 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 beUnavailable to Holders of Our ADSs, Which May Result in a Dilution of ADSHolders’ Equity Interest in Our Company***

Under Mexican law if we issue new shares for cash aspart of a capital increase, we must grant preemptive rights to ourshareholders, giving them the right to purchase a sufficient number of sharesto maintain their 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 Statesthe right to exercise preemptive rights in any future issuances of sharesunless we file a registration statement with the U.S. Securities and ExchangeCommission, or SEC, with respect to that future issuance of shares; or theissuance qualifies for an exemption from the registration requirements of theU.S. Securities Act of 1933, or Securities Act. At the time of any futurecapital increase, we will evaluate the costs and potential liabilitiesassociated with filing a registration statement with the SEC, the benefits ofenabling U.S. holders of ADSs to exercise preemptive rights, and any otherfactors that we consider important in determining whether to file aregistration statement to permit the exercise of mandatory preemptive rights. Itis possible that we will not file such a registration statement. As a result,the equity interests of ADS holders would be diluted to the extent that ADSholders cannot participate in a future capital increase.

 

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Under the terms of the ADSs, you may instruct the depositary,JPMorgan Chase Bank, to vote the ordinary shares underlying our ADSs, but onlyif we request the depositary to ask for your instructions. Otherwise, you willnot be able to exercise your right to vote unless you withdraw the commonshares underlying the ADSs and vote such common shares. However, you may notreceive sufficient notice of a shareholders’ meeting to permit you to withdrawyour common shares to allow you to cast your vote with respect to any specificmatter. In addition, the depositary and its agents may not be able to send outor receive your voting instructions on time or carry them out in the manner youhave instructed. As a result, you may not be able to exercise your right tovote.

In addition, Mexican law and our bylaws require shareholdersto deposit their common shares with our secretary or with a Mexican custodianand provide evidence of their status as shareholders in order to attendshareholders’ meetings. ADS holders will not be able to meet this requirementand accordingly are not entitled to attend shareholders’ meetings. ADS holderswill also not be permitted to vote the common shares underlying the ADSsdirectly 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 ShareholdersHave Different Rights Against Us, Our Directors, or Our ControllingShareholders in Mexico***

Under Mexican law, the protections afforded tominority shareholders are different from those afforded to minorityshareholders in the United States. For example, because Mexican laws concerningfiduciary duties of directors are not well developed, there are limited groundson which a minority shareholder may bring an action against directors forbreach of this duty as permitted in most jurisdictions in the United States. Thegrounds for shareholder derivative actions under Mexican law are extremelylimited, which effectively bars most of these kinds of suits in Mexico. Proceduresfor class action lawsuits do not exist under Mexican law. Therefore, it may bemore difficult- for minority shareholders to enforce their rights against us,our directors, or our controlling shareholders than it would be for minorityshareholders of a U.S. company.

***It May BeDifficult to Enforce Civil Liabilities Against Us or Our Directors, ExecutiveOfficers and Controlling Persons***

We are organized under the laws of Mexico. A majorityof our directors, executives officers and controlling persons reside outsidethe U.S., all or a significant portion of the assets of our directors,executive officers and controlling persons, and substantially all of ourassets, are located outside the U.S., and certain of the experts named in thisannual report also reside outside the United States. As a result, it may bedifficult for you to effect service of process within the United States uponthese persons or to enforce against them or us in U.S. courts judgmentspredicated upon the civil liability provisions of the federal securities lawsof the United States. We have been advised by our Mexican counsel. Mijares,Angoitia, Cortes y Fuentes, S.C., that there is doubt as to the enforceability,in original 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.    Informationon the Company.**

**BUSINESS OVERVIEW**

**HISTORYAND DEVELOPMENT**

Desarrolladora Homex, S.A.B. de C.V. is a corporation(*sociedad anónima de capital variable*)registered in Culiacán, Sinaloa, Mexico under the Mexican Companies Law (*Ley General de Sociedades Mercantiles*) on March 30,1998

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with an indefinite corporate existence. Our full legalname is Desarrolladora Homex, S.A.B. de C.V. and, effective June 28, 2006,our full legal name is Desarrolladora Homex, S.A.B. de C.V.. Our principalexecutive offices are located at Boulevard Alfonso Zaragoza M. 2204 Norte,Fraccionamiento Bonanza, 80020, Culiacán Sinaloa, México. Our telephone numberis +52 (667) 759-5800. Our legal domicile is Boulevard Alfonso ZaragozaMaytorena 2204 norte, 80020, Culiacán, Sinaloa, México.

Our company traces its origins to 1989 and establishedits current structure in 1998. Beginning in 1999, various strategic investorsincluding, in 2002, EIP, an entity affiliated with Equity Group Investments,L.L.C., an investment 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 servicesnecessary to build the infrastructure of our developments. In 2005 we spentPs.149.8 million on capital expenditures, primarily to fund theintegration of Beta’s purchases of construction equipment to support growth. Ourpurchases of land are treated as additions to inventory and not as capitalexpenditures.

**RecentDevelopments**

***Acquisition ofControladora Casas Beta, S.A. de C.V.***

On July 1, 2005, we acquired Controladora CasasBeta, S.A. de C.V., or Beta, which, prior to its acquisition by us, was thesixth-largest homebuilder in Mexico measured by units sold in 2004. Aftergiving effect to the acquisition, we believe we are now the largest homebuilderin Mexico in terms of operating income on a pro forma basis for 2005. Beta’sresults are consolidated 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 andExchange Offering**

On September 28, 2005, we consummated ouroffering of US$250 million aggregate principal amount of 7.50% SeniorGuaranteed Notes due September 28, 2015, the “September 2005 NoteOffering”. The Senior Guaranteed Notes were entitled to registration rights. Pursuantto the registration rights agreement covering the Senior Guaranteed Notes, wecommenced an exchange offer whereby the 7.50% Senior Guaranteed Exchange Notesdue 2015 were registered and offered in exchange for the 7.50% SeniorGuaranteed Notes. The terms of the registered Senior Guaranteed Exchange Notesare more fully described in our Registration Statement on Form F-4filled with the SEC.

**Our Company**

We are a vertically-integrated home developmentcompany engaged 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 67developments under construction in 26 cities located in 17 Mexican states. Wehad total land reserves under title of approximately 13.1 million squaremeters as of December 31, 2005 on which we estimate we could buildapproximately 55,000 affordable entry-level homes and approximately 25,500middle-income homes. As of December 31, 2005, we also had approximately14.3 million square meters of land for which we had signed purchaseagreements and made partial payment, and for which title was in the process ofbeing transferred. We estimate that we could build approximately 70,000affordable entry-level homes and 4,000 middle-income homes on this land.

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We believe that we have grown faster than the threeother largest 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 isone of the strongest among home builders in Mexico, reflected by our operationsas of December 31, 2005 in 26 cities located in 17 Mexican states. Inaddition, our sales are not concentrated in a limited number of areas, comparedto our competitors, with only one city (Guadalajara) in which we operateproviding approximately 15.6% of our revenues and no other city providing morethan 10% of our revenues for the 12-month period ended December 31,2005.

From time to time, we evaluate investments in realestate projects 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 dividedinto three 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 sizefrom 500 to 20,000 homes and are developed in stages typically comprising 300homes each. During 2005, our affordable entry-level homes had an average salesprice of approximately Ps.234,000 (US$22,013). A typical affordable entry-levelhome consists 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 400to 2,000 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. Weare able to deliver a completed middle-income home in approximately twelve tofourteen weeks from the time a buyer obtains a mortgage approval. In responseto the increase in demand for middle-income housing in Mexico and the highermargins 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 landthat is suitable for our needs and perform ongoing market research to determineregional demand for housing. Suitable land must be located near areas withsufficient demand, generally in areas where at least 500 homes can be built,and must be topographically amenable to housing

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development. We also consider the feasibility ofobtaining required governmental licenses, permits, authorizations, and addingnecessary improvements and infrastructure, include sewage, roads andelectricity in balance with a purchase price that will maximize margins withinthe limits of available mortgage financing. We conduct engineering and environmentalassessments, and in some cases urbanization and land composition studies, ofland we consider for purchase in order to determine that it is suitable forconstruction. We budget the majority of our land purchases for the second halfof the year to coincide with peak cash flow. As a result, our total landreserves fluctuate between our targeted 18 to 24 months of future homedeliveries depending upon the time of year.

As of December 31, 2005, we had total landreserves under title of approximately 13.1 million square meters on whichwe estimate we could build approximately 55,000 affordable entry-level homesand 25,500 middle-income homes. We also had approximately 14.3 millionsquare meters of land for which we had signed purchase agreements and made partialpayment, and for which title was in the process of being transferred. Weestimate that we could build approximately 70,000 affordable entry-level homesand 4,000 middle-income homes on this land.

**Our Relationshipwith Equity International Properties, Ltd.**

Beginning in 1999, private investors, including in2002, Equity International Properties, Ltd., or EIP, a privately heldinvestment company specializing in real estate investments outside the UnitedStates, made a number of equity investments in Homex in an aggregate amount ofUS$30.0 million. EIP is affiliated with Equity Group Investments, L.L.C.,or EGI, a privately-held investment company founded by Samuel Zell, chairman ofEIP. EGI, together with its affiliates, is one of the largest real estateinvestment companies in the United States. EIP participates on our board ofdirectors.

**BusinessStrengths**

***Standardized BusinessProcesses***

Over several years, we have developed and refinedscalable and standardized business processes that allow us to enter new marketsrapidly and efficiently. We have designed proprietary information technologysystems that integrate and monitor every aspect of our operations, includingland acquisition, 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 WorkingCapital 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 andcoordinating payables with receivables, which greatly reduces our borrowingneeds, and to minimize our costs.

***GeographicDiversification***

We believe that we are one of the most geographicallydiversified home development companies in Mexico. As of December 31, 2005,our operations included 67 developments in 26 cities located in 17 Mexicanstates, which states represent 68% of Mexico’s population, according to theMexican Institute of Statistics, Geography and Computer Sciences, or INEGI(Instituto Nacional de Estadistica, Geografia e Informatica). Many of ourdevelopments are located in markets where no major competitors currentlyoperate. In addition, our sales are not concentrated in limited areas, comparedto our competitors. For instance, only one city (Guadalajara) in which weoperate accounted for approximately 15.6% of our revenues and no other cityaccounted for more than 10% of

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our revenues for period ended December 31, 2005. Webelieve that this geographic diversification reduces our risk profile ascompared to our less-diversified competitors.

***Experienced andCommitted Management Team***

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 aConservative Financial Position***

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 adownturn in the economy.

***Focus on GrowthConsolidation and High-Return Opportunities***

Our strategy is to consolidate our growth and toidentify and target high return opportunities such as middle-income home sales.For the year ended December 31, 2005, 30.7% of our revenue came frommiddle-income home sales as compared to 26.2% in the same period in the prioryear. We have developed an operating model that we believe allows us to enterunderserved markets quickly and efficiently in order to take advantage ofattractive opportunities offered by increased availability of public andprivate sector mortgage financing. In response to these opportunities, duringthe last three calendar years and the year ended December 31, 2005 welaunched 34 new affordable entry-level developments in 16 cities. Increasedavailability of private sector financing has also allowed us to expand ourpresence in the middle-income sector, which provides higher margins thanaffordable entry-level homes. We launched eight new middle-income developmentsin 2004 and ten new middle-income developments in nine cities in 2005. Weexpect to continue to expand our operations in the higher margin middle-incomesector.

***Maintain Appropriateand Balanced Land 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 foradditional land for growth with our desire to minimize leverage and avoidexcessive land inventory. Our current goal is to maintain sufficient landreserves for a minimum of 18 to 24 months of future home deliveries. Thistime period allows us to undertake the lengthy processes necessary to prepareland for development, including identifying suitable parcels, locating adequatewater supplies, 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 hadapproximately 14.3 million square meters of land for which we had signedpurchase agreements and made partial payment, and for which title was in theprocess of being transferred. We estimate that we could build approximately70,000 affordable entry-level homes and 4,000 middle-income homes on this land.

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***Continue to Build andContribute to Successful Communities***

We seek to foster brand loyalty by enhancing thequality and value of our communities through building and donatingschools, day-care facilities, parks and churches, and by providing othersocial services to residents of the housing we develop. We are committed tofulfilling our clients’ needs by responding to and meeting their demands. Throughmarket studies, for example, we determine that home buyers prefer larger homesizes over higher priced finishing details. We allow our clients to improvethese details at their own expense in order to offer more square footage perhouse than similarly priced homes offered by our competitors. At the same time,we seek to become the best employer to our employees through training andeducational opportunities. We seek to hire and keep talented employees andinvest in training our workforce at all levels by offering programs such asmiddle-school equivalency courses for our construction laborers. We arecommitted to becoming the best customer to our suppliers by offering variouspayment alternatives and opportunities for cooperative growth, and through ourfactoring structure and other initiatives, including electronic ordering andpayment systems. We believe that these factors make us a preferred homebuilder, employer, and customer and ultimately enhance our overall business.

**OurMarkets**

We operate in geographically diverse marketsthroughout Mexico, from Tijuana in the north to Tapachula in the south, whichrepresent 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 ended December 31,2005. In the year ended December 31, 2004, our developments in Guadalajararepresented 23.0% of our revenues. We anticipate that in the future, revenuesattributable to our developments in Guadalajara will represent an even smallerportion of our total revenues. We expanded into Guadalajara, the capital of thestate of Jalisco and Mexico’s second largest city, because the financingavailable from government-sponsored lenders such as INFONAVIT during 2003significantly exceeded the construction capacity of existing developers in thearea. We seek to continue operations in markets where we have a strong presenceand to expand into underserved markets where demand for housing is high.

**Total Homes Sold**

The following table sets forth information on ourhistorical sales by state. During 2002, all of the homes we sold wereaffordable entry-level homes. No middle-income homes were sold in 2002. During2003, 96.5% of the homes we sold were affordable entry-level homes and 3.5% ofthe homes we sold were middle-income homes. During 2004, 91% of the homes wesold were affordable entry-level homes and 9% of the homes we sold weremiddle-income homes. During 2005, 88.8% of the homes we sold were affordableentry-level homes and 11.2% of the homes we sold were middle-income homes.

 
| ** **           | ** ** | **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 |   | — |   | — |   | — |   | — |   |

 

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| 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  |   |

** **

**THE MEXICAN HOUSINGMARKET**

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 y Promocionde la Vivienda), and CONAFOVI. We have not independently verified any of theinformation 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 demographictrends drive demand for housing in Mexico. These trends include:

·                  sustained growthof a relatively young population;

·                  a high rate of newhousehold 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 millionhouseholds. CONAPO estimates that there were approximately 28.1 millionhouseholds by the end of 2005.

Mexico experienced a period of particularly highpopulation growth during the 1970s and 1980s. The children born during thisboom are contributing to the current increased demand for housing. The targetconsumer group for our homes is typically between 25 and 49 years old. In 2000,the 25-49 year-old age group represented approximately 31 millionpeople or 32% of Mexico’s total population. CONAPO estimates that by 2020, thisage group will represent 46 million or 38% of Mexico’s total population. Thegrowth of this group is expected to contribute to increased housing demand inMexico.

**Housing Supply**

In 2001, CONAFOVI housing statistics indicated therewas a shortage of 4.3 million homes in Mexico. This figure included theneed for: *

·                  1.8 millionnew homes to accommodate multiple households currently living in a single homeand households 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 householdsin Mexico by the end of 2005 and 32.9 million households by 2010.

These estimates suggest that Mexico will have toincrease its 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. Toaddress 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-income and residential. The developer-built housing market includeshomes built by contractors and developers, which are generally financed bymortgage providers. These homes are built with official permits, have municipalservices, and are located on land that is registered and titled by the buyer. Developersmust obtain proper zoning permits, install infrastructure, obtain any necessaryfinancing commitments from lenders, and clear title to the land.

Wecategorize Mexico’s developer-built housing market in the table below:

**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 Policyand Available Financing**

The size of the developer-built market depends to agreat extent 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. Asa 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 the 1994 economic crisis, government policysought to counterbalance the shortage of available financing and the increasesin interest rates that resulted by focusing primarily on providing mortgagesand construction financing via government-sponsored funds in the affordableentry-level sector. Government funds no longer provided development or salesactivities and functioned instead as true savings-and-loan programs. Legislativereforms with regard to community-owned agricultural territories (ejidos), whichmade it possible to sell these formerly restricted properties, also increasedthe potential supply of land available for development. During this period, thegovernment authorized sofoles that underwrite mortgages with funds andguarantees provided by government agencies, private investment, national,foreign or development bank loans, or through the Mexican capital markets. Furthermore,the government encouraged industry growth and private sector lending bysupporting consolidation 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 Mexicanlegislature amended existing tax regulations in order to allow individuals to deducta portion 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 by2.4 million homes, 37% of which (900,000 homes) were built by developers,with the remainder being self-built. Between 2001 and 2003, CONAPO estimatesthat the housing stock increased by another 2.5 million homes, 46% ofwhich (1.1 million homes) were built by developers, with the remainderbeing self-built.

**Sources ofMortgage 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;

·                  Commercial banksand sofoles using their own funds; and

·                  Direct subsidiesfrom public housing agencies and state housing trusts, including the MexicanFund for Popular Housing, or Fonhapo(Fideicomiso Fondo Nacional de Habitaciones Populares).

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According to CONAFOVI, these mortgage providersoriginated 561,550 home mortgages in 2005, as follows:

***INFONAVIT***

INFONAVIT was established by the Mexican government,labor unions, and private sector employees in 1972 as a mutual fund for thebenefit of private sector employees. INFONAVIT functions as a savings and loanthat provides 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 aregenerally less than five times the minimum monthly wage. It is funded throughpayroll contributions by private sector employers on behalf of their employeesequal to 5% of their employees’ gross wages.

Home buyers qualify for INFONAVIT loans according to apoint system 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,INFONAVIT initiated a new mortgage financing system, enabling INFONAVIT toexpedite the issuance of mortgages in response to public demand by reducingdocumentation necessary for initial processing, permitting INFONAVIT to achieveits year-end goals. In addition, this new system enhances transparency andquality of service in connection with mortgage services. Mortgage financingincreased 22% to approximately 371,706 mortgages granted in 2005 fromapproximately 305,000 mortgages granted in 2004 partially as a result of theimplementation of the new 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 1972as a pension 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 Mexican governmentadministers FOVISSSTE similarly to INFONAVIT and permits FOVISSSTE toco-finance mortgage loans with private sector lenders in order to maximizeavailable funds.

FOVISSSTE mortgage financing is typically availablefor housing ranging from the affordable entry-level sector through the lowerend of the middle-income sector. Eligible applicants can obtain FOVISSSTEmortgage loans to purchase new or used homes, remodel or repair existing homes,finance construction of self-built homes, and make down payments on homes notfinanced through FOVISSSTE. FOVISSSTE loans are granted based on senioritywithin the public sector and allocated on a first-come first-served basis thatalso takes into account wages, number of dependents, and geographic location. Oncethe program 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. Repaymentis calculated based on the borrower’s wages, for a term of up to thirty 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 ahigher purchase 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 tocommercial banks and sofoles for the purpose of providing individual homemortgages for affordable entry-level and middle-income homes. Historically, SHFhas only financed a total amount equal to 80% to 90% of a home’s value,generally for a maximum of approximately UDI 500,000 (approximately US$171,000as of December 31, 2005). Beginning in 2005, however, in order to maximizethe availability of affordable entry-level mortgages, SHF has replaced itsfinancing of mortgages for homes with a purchase price greater than UDI 150,000(approximately US$51,000 as of December 31, 2005) with credit enhancementsand loan guarantees for commercial banks and sofoles to support theircapital-raising efforts for the financing of such individual mortgage loans.

In terms of total homes financed, SHF (throughcommercial banks and sofoles) provided approximately 19% of all mortgagefinancing in Mexico during the year ended December 31, 2005.

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***CommercialBanks and Sofoles***

Commercial banks generally target the middle-incomeand residential 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 theMexican stock market, loans from Mexican and foreign lenders, their ownportfolios, and public agencies such as SHF. They are not allowed to acceptdeposits from the public.

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 generallymature in ten to thirty years, and payments are sometimes adjusted forincreases in the 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 approximately6.4% of all mortgage financing in Mexico during the year ended December 31,2005.

**Competition**

The Mexican home development and construction industryis highly 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 to affordable entry-levelhousing.

(M)         Mrefers to middle-income housing.

(R)           Rrefers to residential housing.

We believe that we are well positioned to capturefuture growth opportunities in the affordable entry-level and middle-incomehousing sectors 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 timeof year. We anticipate that our quarterly results of operations and our levelof indebtedness will continue to experience variability from quarter toquarter^ in the future. Mortgage commitments from commercial banks and sofolesfor middle-income housing are generally not subject to significant seasonality.We expect 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 homeswe build 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 and administrativeservices from Administradora PICSA, S.A. de C.V. and Altos Mandos de Negocios,S.A. de C.V. Homex Atizapan, S.A. de C.V., which we operate and control as ajoint venture with strategic partners in the region, owns one of ourmiddle-income developments in the Mexico City area. AeroHomex, S.A. de C.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 marketingand promotion efforts and referrals from satisfied customers. Through surveyswe conduct 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 conduct advertising and promotional campaignsprincipally through print media, including billboards, fliers, and brochuresdesigned specifically for the target market, as well as local radio andtelevision. Moreover, we complement these campaigns with additional advertisingefforts, including booths at shopping centers and other high traffic areas, topromote open houses and other events. In some locations, we work with localemployers and other groups to offer our homes to their employees or members andrely on positive word-of-mouth from satisfied customers for a large percentageof our sales. We also employ specially-trained salespeople to market ourmiddle-income housing developments.

**Sales**

In general, we make sales either at sales offices ormodel homes. Using data we gather through our marketing efforts, we open salesoffices in areas where we identify demand. As of December 31, 2005, weoperated 68 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 securingmortgage loans from housing funds, commercial banks, and sofoles.

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

·                  a potential homebuyer 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 supervise andadminister 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 of middle-income housing, the process ofobtaining customer financing occurs as above, except that we collect a downpayment of between 10% to 25% of a home’s total sales price immediatelyfollowing the execution of the purchase agreement, and the buyer signs the deedof transfer of title and the mortgage agreement when the home is 90% complete.

In all cases, the procedures and requirements forobtaining mortgage financing are determined by the mortgage provider. We grantno direct financing to home buyers for the purchase of our homes.

In general, the purchase agreement we enter into witha potential buyer binds the buyer to purchase the relevant home at the timethat the home is completed. We collect an origination fee at the time that abuyer enters into a purchase agreement, which is returned (less a processingfee) if the sale does not close as a result of a buyer’s breach or if a lenderdeclines a mortgage financing application. We have not experienced and do notexpect to experience losses resulting from breaches of buyer purchaseagreements because we generally have been able to locate other buyersimmediately in these cases.

The purchase price of the homes we sell is denominatedin pesos 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 designsthat we use. Our architects and engineers are trained to design structures tomaximize efficiency and minimize production costs. Our standardized modulardesigns, which focus on quality and size of construction, allow us to build ourhomes quickly and efficiently. By allowing our clients to upgrade finishingdetails on a custom basis after homes are delivered, we experience savings thatallow us 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 constructionsystems to further reduce costs and continue to meet client needs.

**Construction**

We manage the construction of each developmentdirectly, coordinate the activities of our laborers and suppliers, overseequality and cost controls, and assure compliance with zoning and building codes.We have developed efficient, durable, and low-cost construction techniques,based on standardized tasks, which we are able to replicate at all of ourdevelopments. We pay each laborer according to the number of tasks completed. Wegenerally subcontract preliminary site work and infrastructure development suchas roads, sewage, and utilities. Currently, we also subcontract theconstruction of a limited number of multi-unit middle-income apartmentbuildings in the Mexico City 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 andSuppliers**

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 supply arrangements at the corporate level for the basicmaterials used in the construction of our homes,

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including concrete,concrete block, steel, bricks, windows, doors, roof tiles, and plumbingfixtures. We take advantage of economies of scale in contracting for materialsand services in every situation and seek to establish excellent workingrelationships with our suppliers. In order to better manage our workingcapital, we also arrange lines of credit for many of our suppliers through afactoring program sponsored by Nacional Financiera, S.N.C., or NAFIN, a Mexicangovernment-owned development bank, as well as certain additional financialinstitutions. We guarantee a portion of the financing provided to some of oursuppliers for materials we buy from them during construction and repay theselenders directly with funds received when homes are delivered, which allows usto ensure suppliers are paid on time while minimizing our need to secureconstruction financing.

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.de C.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.de C.V., Vitromex, S.A. de C.V., Losetas Asfalticas, S.A. de C.V., FTPAccesorios Plasticos para la Construccion, S.A. de C.V., Curacreto, S.A. deC.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 total of approximately 7,337 employees . All of these employeeswere employed in Mexico. 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 were administrative 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 strictattendance control system that captures information fed via our system throughlaborers’ identification cards.

We have implemented programs throughout Homex toassist our employees in obtaining elementary and middle-school equivalencydegrees. We believe that these programs enhance our ability to attract andretain high quality employees. In 2004 and 2003 we were named as one of the top50 “Great Places to Work” in Mexico by the Great Place to Work Institute, whichis based in 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 theseagreements are negotiated every other year. We believe that we have anexcellent working relationship with our workforce. We have not experienced alabor strike or any significant labor-related delay to date.

**Customer Servicesand Warranties**

Our quality control department oversees strictpre-delivery quality control inspections and responds to post-delivery customerneeds. We respond to client requests during the construction phase andcoordinate every legal aspect that our clients must fulfill when purchasing ourproducts, including signing deeds, obtaining permits, and securing funding. Weprovide a twelve-month warranty following delivery of the home. Historically,we have spent immaterial amounts in warranty claims. In the past three years,we have spent an aggregate of less than 0.5% of our total revenues in warrantyclaims.

 

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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,and local regulation as any other corporation doing business in Mexico. Some ofthe most relevant statutes, regulations, and agencies that govern ouroperations include 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

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as to provide guidelinesand procedures regarding the generation, handling, disposal, and treatment ofhazardous and non-hazardous waste.

We are committed to conducting our business operationsin a manner 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 operationsthrough subsidiaries. The table below sets forth our principal subsidiaries asof December 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 of theshares of Homex Atizapan is held by the individual who owns the land beingdeveloped by Homex Atizapan.

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**ITEM4A. Unresolved Staff Comments.**

Not Applicable

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

**MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

*The following discussion should beread in conjunction with our audited consolidated  financial statements and their accompanyingnotes included elsewhere herein. Our consolidated financial statements andother financial information included in this annual report, unless otherwisespecified, are restated in constant pesos as of December 31, 2005. Ourconsolidated financial statements have been prepared in accordance with MexicanGAAP which differs in certain respects from U.S. GAAP as described in Notes 24and 25 to our audited consolidated financial statements.*

This annual report containsforward-looking statements that reflect our plans, estimates and beliefs. Ouractual results could differ materially from those discussed in theforward-looking statements. Factors that could cause or contribute to thesedifferences include, but are not limited to, those discussed below and elsewherein this annual report, particularly in “Cautionary Statement RegardingForward-Looking Statements” and “Risk Factors.”

**CriticalAccounting Estimates**

**Ourconsolidated financial statements have been prepared in accordance with MexicanGAAP, which requires that we make certain estimates and use certain assumptionsthat affect the amounts reported in our consolidated financial statements andthe accompanying notes. See note 3 of the Consolidated  Financial Statement. Although these estimatesare based on our best knowledge of current events, actual results may differ. Ourcritical accounting estimates are as listed below**

***Goodwill and Intangible Assets***

**We arerequired to apply the purchase method of accounting for all businesscombinations which requires the recognition of certain acquired intangibleassets separate from goodwill. Goodwill and other intangibles determined tohave an indefinite life are no longer to be amortized but are to be tested forimpairment at least annually. In our allocation of the purchase price of theacquisition of Controladora Casas Beta, S.A. de C.V., we identified andallocated a value to intangible assets totaling Ps. 455.3 million related to**the BETA trademark. The valuation of these intangibleassets required us to use our judgment. We also recorded goodwill related tothe acquisition of Controladora Casas Beta, S.A. de C.V. of Ps. 635.9 million.The annual impairment testing requirements requires us to use our judgment andcould require us to write down the carrying value of our goodwill and otherintangible assets in future periods.

*** ***

***Revenueand Cost Recognition***

We use the percentage-of-completion method ofaccounting for revenues and costs, measuring progress towards completion interms of actual 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 cash proceeds from the sale of a home at closing when title to the homeis transferred to the buyer. We include revenues in excess of billings asaccounts receivable on our balance sheet, and any cash proceeds we receive asadvance payments prior to completion of the actual work related to thepayments, including customer down payments, are included in current liabilitiesas advances from customers. Please see Note 3 to the consolidated financialstatements.

The percentage-of-completion method of accountingrequires us to determine on a monthly basis the percentage of completion ofeach stage of a development based on actual expenditures incurred to dateversus budgeted expenditures. To the extent that the estimated costs of adevelopment stage differ from the actual costs incurred, our recognizedrevenues could change. In addition, to the extent that estimated revenuesderived from home sales per development stage differ from revenues derived fromhome deliveries per development stage, our recognized revenues could change.

We apply the percentage-of-completion method torecognize revenues from our housing development subject to the followingconditions:

·                  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.

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

***IncomeTaxes***

We recognize deferred tax assets and liabilities basedon the differences between the financial statements carrying amounts and thetax bases of assets and liabilities. We regularly review our deferred taxassets for recoverability and, if necessary, establish a valuation allowancebased on historical taxable income, projected future taxable income and theexpected timing of the reversals of existing temporary differences. If theseestimates and related assumptions change in the future, we may be required torecord a valuation allowance against deferred tax assets resulting inadditional income tax expense. Please see Notes 3 and 19 to our consolidatedfinancial statements.

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**OPERATING RESULTS**

The following table sets forth selected data for theperiods indicated, restated in constant pesos as of December 31, 2005 andalso expressed as a percentage of our total revenues.
| ** **                                                        | ** ** | **2005**                                         | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                        | ** ** | **(thousands of constant pesos)** | ** ** |
| **Mexican GAAP:**                                                 | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                                          |       | 8,536,162                                        |       | 5,491,294  |       | 3,008,841  |       |
| Costs                                                             |       | 5,828,534                                        |       | 3,823,572  |       | 2,152,170  |       |
| Gross profit                                                      |       | 2,707,628                                        |       | 1,667,722  |       | 856,671    |       |
| Selling and administrative expenses                               |       | 800,272                                          |       | 447,901    |       | 275,643    |       |
| Income from operations                                            |       | 1,907,356                                        |       | 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                                                |       | 472,044                                          |       | 350,945    |       | 189,474    |       |
| Employee statutory profit-sharing expense                         |       | 9,590                                            |       | 8,806      |       | 285        |       |
| Net income                                                        |       | 991,604                                          |       | 739,595    |       | 339,889    |       |
| **Mexican GAAP:**                                                 | ** ** | **(as a percentage of sales)**                   |       |
| Revenues                                                          |       | 100.0                                            | %          | 100        | %          | 100        | %          |
| Costs                                                             |       | 68.3                                             | %          | 69.6       | %          | 71.5       | %          |
| Gross profit                                                      |       | 31.7                                             | %          | 30.4       | %          | 28.5       | %          |
| Selling and administrative expenses                               |       | 9.4                                              | %          | 8.2        | %          | 9.2        | %          |
| Income from operations                                            |       | 22.3                                             | %          | 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 |       | 5.6                                              | %          | 6.6        | %          | 6.3        | %          |
| Net income                                                        |       | 11.6                                             | %          | 13.5       | %          | 11.3       | %          |

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(1)               Represents interestincome, interest expense, monetary position gains and losses, and foreignexchange gains and losses.

***Resultsof Operations for the Year Ended December 31, 2005 Compared to the YearEnded December 31, 2004***

***Revenues***. Total revenues increased55.4% to Ps.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 home soldis substantially greater than for affordable entry-level homes. We sold 3,391middle-income homes in 2005 compared to 1,912 middle-income homes in 2004, andsold 28,203 affordable entry-level homes in 2005 as compared with 19,141affordable entry-level homes in 2004.

***Gross Profit***. Costs increased 52.4% in2005 to Ps.5,828.5 million from Ps.3,823.6 million in 2004, due primarilyto the incorporation of Beta into the Company’s operations as well as theincreased volume, as described above. Gross profit increased by 62.4% toPs.2,707.6 million from Ps. 1,667.7 million in 2004. Our gross profitmargin improved to 31.7% in 2005 from 30.4% in 2004.

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***Selling and Administrative Expenses***. Sellingand administrative expenses increased 78.7% to Ps.800.3 million in 2005 fromPs.447.9 million in 2004. This increase was due principally to theaddition of Beta to the Company’s results as well as higher aggregate salescommissions resulting from the increase in the number of homes sold and theincrease in the number of administrative personnel required to support ourexpanding operations, as well as the increase in training expense for the salesforce and branch managers. As a percentage of sales, selling and administrativeexpenses increased to 9.4% in 2005 from 8.2% in 2004. The increase in sellingand administrative expenses as a percentage of sales was mainly attributable tothe addition of Beta to the Company’s results.

***Net Comprehensive Financing Cost***. Netcomprehensive financing cost (comprised of interest income, interest expense,monetary position gains and losses, and foreign exchange gains and losses)increased by 177.4% from Ps.164.9 million in 2004 to Ps.457.6 million in2005. Net comprehensive financing cost as a percentage of sales increased from3.0% in 2004 to 5.4% in 2005.

Net interest expense increased by 308.7% fromPs.88.3 million in 2004 to Ps.360.8 million in 2005. This increase wasprimarily due to an increase in the Company’s debt level, mainly reflectingborrowings under the credit facility entered into in connection with theacquisition of Beta, the Beta’s existing debt during the period as well as theCompany’s commercial paper program. Interest income increased by 20.7% toPs.58.3 million in 2005 from Ps.48.3 million in 2004 due to higher cash balancesthroughout the year.

We had a foreign exchange loss of Ps.65.5 million in2005 as a result of a higher debt level exposure in U.S. dollar terms impactedby the peso appreciation of approximately 5.0% against the U.S. dollar during2005, compared to a foreign exchange gain of Ps.7.4 million in 2004 as a resultof the dollar balance that we held after our initial public offering and a pesodepreciation of approximately 7.0% against the U.S. dollar, during the firstquarter of 2003.

Monetary position loss decreased fromPs.84.0 million in 2004 to Ps.31.3 million in 2005 as a result of adecrease in our net monetary asset position.

***Income Tax Expense and Employee Statutory Profit-SharingExpense***. Income tax expense increased 34.5% from Ps.350.9million in 2004 to Ps.472.0 million in 2005 due principally to increasedrevenues and income before taxes. The 32.0% effective income tax rate in 2005remained relatively stable from the 31.9% in 2004. Employee statutoryprofit-sharing expense increased from Ps.8.8 million in 2004 to Ps.9.6million in 2005 as a result of the increase in revenue and income before taxes.

***Net Income***. Net income increased by34.1% to Ps.991.6 million in 2005 from Ps.739.6 million in 2004 as aresult of the factors described above.

***Resultsof Operations for the Year Ended December 31, 2004 Compared to the YearEnded December 31, 2003***

***Revenues***. Total revenues increased82.5% to Ps.5,491.3 million in 2004 from Ps.3,008.8 million in 2003primarily due to a 57.2% increase in the number of homes sold, an increase of6.8% in the average price of our affordable entry-level homes, and additionalrevenue recognized in connection with increased sales of middle-income homes,for which the revenue per home sold is substantially greater than for affordableentry-level homes. We sold 1,912 middle-income homes in 2004, compared to 463middle-income homes sold in 2003, and sold 19,141 affordable entry- level homesin 2004, as compared to 12,933 affordable entry-level homes in 2003.

***Gross Profit***. Costs increased 77.7% toPs.3,823.6 million in 2004 from Ps.2,152.2 million in 2003, almostexclusively as a result of increased volume, as described above. Gross profitincreased by 94.7% to Ps. 1,666.7 million in 2004 fromPs.856.7 million in 2003. Our gross profit margin improved to 30.4% in2004 from 28.5% in 2003.

***Selling and Administrative Expenses***. Sellingand administrative expenses increased 62.5% to Ps.447.9 million in 2004from Ps.275.6 million in 2003. This increase was due principally toincreases in aggregate sales commissions resulting from the increase in thenumber of homes sold, the increase in the number of 

37

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administrative personnelrequired to support our expanding operations. As a percentage of sales, sellingand administrative expenses improved by decreasing from 9.2% in 2003 to 8.2% in2004. The decrease in selling and administrative expenses as a percentage ofsales was attributable to restrained growth in the number of our fixed salarypersonnel in relation to our significantly increased sales.

***Net Comprehensive Financing Cost***. Netcomprehensive financing cost (comprised of interest income, interest expense,monetary position gains and losses, and foreign exchange gains and losses)increased by 25.1% from Ps.131.8 million in 2003 to Ps.164.9 millionin 2004. Net comprehensive financing cost as a; percentage of sales decreasedfrom 4.4% in 2003 to 3.0% in 2004. Net interest expense decreased by 23.2% fromPs.114.9 million in 2003 to Ps.88.3 million in 2004. This decreasewas primarily due to a decline in average interest rates on our outstandingindebtedness, a reduction in amounts outstanding under our credit facilitiesand the prepayment of outstanding debt with increased cash due in part toproceeds 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 ofPs.7.4 million in 2004 as a result of a peso appreciation of approximately0.8% against the U.S. dollar during 2004, compared to a foreign exchange gainof Ps.1.3 million in 2003 as a result of the dollar balance that we heldfollowing capital contributions by our principal shareholders and a pesodepreciation of approximately 7.0% against the U.S. dollar during the first twomonths of 2003. Monetary position loss increased from Ps.18.2 million in2003 to Ps.84.0 million in 2004 as a result of an increase in our netmonetary asset position and an increase in inflation.

***Income Tax Expense and Employee Statutory Profit-SharingExpense***. Income tax expense increased 85.2% fromPs.189.5 million in 2003 to Ps.350.9 million in 2004 due principallyto increased revenues and income before taxes. The effective income tax ratedecreased by 12.5% from a rate of 36.0% in 2003 to 32.0% in 2004. Such decreasewas primarily a result of inflation, reduction in the statutory income tax rateon deferred income taxes and an increase in tax loss carry forwards fromPs.554.9 million in the year ended December 31, 2003 to Ps.1,986.8 millionin the year ended December 31, 2004. The tax loss carry forwards wereobtained from the purchase of new land that helped offset payable tax income. Employeestatutory profit-sharing expense increased from Ps.0.3 million in 2003 toPs.8.8 million in 2004 as a result of the increase in revenue and incomebefore taxes.

***Net Income***. Net income increased by117.6% to Ps.739.6 million in 2004 from Ps.339.9 million in 2003 as aresult of the factors described above.

***Government Policy and Available Financing***

The size of the developer-built market depends to agreat extent on the availability of mortgage financing. Due to liquidity andgeneral economic crises occurring in the last twenty years, Mexico hasexperienced fluctuations in the availability of mortgage financing,particularly from private sector sources. As a result, the supply of affordableentry-level and middle-income; housing has also remained low during thisperiod.

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 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.

Following the 1994 economic crisis, government policysought to counterbalance the shortage of available financing and the increasesin interest rates that resulted by focusing 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.

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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 Mexicanlegislature amended existing tax regulations in order to allow individuals todeduct a portion of their mortgage loan interest payments from their personalincome taxes beginning in 2003, which the administration expects  will lead to increased mortgage financingactivity.

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 according to the Housing Development Agency(Comision Nacional de Fomento a la Vivienda), or CONAFOVI, the housing stock inMexico increased by 2.4 million homes, 37% of which (900,000 homes) werebuilt by developers, with the remainder being self-built. Between 2001 and2004, CONAPO estimates that the housing stock increased by another3.0 million homes, 46% of which were built by developers, with theremainder being self-built.

Changes in the availability of mortgage financing fromgovernment agencies could adversely affect us. See “Risk Factors—Risk FactorsRelated to our Business—Decreases in the Amount of Mortgage Financing Providedby Mexican Government-Sponsored Agencies on which We Depend, or DisbursementDelays, Could Result in a Decrease in Our Sales and Revenues.”

**LIQUIDITYAND CAPITAL RESOURCES**

We have experienced, and expect to continue toexperience, substantial liquidity and capital resource requirements,principally to finance development and construction of homes and for landinventory purchases.

Asof December 31, 2005, we had Ps. 1,318.8 million of cash and temporaryinvestments and Ps. 3,353.5 million of outstanding indebtedness for moneyborrowed (none of which was construction financing provided by sofoles fordevelopments under construction), as compared to Ps.549.3 million of cash andtemporary investments and Ps.575.9 million of outstanding indebtedness as of December 31,2004.

Although we do not commence construction of anydevelopment until the availability of mortgage financing for qualifiedhomebuyers is assured, we do acquire land and perform licensing, permitting,and certain infrastructure development activities prior to receivingconfirmation of the availability of mortgage financing. Historically, we havefinanced our development and construction activities through internallygenerated funds, commercial paper programs, and bridge loans.

Our primary sources of liquidity are:

·                  cash flow fromoperations;

·                  our domesticcommercial paper programs;

·                  financing fromsellers of land and, to a lesser extent, suppliers of materials;

39

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·                  commercialbanks, sofoles, and other financial institutions; and

·                  downpayments from home buyers.

Thetable below sets forth information regarding our outstanding debt as of December 31,2005.

Debt Outstandingas 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-dayMexican interbank rate (Tasa de Interes Interbancaria de Equilibrio), which was8.56% as of December 31, 2005.

(2)          Issued in an aggregateprincipal amount of US$250 million with a coupon rate of 7.50%. We enteredinto a foreign exchange swap to hedge the foreign exchange risk associated withthe principal amount of this debt at a rate of Ps.10.86 per U.S. dollarand at an average cost of 2.92%.

Our total indebtedness increased toPs.3,353.5 million as of December 31, 2005 from Ps.575.9 millionas of December 31, 2004 mainly as a result of the incurrence of debt inconnection with the Beta acquisition facility arranged on September 14,2005 and the issuance of the our Senior Guaranteed Notes due 2015 on September 28,2005.

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

On September 28, 2005, we issuedUS$250 million of Senior Guaranteed Notes due 2015 with a coupon rate of7.50%.

We have not paid dividends since the inception of theCompany in 1998 and we do not currently expect to pay dividends in theforeseeable future.

**TREND INFORMATION**

Otherthan as disclosed elsewhere in this Annual Report including in “Item 3. KeyInformation Risk Factors” and “Item 4. Information on the Company—Business Overview—The Mexican Housing Market”,we are not aware of any trends, uncertainties, demands, commitments or eventswhich are reasonably likely to have a material effect upon our net sales orrevenues, income from continuing operations, profitability, liquidity orcapital resources, or that would cause reported financial information to notnecessarily be indicative of future operating results or financial condition.

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**OFF-BALANCESHEET ARRANGEMENTS**

Wehave no off-balance sheet arrangements 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 |   |
|                                                                                |            |                                                 |            |  |  |  |  |  |  |  |  |  |  |

 

Contractualobligations 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 was mainlydue to the issuance of the senior guaranteed notes. see “Liquidity and CapitalResources.”

**New Accounting Pronouncements**

***MexicanGAAP***

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 function be performedby an independent entity.

Accordingly, thetask of establishing bulletins of Mexican GAAP and circulars previously issuedby the IMCP was transferred to CINIF, who subsequently renamed standards ofMexican GAAP as “Normas de Información Financiera” (Financial ReportingStandards, or “NIFs”), and determined that NIFs encompass (i) newbulletins established under the new function; (ii) any interpretationsissued thereon; (iii) any Mexican GAAP bulletins that have not beenamended, replaced or revoked by the new NIFs; and (iv) InternationalFinancial Reporting Standards (“IFRS”) that are supplementary guidance to beused when Mexican GAAP does not provide primary guidance.

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,together with NIF B-1, were issued on October 31, 2005. Theirprovisions are effective for years beginning January 1, 2006, supersedingall existing Mexican GAAP series A bulletins.

 

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The new NIFs areas 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 mostsignificant changes established by these standards are as follows:

·                                Inaddition to the statement of changes in financial position, NIF A-3includes the statement of cash flows, which should be issued when required by aparticular standard.

·                                NIFA-5 includes a new classification for revenues and expenses: ordinary andnot ordinary. 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 expenses classifiedas not ordinary refer to unusual transactions and events, whether frequent ornot.

·                                NIFA-7 requires the presentation of comparative financial statements for atleast the preceding period. Through December 31, 2004, the presentation ofprior years’ financial statements was optional. The financial statements mustdisclose the authorized date for their issuance, and the name(s) of theofficer(s) or administrative body(ies) authorizing the related issuance.

·                                NIFB-1 establishes that changes in particular standards, reclassificationsand correction 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.

The Company hasnot fully assessed the effects of adopting these new standards on its financialinformation.

***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 thesecosts and expenses be recognized as current-period charges regardless ofwhether they meet the criterion of “so abnormal” as previously defined underARB No. 43. In addition, SFSA No. 151 requires that the allocation offixed production overhead to the costs of conversion be based on the normalcapacity of the production facilities. This statement is effect for inventorycosts incurred during fiscal years beginning after June 15, 2005. TheCompany does not anticipate the adoption of this new accounting principle willhave a material effect on its financial position, results of operations or cashflows.

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 intrinsic value measurementprovisions of Accounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued to Employees* to stockcompensation awards issued to employees. Rather, SFAS No. 123(R) requirescompanies to measure the cost of employee services received in exchange for anaward of equity instruments based on the grant-date fair value of the award.That cost will be recognized over the period during which an employee isrequired to provide services in exchange for the award—the requisite serviceperiod (usually the vesting period). SFAS No. 123(R) applies to allawards granted after the required effective date as well as to existing awardsthat are modified, repurchased, or cancelled after the effective date. SFAS No. 123(R) willbe effective for the Company’s fiscal year ending December 31, 2006. ThisFinancial Accounting Standard is non-applicable to us because the company doesnot have any stock compensation plans.

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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 APBOpinion No. 29, *Accounting for NonmonetaryTransactions* to eliminate the exception for nonmonetary exchanges ofsimilar productive assets and replaces it with a general exception forexchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153is effective for nonmonetary assets exchanges occurring in fiscal periodsbeginning after June 15, 2005. The Company does not anticipate that theadoption of this statement will have a material effect on its financialposition, results of operations or cash flows.

In May 2005,the FASB issued SFAS No. 154, *Accounting Changes andError Corrections — a replacement of APB Opinion No. 20 and FASB StatementNo. 3*. SFAS No. 154 requires retrospective application toprior periods’ financial statements of changes in accounting principles, unlessimpracticable. The statement defines retrospective application as theapplication of a different accounting principle to prior accounting periods asif that principle had always been used and redefines restatement as therevising of previously issued financial statements to reflect the correction ofan error. SFAS No. 154 also requires that retrospective application of achange in accounting principle be limited to the direct effects of the change. Indirecteffects of a change in accounting principle should be recognized in the periodof the accounting change. The new standard is effective for accounting changesmade in fiscal years beginning after December 15, 2005. The Company doesnot anticipate that the adoption of this standard will have a material effecton its financial position, 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 EITFAbstracts Topic 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.

At the September 29and 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 FASB Statement No. 131, *Disclosuresabout Segments of an Enterprise and Related Information* (“SFAS No. 131”)should be aggregated, may aggregate such operating segments only if aggregationis consistent with the objective and basic principle of SFAS No. 131, thatthey have similar economic characteristics, and that the segments share amajority of the aggregation criteria listed in (a) through (e) ofparagraph 17 of SFAS No. 131. The consensus in EITF 04-10 should beapplied for fiscal years ending after September 15, 2005. The Company doesnot anticipate that the application of this consensus will affect thepresentation or aggregation of its operating segments.

At the September 15,2005 EITF meeting, the EITF discussed Issue 04-13, *Accountingfor Purchases and Sales of Inventory with the Same Counterparty*, (“EITF04-13”). At the meeting, it was agreed that that in situations in whichan inventory transaction is legally contingent upon the performance of anotherinventory transaction with the same counterparty, the two transactions aredeemed to have been entered into are in contemplation of one another and wouldbe considered a single exchange transaction subject to Accounting PrinciplesBoard Opinion 29, *Accounting for Nonmonetary Transactions*.The Task Force also stated indicators of when a purchase transaction and asales transaction would not be considered as entered into in contemplation ofone another, and thus, may have the ability to be recorded as separatepurchases and sales. EITF 04-13 is effective for new arrangements enteredinto, or modifications or renegotiations of existing arrangements, beginning inthe first annual reporting period beginning after March 15, 2006. TheCompany has not yet determined the effects of adoption of EITF 04-13 onits financial position, 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 discussedIssue 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

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were placed in service significantly after, and notcontemplated at, the beginning of the lease term. This Issue is effective forleasehold improvements (that are within the scope of this Issue) that arepurchased or acquired in reporting periods beginning after June 29, 2005. TheCompany does not anticipate the adoption of EITF 05-6 will have amaterial effect on its financial position, results of operations or cash flows.

For the fiscalyear ending December 31, 2005 the Company adopted FASB Interpretation No. 47,*Accounting for Conditional Asset RetirementObligations* (“FIN 47”), which clarifies the term “conditional assetretirement obligation” as defined in FASB Statement 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 15 and16, 2005 meeting of the EITF, the EITF agreed to amend Item 4 of the ProtectiveRights section of Issue No. 96-16, *Investor’sAccounting for an Investee When the Investor Has a majority of the VotingInterest but the Minority Shareholder or Shareholders Have Certain Approval orVeto Rights* as well as amend Example 1 of Exhibit 96-16,in order to be consistent with the consensus reached in EITF Issue No. 04-5,*Determining Whether a General Partner, or theGeneral Partners, as a Group, Controls a Limited Partnership or Similar Entitywhen the Limited Partners Have Certain Rights*. These amendments wereeffective for new investments and investment agreements that are modified afterJune 29, 2005. The adoption of these amendments did not have a materialimpact on the Company’s financial position, results of operations or cash flows

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

***DIRECTORS AND EXECUTIVE OFFICERS***

Our board of directors currently consists of tenmembers and is responsible for managing our business. Each director is electedfor a term of one year or until a successor has been appointed. Our board ofdirectors meets quarterly. Pursuant to Mexican law, at least 25% of the membersof the board .of directors must be independent, as the term independent isdefined by the Mexican Securities Market Law. As required by New York StockExchange regulations, a majority of the members of our board of directors areindependent. Effective June 28, 2006, we no longer have AlternateDirectors.

As of the date of this annual report, the members ofour board of directors are as follows:

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| 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                 |       |

----

*                    Subjectto formal acceptance.

EustaquioTomas de Nicolas Gutierrez is chairman of our board of directors. Beforeco-founding our predecessor in 1989, Mr. de Nicolas founded and managedDENIVE, a clothing manufacturing company. He has served as regional chairmanand regional vice chairman of the Mexican-Federation of Industrial HousingPromoters, or Provivac (Federacion Nacional de Promotores Industriales de laVivienda), 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.

Gerardo de Nicolas Gutierrezhas served as CEO since 1997. Prior to becoming CEO, Mr. de Nicolás servedas regional manager, systems manager, and construction manager supervisor. Currently,Mr. de Nicolás participates in overseeing our main operations, focusing onsales and construction.

Jose Ignacio de NicolasGutierrez is founder and chairman of the board of directors ofHipotecaria Credito y Casa, S.A. de C.V., a *sofol* that hasbecome the third largest mortgage bank in Mexico. Mr. de Nicolas alsoco-founded our company and served as our CEO from 1989 to 1997. Mr. deNicolas is a regional director of Fianzas Monterrey and a state director of NAFIN.

LuisAlberto Harvey McKissack is co-founding partner, President and ManagingPrincipal of ZN Mexico Funds and co-founder of Nexxus Capital, S.C. He has over16 years of experience in investment banking and private equity. Beforefounding Nexxus Capital, S.C., Mr. Harvey held positions at Fonlyser,Operadora de Bolsa, and Servicios Industriales Peñoles, S.A. de C.V. Hisexperience includes several private and public equity transactions and also theinitial public offering of several major Mexican corporations on the MexicanStock Exchange and the international capital markets. Mr. Harvey sits onthe Board of Directors of Desarrolladora Homex, S.A.B. de C.V., IndustriasInnopack, S.A. de C.V., Aerobal, S.A. de C.V., Grupo Mágico Internacional, S.A.de C.V., Sociedad Financiera de Objeto Limitado, Grupo Sports World, S.A. deC.V., Nexxus Capital, S.C. and is a member of the investment committee of ZNMexico Trust and ZN Mexico II, L.P. Mr. Harvey received a B.S. inEconomics from Instituto Tecnológico Autónomo de México (ITAM) and an MBA witha concentration in Finance from the University of Texas at Austin.

Gary R. Garrabrant is vice chairman of our board ofdirectors and CEO and co-founder of Equity International Properties, Ltd.. Mr. Garrabrantoversees all of the Company’s activities and investment portfolio. He is alsoexecutive vice president of Equity Group Investments, LLC (EGI), theprivately-held investment company founded and led by Sam Zell. Mr. Garrabrantjoined EGI in 1996. Mr. Garrabrant has extensive real estate, investmentmanagement and banking experience. He led the acquisition of California RealEstate Investment Trust and the creation of Capital Trust (NYSE:CT) where heserved as vice chairman and director. He was also involved in the consolidationof the four Zell/Merrill Lynch Opportunity Funds which led to the creation ofEquity Office Properties Trust (NYSE:EOP). Prior to joining EGI, Mr. Garrabrantco-founded and led Genesis Realty Capital Management, a real estate securitiesinvestment management firm based in New York. Mr. Garrabrant was a seniorreal estate investment banker with Chemical Bank followed by The Bankers TrustCompany from 1981 to 1994. Mr. Garrabrant is member of the Board ofDirectors of Homex (NYSE:HXM), Gafisa (BZ:GFSA3), Equity

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International, and various other portfolio companies. He is also a memberof the 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.

Matthew M. Zell is managing director of EGI. Previously, heserved as president of Prometheus Technologies, Inc., an informationtechnology consulting firm. Mr. Zell is a member of the board of directorsof Anixter Inc., a global distributor of wire, cable and communicationsconnectivity products as well as of GP Strategies, a global performanceimprovement company providing corporate education strategies, training,engineering, consulting, and technical services to leading organizations in theautomotive, steel, power, chemical, energy, pharmaceutical and food &beverage industries, as well as the government sector. Mr. Zell is the sonof Samuel Zell.

Z. Jamie Behar is ManagingDirector, Real Estate & Alternative Investments, for GeneralMotors Investment Management Corporation, or GMIMCo. She manages GMIMCoclients’ real estate investment portfolios, including both private marketand publicly-traded security investments, as well as   theiralternative investment portfolios, totaling $9.5 billion. Ms. Behar is amember of the   board of directors of Sunstone Hotel Investors, Inc.,a publicly listed hotel company operating  in the United States, andserves on the advisory boards of several domestic and international private realestate investment entities.

Wilfrido CastilloSánchez-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 theboard of directors 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 aschairman of the audit committee.

Edward Lowenthal ispresident of Ackerman Management LLC, an investment management and advisorycompany with particular focus on real estate and other asset-based investments.Previously, Mr. Lowenthal founded and was president of Wellsford RealProperties, 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 amember of the board of directors of several companies, including WRP, Reis, Inc.,a real estate market information and analytics provider, and Omega HealthcareInvestors, Inc., a healthcare real estate investment trust. AmericanCampus Communities, a publicly traded Real Estate Investment Trust whichfocuses solely on student housing in the United States, and Ark RestaurantsCorp., a company that engages in the ownership and operation of restaurants,fast food concepts, catering operations, and wholesale and retail bakeries.

Rafael Matute Labrador is Chief Financial Officer andVice President and Executive Vice President Administration of Walt-Mart Mexico,S.A. de C.V.

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

***Secretary***

The secretary of the board of directors is JaimeCortes Rocha who is not a member of the board of directors.

***Audit Committee***

Our audit committee consists of Wilfrido CastilloSánchez-Mejorada (Chairman), Z. Jamie Behar, and Edward Lowenthal. Our auditcommittee was re-elected at the shareholders meeting on April 28, 2005. Themembers of the audit committee are independent in accordance with SarbanesOxley Act requirements. Our board of directors has determined that Mr. Castillohas the attributes of an “audit committee financial expert” as defined by

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the SEC and that eachmember of the audit committee satisfies the financial literacy requirements ofthe New York Stock Exchange. Among other duties and responsibilities, thecommittee: issues opinions to the board of directors regarding related partytransactions; recommends that independent experts be retained to renderfairness opinions in connection with related party transactions and tenderoffers, where it deems appropriate; reviews the critical accounting policiesadopted by us and advises the board of directors on changes to such policies;assists the board of directors with planning and conducting internal audits;and prepares a yearly activity report for submission to the board of directors.The committee is also responsible for the appointment, retention, and oversightof any accounting firm engaged for the purpose of preparing or issuing an auditreport or performing other audit review or attestation services, as well as forthe establishment 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***

Our compensation committee consists of EdwardLowenthal, Luis Alberto Harvey McKissack, and Gary R. Garrabrant. Among otherduties and responsibilities, the committee reviews and approves corporate goalsand objectives relevant to CEO compensation; evaluates the CEO’s performance inlight of those goals and objectives; determines and approves the CEO’scompensation level based on this evaluation; and makes recommendations to theboard with respect to non-CEO compensation, incentive-compensation plans andequity-based plans.

***Executive Committee***

Our executive committee consists of Eustaquio Tomás deNicolás Gutiérrez, Gerardo de Nicolás Gutiérrez, Luis Alberto Harvey McKissack,and Gary R. Garrabrant. Among other duties and responsibilities, the committeeacts on general planning and financial matters not reserved exclusively foraction by the board of directors, including appointing and removing our CEO,members of management, and any of our employees; entering into creditagreements on our behalf; and convening shareholders’ meetings.

***Corporate Governance and Nominating Committee***

Our corporate governance and nominating committeeconsists of Luis Alberto Harvey McKissack, Gary R. Garrabrant, and EdwardLowenthal. Among other duties and responsibilities, the committee identifiesindividuals qualified to become board members and makes recommendations to theboard of directors and shareholders regarding director nominees; develops andrecommends to the board of directors a set of corporate governance principlesapplicable to us; and oversees the evaluation of the board and management.

***Corporate Governance***

As a foreign private issuer with shares listed on theNYSE, we are subject to different corporate governance requirements than a U.S.company under the NYSE listing standards. Pursuant to Rule 303.A11 of theNYSE listed company manual, we are required to provide a summary of thesignificant ways in which our corporate governance practices differ from thoserequired for U.S. companies under the NYSE listing standard.

It is our intention, however, to follow NYSE corporategovernance standards to the extent we deem appropriate given the differentregulatory framework to which we are subject in Mexico and in the United Statesand the different business environment in which we operate. Compliance withthese higher standards of governance is not mandatory for us, however, webelieve we are in substantial compliance with the majority of theserequirements demonstrating our commitment to high standards of governance.

We are a Mexican corporation with shares listed on the*Bolsa Mexicana de Valores*, orMexican Stock Exchange. Our corporate governance practices are governed by ourbylaws, the Mexican Securities Market Law, and the regulations issued by theCNBV and the Mexican Stock Exchange. Although compliance is not mandatory, wealso substantially comply with the Mexican Code of Best Corporate Practices (*Código de Mejores Prácticas*

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* *

*Corporativas*),which was created in January 1999 by a group of Mexican business leadersand was endorsed by the Mexican Banking and Securities Commission.

The table below sets forth a description of thesignificant differences between corporate governance practices required forU.S. companies under the NYSE listing 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 ofthe date of this annual 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                      |       |

 

Mario Alberto GonzalezPadilla joined the company as Chief Financial Officer on January 30,2006. Mr. Gonzalez is a seasoned financial executive with more than twentyyears of senior-level financial experience. Before joining the Company he wasChief Financial Officer of Consultores de Integración de Sistemas (CIS), aMexico City-based management consulting firm that advises Fortune 500 companiesand others with operations in Latin America. From 2001 until 2003, he was ChiefFinancial 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. Gonzalezhas also held a variety of senior-level financial positions internationally atDow Chemical Co. Mr. Gonzalez holds a master’s degree in EngineeringAdministration and studies on the MBA program from George WashingtonUniversity, a diploma on Science and Economics from American University and abachelor’s degree in Industrial Engineering from the Universidad Autónoma deMexico.

Alberto Menchaca Valenzuela has served as VicePresident—Operations since 2000. Prior to becoming Vice President—Operations, Mr. Menchacaserved as finance manager. His prior experience includes work at BancoMexicano, Invermexico, and Banca Confia. Currently, Mr. Menchaca overseesour main operations, with a focus on home deliveries. Mr. Menchaca earnedan undergraduate degree in agricultural engineering from Universidad AutonomaAgraria Antonio Narro in Saltillo, Coahuila.

Ruben Izabal Gonzalez has served as VicePresident—Construction since 1997. Prior to joining Homex, Mr. Izabalserved at different construction companies, including Gomez y GonzalesConstructores, Provisur S.A. de C.V., Promotoria de Vivienda del Pacifico, S.A.de C.V., and Constructor Giza, S.A. de C.V. Currently, Mr. Izabal overseesour construction operation, with a focus on the home-building process.Mr. Izabal earned an undergraduate degree in Architecture from InstitutoTecnologico y de Estudios Superiores del Occidente in Guadalajara, Jalisco.

Josemaria Anton Vlasich de la Rosa has served as VicePresident—Sales and Marketing since March 2004. From 2002 to March 2004,he served as Vice President—Regional Offices. His prior experience includeswork at Cemex, S.A. de C.V., Banco Nacional de Mexico, S.A., American Express,and Universidad Panamericana. Currently, he coordinates our sales and marketingactivities. He holds a master’s degree in business administration and anundergraduate degree in marketing and management, both from UniversidadPanamericana, Mexico City.

Monica Lafaire Cruz has served as VicePresident—Regional Offices since February 2005. Miss Lafaire joinedHomex in 2001 and prior to her current position she served as Director ofStrategic Planning and in diverse management positions in the Finance division.Her prior experience includes work as full-time professor at UniversidadPanamericana. Currently, she coordinates the activities of our branch officesand their directors. Miss Lafaire holds a master’s degree in businessadministration from Universidad La Salle in Mexico City and an undergraduatedegree in economics from Universidad de Monterrey.

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

Each member of the board of directors is paid a fee ofUS$12,500 for each board meeting that he or she attends, subject to an annualcap of US$50,000 per member of the board of directors. Additionally, members ofthe audit committee are paid an additional annual compensation fee of US$25,000(the Chairman of the audit committee annual compensation is US$35,000) andmembers of the executive, corporate governance and compensation committees arepaid an annual fee of US$5,000.

For 2005, the aggregate amount of compensation net oftaxes paid to all directors  alternatedirectors and committee members was approximately US$589,000, which includesUS$347,563 of variable compensation for directors paid during the first quarterof 2006.

For 2005, the aggregate amount of compensation paid toall executive officers was approximately US$1,619,481.

We offer a bonus plan to our directors and seniormanagement that is based on individual performance and on the results of ouroperations. This variable compensation can range from 30% to 50% of annual basecompensation, depending upon the employee’s level.

***Management Changes***

On December 29, 2005, our Compensation Committeeannounced the appointment of Mario Alberto Gonzalez Padilla as our ChiefFinancial Officer effective January 30, 2006. Mr. Gonzalez replacesRoberto Carrillo Herrera who served in an interim capacity from July 30,2005 to January 30, 2006.

**EMPLOYEES**

As of December 31,2005, we had a total of approximately 7,337 employees, including 7,257unionized and 80 non-unionized full- and part-time employees. All ofthese employees were employed in Mexico. Total employees for 2004, 2003 and2002 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.

***Share Ownership***

Thefollowing table sets forth the beneficial ownership of our capital stock by ourdirectors and senior management as of the date of this annual report:  

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| **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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*                    Beneficiallyowns less than one percent of the outstanding shares of our capital stock.

**ITEM 7.**                    MajorShareholders And Related Party Transactions.

**MAJOR SHAREHOLDERS**

As of December 31, 2005, there were 335,869,550common shares issued and outstanding, with 60,858,546 shares held in the UnitedStates in the form of American Depositary Shares by six record holders. Theremaining shares were held in Mexico. Because certain of the shares are held bynominees, the number of record holders may not be representative of the numberof beneficial holders.

On January 24, 2006 the Company completed asuccessful non-dilutive secondary public offering of approximately 45.6 millionshares of its common stock by a group of investors controlled by Mr. CarlosRomano, the former majority investor of Beta, who sold his position in Homex aspart of his overall financial strategy. Equity International Properties, alsosold approximately 33% of its position. The public float of the Company wasincreased to 46% of the total equity of Homex.

The table below sets forth information concerning thepercentage of our capital stock owned by any person known to us to be the ownerof 5% or more of any class of our voting securities, our directors and officersas a group and our other shareholders as of January 30, 2006. The Company’smajor shareholders do not have different or preferential voting rights withrespect to the shares they 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 ouracquisition of Beta. For a description of the terms of our acquisition of Beta,including the exchange of 22.0 million of our common shares, see “Business—RecentDevelopments.”

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(2)               Held by Ixe Banco,S.A. as trustee of Trust No. F/466, for the benefit of the de Nicolasfamily, including Eustaquio de Nicolas Vera, Eustaquio Tomas de NicolasGutierrez, Jose Ignacio de Nicolas Gutierrez, Gerardo de Nicolas Gutierrez, andJulian de Nicolas Gutierrez. Voting and dispositive control over these sharesis directed by a Technical Committee comprised of ; Eustaquio de Nicolas Vera,Eustaquio Tomas de Nicolas Gutierrez, Jose Ignacio de Nicolas Gutierrez,Gerardo de Nicolas Gutierrez, and Julian de Nicolas Gutierrez.

(3)               Held by EIPInvestment Holdings L.L.C., BVBA, an indirect subsidiary of EIP. Voting controlover these shares is shared by EIP’s senior management team, headed by SamuelZell, chairman of EIP, and Gary R. Garrabrant, CEO of EIP and one of ourdirectors. EIP is located at Two North Riverside Plaza, Chicago, IL 60606.

 (4)            Includes public shareholders that in theaggregate hold 46.0% of our share capital, respectively.

**RELATEDPARTY TRANSACTIONS**

We have engaged, and inthe future may engage, in transactions with our shareholders and companiesaffiliated with our shareholders. We believe that the transactions in which wehave engaged with these parties have been made on terms that are no lessfavorable to us than those that could be obtained from unrelated third parties.Recently, we began requiring that transactions with our shareholders and companiesaffiliated with our shareholders be approved by our board of directors afterconsidering the recommendation of our audit committee and, in , certain cases,after an independent fairness opinion, as required by the Mexican SecuritiesMarket Act.

***Financing from Related Parties***

***HipotecariaCrédito y Casa, S.A. de C.V.***

Eustaquio Tomas de Nicolas Gutierrez, our chairman,and Jose Ignacio de Nicolas Gutierrez, brother of Eustaquio Tomas de NicolasGutierrez and chairman of Hipotecaria Credito y Casa, S.A. de C.V, or Credito yCasa, collectively own a 29.4% ownership interest in this sofol, the principalbusiness of which is providing mortgage financing and bridge loan financing. EustaquioTomas de Nicolas Gutierrez and Jose Ignacio de Nicolas Gutierrez are bothmembers of the de Nicolas family, which collectively owns 40.9% of our sharecapital. Credito y Casa has provided bridge loan financing to us and mortgagesunder SHF-sponsored programs to our clients. During 2003, 2004 and 2005,Credito y Casa provided mortgage’s with respect to certain of the homes sold byus. We expect to continue to sell homes to buyers who obtain mortgages fromCredito y Casa.

We estimate that in 2005 less than 7.0% of themortgages obtained by our home buyers were provided by related parties.

As of December 31, 2005, there were no amountsoutstanding in loans or financing from Credito y Casa, but our buyers mayreceive additional financing from Credito y Casa in the future.

During 2004, the largest aggregate outstandingbalances owed to Credito y Casa were Ps. 63 million and UDI5.2 million. There were no amounts outstanding as of December 31,2004. These loans bore interest at varying rates and matured at various datesthrough 2005. During 2004, we made aggregate interest payments ofPs.2.8 million and UDI 331,491.

During 2003, the largest aggregate outstandingbalances owed to Credito y Casa were Ps. 135.2 million and UDI56.7 million. The aggregate amounts outstanding as of December 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 UDI3.7 million.

***CréditoInmobiliario, S.A. de C.V.***

EIP acquired a 24.64% interest in this sofol on December 1,2003. Also on December 1, 2003, Credito Inmobiliario, S.A. de C.V., orCredito Inmobiliario, acquired the entirety of the loan portfolio of TerrasHipotecaria, S.A. de C.V., or Terras Hipotecaria. Prior to this acquisition,Terras Hipotecaria provided construction financing to us via bridge loans andmortgage financing to our clients via SHF-sponsored programs.

 

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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.

We have no amounts outstanding to Credito Inmobiliariobut may receive additional financing from Credito Inmobiliario in the future. CreditoInmobiliario provided mortgages with respect to certain of the homes sold by usand we expect to continue to sell homes to buyers who obtain mortgages fromCredito Inmobiliario

***Financing to Related Parties***

In 1997, we formed a joint venture with Dynámica deDesarrollos Sustentables, S.A. de C.V., or Dynámica, a company owned by DiegoValenzuela Cadena and Carlos Federico Valenzuela Cadena, brothers-in-law ofEustaquio Tomás de Nicolás Gutiérrez, our chairman. The joint venture wascreated to build housing developments in the cities of Leon and Puerto Vallarta.We dissolved the joint venture in April 2002.

Some accounts payable to us by Dynámica inconsideration for services provided pursuant to the joint venture remainoutstanding. The maximum aggregate amount outstanding in connection with theseaccounts was Ps.** **12.7 million during2004. These accounts were paid in full by March 31, 2005.

***Econoblock***

Effective May 15, 2004, our DECANO subsidiaryentered into an agreement with Gerardo de Nicolas Gutierrez, our ChiefOperating Officer, Josefina Gutierrez Pando de Nicolas, his mother, and JoseIgnacio de Nicolas, his brother, to merge Econoblock, S.A. de C.V. with DECANO.

Prior to June 1, 2004, we purchased cement block,concrete, and asphalt from Econoblock in the cities of Culiacan, Mazatlan,Guadalajara, Ciudad Juarez, and Laredo. Gerardo de Nicolas Gutierrez, JosefinaGutierrez Pando de Nicolas and Jose Ignacio de Nicolas collectively owned a 100%interest in Econoblock prior to June 1, 2004, when Econoblock merged withand into DECANO.

Prior to June 1, 2004, we purchased materialsfrom Econoblock in an aggregate amount of Ps.31.0 million in 2004,Ps.63.0 million in 2003 and Ps.27.7 million in 2002. These purchasesrepresented 3.7% of our total purchases of construction materials and servicesduring 2004, 7.1% during 2003 and 5.7% during 2002.

Econoblock had revenues of Ps.40.0 million forthe six-month period ended June 1, 2004, approximately three-fourths ofwhich came from sales to us. As of June 1, 2004, Econoblock had a net lossof Ps.l million. As of June 1, 2004, Econoblock had net assets of Ps.15.0 million. We believe that in the near future, our operations willutilize all of the products that Econoblock can supply.

In consideration for their shares of Econoblock, theformer shareholders of Econoblock received common shares of DECANO representing4.1% of DECANO’s outstanding share capital. On September 1, 2005, weexercised the option to purchase the shares of DECANO owned by the formershareholders of Econoblock at book value (as of December 31, 2004, thebook value of these remaining shares was Ps.6.7 million). which resultedin DECANO becoming a wholly-owned subsidiary of the Company.

Concurrent with the DECANO merger and as additionalconsideration for their sale of the Econoblock shares to DECANO, certainmembers of the de Nicolas family were issued 8,481,673 of our common shares andmade a capital contribution of Ps.4.3 million to our company. These commonshares had a value of approximately US$393,443.

These values were arrived at by negotiations betweenHomex, EIP and ZN Mexico Trust, on the one hand and the shareholders ofEconoblock, on the other hand, and the transaction was approved in accordancewith the bylaws of the Company.

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***Land Purchases from Related Parties***

On November 5,2004, Proyectos Inmobiliarios de Culiacan, S.A. de C.V., or PICSA, our whollyowned subsidiary, 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 sold to Mexico Retail Properties Fund, S. de R.L. de C.V., a whollyowned subsidiary of MRP-EIP Retail Holding GP, which is a subsidiary of EquityInvestment Properties, 7,928.88 square meters of commercial land located inSanta Fe, Culiacan Sinaloa, for the total amount of Ps5,676,190.68(US$533,978).

Thesetransactions were authorized or ratified by our audit committee and our boardof directors.

***Service Companies***

We previously compensated certain of our seniormanagement through payments to certain limited partnerships in which they ownedpartnership interests. We paid an aggregate amount of  Ps. 48.5 million during 2004, Ps.52.2 million during 2003 and Ps. 32.7 million during 2002 to thesepartnerships. This arrangement was terminated effective March 31, 2004 inrespect of compensation to our senior management.

***Registration Rights Agreement***

We and our existing shareholders entered into aregistration rights agreement in connection with our initial public offeringwhich provided our then existing shareholders with registration rights relatingto our Common Shares held by them. Pursuant to the registration rightsagreement, at any time beginning 180 days after the effective date of theregistration statement relating to the initial public offering, subject tocustomary exceptions, these shareholders may request that we file aregistration statement under the Securities Act covering their Common Shares orADSs representing the Common Shares. These shareholders (with the de Nicolásfamily being treated as one shareholder for this purpose) may each request twodemand registrations. In addition, at any time that we are eligible to use theSEC’s short-form registration statement on Form F-3 (or anysuccessor form), these shareholders may request that we register their CommonShares or ADSs for resale from time to time on a delayed or continuous basis. Theseshareholders also have certain “piggyback” registration rights with respect totheir Common Shares and ADSs. Accordingly, if we propose to register any of oursecurities, either for our own account or for the account of othershareholders, with certain exceptions, we are required to notify thoseshareholders and to include in such registration all the Common Shares or ADSsrequested to be included by those shareholders, subject to rejection of suchshares under certain circumstances by an underwriter.

The registration rights agreement sets forth customaryregistration procedures, including an agreement by us to make available oursenior management for roadshow presentations. All registration expensesincurred in connection with any registration, other than underwritingcommissions, will be paid by us. In addition, we are required to reimburse theselling shareholders for the fees and disbursements of one outside counselretained in connection with any such registration. The registration rightsagreement also imposes customary indemnification and contribution obligationson us for the benefit of these shareholders and any underwriters, althoughthese shareholders must indemnify us for any liabilities resulting frominformation provided by them.

The shareholders’ rights under the registration rightsagreement remain in effect with respect to the Common Shares and ADSs coveredby the agreement until:

·                  those securitieshave been sold under an effective registration statement under the SecuritiesAct;

·                  those securitieshave been sold to the public under Rule 144 under the Securities Act; or

·                  those securitieshave been transferred in a transaction where a subsequent public distributionof those securities would not require registration under the Securities Act.

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##  

**ITEM 8.**                    FinancialInformation.

See “Item 18.Financial Statements.”  For informationon our dividend 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 involvedin certain 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 CommonShares, have been trading on the New York Stock Exchange since June 29,2004. On December 31, 2005, there were 335,869,550 outstanding CommonShares, (of which 60,858,546****Common Shareswere represented by 10,143,091****ADSs held by 6record holders in the United States).

The following table sets forth, for the periodsindicated, the quarterly and monthly high and low closing sale prices for theCommon Shares and the ADSs as reported by the Mexican Stock Exchange and theNew 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 ofthe Common Shares on the Mexican Stock Exchange was Ps.55.51****per Common Share and the reported last sale price of theADSs on the New York Stock Exchange was U.S.$29.16****perADS.

**MEXICAN STOCK EXCHANGE**

The Mexican Stock Exchange, located in Mexico City, isthe only stock exchange in Mexico. Operating continuously since 1907, theMexican Stock Exchange is organized as a corporation (*sociedad anónima de capital*

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* *

*variable*).Securities trading on the Mexican Stock Exchange occurs each business day from8:30 a.m. to 3:00 p.m., Mexico City time.

Since January 1999, all trading on the MexicanStock Exchange 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 effectedtwo business days after a share transaction. Deferred settlement is notpermitted without the approval of the CNBV, even where mutually agreed. Mostsecurities traded on the Mexican Stock Exchange are on deposit with the MexicanSecurities Depository, 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 forthe existence of an over-the-counter market, no such market for securities inMexico has developed.

***MarketRegulation and Registration Standards***

In 1925, the Mexican Banking Commission (*Comisión Nacional Bancaria*) wasestablished to regulate banking activity and in 1946, the Mexican SecuritiesCommission (*Comisión Nacional de Valores*)was established to regulate stock market activity. In 1995, these two entitieswere merged to form the CNBV. The Mexican Securities Market Act, which tookeffect in 1975, introduced important structural changes to the Mexicanfinancial system, including the organization of brokerage firms as corporations(*sociedades anónimas*). TheMexican Securities Market Act sets standards for authorizing companies tooperate as brokerage firms, which authorization is granted at the discretion ofthe CNBV by resolution of its board of governors. In addition to settingstandards for brokerage firms, the Mexican Securities Market Act authorizes theCNBV, among other things, to regulate the public offering and trading ofsecurities and to impose sanctions for the illegal use of insider informationand other violations of the Mexican Securities Market Act. The CNBV regulatesthe Mexican securities market, the Mexican Stock Exchange, and brokerage firmsthrough a board of governors composed of thirteen members.

Effective June 28, 2006, the new MexicanSecurities Market Act requires issuers to increase the protections offered tominority shareholders and to bring corporate governance practices in line withinternational standards. See “Item 3. Key Information—Risk Factors — RisksRelating to Mexico — Minority shareholders may be less able to enforce theirrights against us, our directors, or our controlling shareholders in Mexico.”

To offer securities to the public in Mexico, an issuermust meet 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. The CNBV’sapproval 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 CNBVregulations (circulares), now provide a single set of rules governingissuers and issuer activity, 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 fileunaudited quarterly financial statements and audited annual financialstatements as well as various periodic reports with the CNBV and the MexicanStock Exchange. Mexican issuers must file the following reports with the CNBV:

·                  an annual reportprepared 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 threequarters and 40 days following the end of the fourth quarter (analogous toreports filed with 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 privateissuers on Form 6-K).

Pursuant to the CNBV’s general regulations, theinternal rules of the Mexican Stock Exchange were amended to implement anautomated electronic information transfer system, or SEDI (*Sistema Electrónico de Envío y Difusión deInformacion*), for information required to be filed with the MexicanStock Exchange. Issuers of listed securities must prepare and disclose theirfinancial information via a Mexican Stock Exchange-approved electronicfinancial information system, or SIFIC (*Sistemade Información Financiera Computarizada*). Immediately upon itsreceipt, the Mexican Stock Exchange makes financial information prepared viaSIFIC available to the public.

The CNBV’s general regulations and the rules ofthe Mexican Stock Exchange require issuers of listed securities to file informationthrough SEDI that relates to any act, event, or circumstance that couldinfluence issuers’ share price. If listed securities experience unusual pricevolatility, the Mexican Stock Exchange must immediately request that an issuerinform the public as to the causes of the volatility or, if the issuer isunaware of the causes, that an issuer make a statement to that effect. Inaddition, the Mexican Stock Exchange must immediately request that issuersdisclose any information relating to relevant material events, when it deemsthe information currently disclosed to be insufficient, as well as instructissuers to clarify the information when necessary. The Mexican Stock Exchangemay request issuers to confirm or deny any material events that have been disclosedto the public by third parties when it deems that the material event may affector influence the securities being traded. The Mexican Stock Exchange mustimmediately inform the CNBV of any such requests. In addition, the CNBV mayalso make any of these requests directly to issuers. An issuer may defer thedisclosure of material events 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 unusual priceor volume fluctuation occurs.

The CNBV and the Mexican Stock Exchange may suspendtrading in 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 theCNBV and the general public of any such suspension. An issuer may request thatthe CNBV 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 onboth the Mexican Stock Exchange and a foreign securities exchange, the issuermust simultaneously file the information that it is required to file pursuantto the laws and regulations of the foreign jurisdiction with the CNBV and theMexican Stock 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 abstain frompurchasing 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 Stock Exchangemust notify the Mexican Stock Exchange of any transactions made in or outsideof the Mexican Stock Exchange that result in a transfer of 10% or more but lessthan 30% of an issuer’s share capital on the next day following the respectivetransaction.

The new Securities Market Law requires any acquirer ofmore than 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, theMexican Securities Market Act requires shareholders holding 10% or more of alisted issuers’ share capital to notify the CNBV of any share transfer.

***MexicanSecurities Market Act***

The Mexican legislatureissued a new Mexican Securities Market Act effective June 28, 2006. Theamendments 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 permitissuers to implement mechanisms where common shares and limited or non-votingshares are 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.**             AdditionalInformation.

**BYLAWS**

Set forth below is a brief summary of certainsignificant provisions of (1) our bylaws, as amended by our shareholdersin accordance with the new Mexican Securities Market Act and regulations, and (2) MexicanCompanies law. This description does not purport to be complete and isqualified by reference to our bylaws, which have previously been filed with theSecurities 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 ourcorporate life is indefinite. Our corporate purpose, as fully described in Article 2of our 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 orcivil, (2) acquire or dispose of stock or interests in other mercantile orcivil companies, either by taking part in its formation or acquiring shares orinterests in companies that already are in existence, (3) receive fromthird parties and give to the companies of which it is a shareholder or partneror to any other third party, guidance or technical consulting services,including services in the fields of administration, accounting, merchandisingor financing, (4) obtain, acquire, utilize or dispose of any patent, brandor commercial name, franchise or rights in industrial property in Mexico orabroad., (5) obtain any type of financing or loan, with or without aspecific guarantee, and grant loans to mercantile or civil companies or otherpersons in which the company has an interest or with others with which it has abusiness relationship, (6) grant any type of guarantee and endorsement inrespect to obligations or credit instruments, for the benefit of mercantile orcivil companies or other persons with which the company has an interest or withwhich it maintains a business relationship, (7) issue, subscribe, draw,accept and endorse all types of credit instruments, including obligations withor without a guarantee, (8) acquire, rent, administrate, sell, mortgage,pledge, encumber or dispose of goods, in whatever form, being movable orimmovable, as well as rights over the same, (9) execute any kind of actand

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formalize any kindof labor, civil, mercantile or administrative agreement or contract permittedby Mexican legislation, with real and corporate personalities that are eitherpublic or private, obtaining from these, concessions, permits andauthorizations relating directly or indirectly to the company’s objectives asset forth in its bylaws, including, actively or passively contracting any typeof services, consulting work, supervisory work and technical direction thatwould be necessary or proper for the aforementioned goals, (10) issuetreasury stock in accord with Article 81 of the Mexican Securities MarketAct, (11) establish agencies or representatives and act as broker, agent,representative, mercantile mediator or distributor, and (12) perform anyacts necessary to accomplish the foregoing.

***Directors***

Our bylaws provide that our board of directors willconsist of a minimum of five and a maximum of twenty —one members, as resolvedby the relevant shareholders’ meeting. At least 25% of the members of our boardof directors must be independent pursuant to Mexican law. At each shareholders’meeting for the election of directors, holders of at least 10% of ouroutstanding share capital are entitled to appoint one member of the board ofdirectors.

Pursuant to Mexican law, any director who has aconflict of interest with us relating to a proposed transaction must disclosethe conflict and refrain from voting on the transaction or may be liable fordamages. Directors receive compensation as determined at the ordinaryshareholders’ meetings.

**Authorityof the Board of Directors**

The board of directors is our legal representative andis authorized to take any action in connection with our operations notexpressly reserved to our shareholders. Pursuant to the Mexican SecuritiesMarket Act, the board of directors must approve, among other things:

·                  strategicdecision for the company and its subsidiaries;

·                  any transactionsoutside the ordinary course of our business to be undertaken with relatedparties;

·                  significantasset transfers or acquisitions;

·                  credit policies;

·                  grantingmaterial guarantees or collateral;

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

·                  other importanttransactions.

Meetings of the board of directors are validlyconvened and held if a majority of its members are present. Resolutions passedat these meetings will be valid if approved by a majority of the disinterestedmembers of the board of directors present at the meeting. If required, thechairman of the board of directors may cast a tie-breaking vote.

**VotingRights and Shareholders’ Meetings**

Each Common Share entitles its holder to one vote atany meeting of our shareholders.

Under Mexican law and our bylaws, we may hold twotypes of shareholders’ meetings: ordinary and extraordinary.

Ordinary shareholders’ meetings are those called todiscuss any issues not reserved for extraordinary shareholders’ meetings. Anannual ordinary 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 172of the 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 of ourshares 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. Ifthe 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 opposeany resolution adopted at a shareholders’ meeting and file a petition for acourt order to suspend the resolution temporarily within 15 days followingthe adjournment of the meeting at which the action was taken, provided that thechallenged resolution violates Mexican law or our

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bylaws and the opposingshareholders neither attended the meeting nor voted in favor of the challengedresolution. In order to obtain such a court order, the opposing shareholdermust deliver a bond to the court in order to secure payment of any damages thatwe may suffer as a result of suspending the resolution in the event that thecourt ultimately rules against the opposing shareholder. Shareholdersrepresenting at least 10% of the shares present at a shareholders’ meeting mayrequest to postpone a vote on a specific matter on which they considerthemselves to be insufficiently informed.

Notices of shareholders’ meetings must be published inthe official 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 theshareholders’ meeting must be made available to shareholders starting on thedate the notice is published.

To be admitted to any shareholders’ meeting,shareholders must be registered in our share registry or provide evidence oftheir status as shareholders as provided in our bylaws (including throughcertificates provided by INDEVAL and INDEVAL participants). Shareholders mayappoint one or more attorneys-in fact to represent them pursuant to general orspecial powers of attorney or by a proxy. Attorneys-in-fact may not be directorsof Homex.

At or prior to the time of the publication of anynotice of a shareholders’ meeting, we will provide copies of the notice to thedepositary for distribution to the ADS holders. ADS holders are entitled toinstruct the depositary as to the exercise of voting rights pertaining to theCommon Shares.

**Quorum**

Ordinary meetings arelegally convened pursuant to a first notice when a majority of our sharecapital is present or duly represented. Any number of shares present or dulyrepresented 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 legallyconvened pursuant to a first notice when at least 75% of the shares of ourshare capital are present or duly represented. A majority of shares must bepresent or duly represented at an extraordinary shareholders’ meeting calledpursuant to a second or subsequent notice to be considered legally convened. Resolutionsat extraordinary shareholders’ meetings are valid when approved by the majorityof our share capital.

**Registrationand Transfer**

We have applied to register the Common Shares with theSpecial Section and the Securities Section of the Mexican SecuritiesRegistry maintained by the CNBV, as required under the Mexican SecuritiesMarket Act and regulations issued by the CNBV. If we wish to cancel ourregistration, or if it is cancelled by the CNBV, our shareholders who aredeemed to have “control” at that time will be required to make a public offerto purchase all outstanding shares, prior to the cancellation.

Our shareholders may hold our Common Shares asphysical certificates or, upon registration, through institutions havingaccounts at INDEVAL. These accounts may be maintained by brokers, banks, andother entities approved by the CNBV. In accordance with Mexican law, onlyholders listed in our share registry and those holding ownership certificatesissued by INDEVAL and INDEVAL participants are recognized as our shareholders.

 

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**Changesin Share Capital and Preemptive Rights**

Our minimum fixed share capital may be reduced orincreased by resolution of an extraordinary shareholders’ meeting, subject tothe provisions of our bylaws, the Mexican General Business Corporations Act,and the Mexican Securities Market Act and regulations issued thereunder. Ourvariable share capital may be reduced or increased by resolution of an ordinaryshareholders’ meeting in compliance with the voting requirements of our bylaws.

In the event of a share capital increase, ourshareholders will have a preemptive right to subscribe and pay for new stockissued as a result of the increase in proportion to their shareholder interestat that time. This preemptive right must be exercised by subscribing and payingfor the relevant shares within the time period set forth in the resolutionauthorizing the increase, which will be no less than fifteen calendar daysfollowing the date of publication of the corresponding notice to ourshareholders in the official gazette of Sinaloa and in one of the newspapers ofgreater circulation in Culiacán, Sinaloa.

Notwithstanding the foregoing shares issued forfurther subscription under Article 53 of the Securities Market Act will beheld in the treasury until they are offered for subscription and payment(without preemptive rights being applicable), provided that such subscriptionis effected through a public offering in accordance with the Securities MarketAct.

**ShareRepurchases**

Pursuant to that the Securities Market Act and ourby-laws, we may repurchase our shares on the Mexican Stock Exchange at theprevailing market price. Repurchased shares cannot be represented at anyshareholders’ meeting. We are not required to create a special reserve for therepurchase of shares and we do not need the approval of our board of directorsto effect share repurchases. However, we are required to obtain shareholderapproval as described below. In addition, our board of directors must appointan individual or group of individuals responsible for effecting sharerepurchases. These repurchases must be made subject to the provisions of theSecurities Market Act, and carried out, reported, and disclosed in the mannerestablished by the CNBV.

If we intend to repurchase more than 1% of ouroutstanding Common Shares at a single trading session, we must inform thepublic of this intention at least ten minutes before submitting our bid. If weintend to repurchase 3% or more of our outstanding Common Shares during aperiod of twenty trading days, we must conduct a public tender offer for theseCommon Shares.

We may not submit bids for repurchase during the firstand the 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 isdetermined annually by our shareholders at a general ordinary shareholders’meeting and cannot exceed the aggregate amount of our net profits, includingretained profits.

**Delisting**

If we decide to cancel the registration of our shareswith the Mexican Securities Registry or if the CNBV orders this deregistrationwe will be required to make a tender offer to purchase the shares held byminority shareholders 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 onwhich the shares were quoted prior to the date on which the tender offer ismade; 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 opinionissued by an expert selected by us to that effect.

 

**Ownershipof Share Capital by Subsidiaries**

Our subsidiaries, may not, directly or indirectly,purchase our shares.

**Redemption**

Pursuant to the Securities Market Act, shareholdersare entitled 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 of minorityshareholder protections. These minority protections include provisions thatpermit:

·                  holders of atleast 5% of our outstanding share capital to bring an action for civilliabilities against our directors and members of our senior management, any recoveryis 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 MarketAct, we are also subject to certain corporate governance requirements,including the requirement to maintain an audit committee and a corporate governancecommittee and that at least 25% of our directors qualify as independent.  The CNBV is empowered to verify theirindependence. 

The protections afforded to minority shareholdersunder Mexican law are generally different from those in the United States andother jurisdictions although we believed the new Mexican Securities Market Acthas introduced higher corporate governance standards including directorfiduciary duties with a comprehensive description of duties of care andloyalty. Mexican civil procedure does not contemplate class action lawsuits.

Notwithstanding the foregoing, it is anticipated to bemore difficult for our minority shareholders to enforce rights against us orour directors or principal shareholders than it is for shareholders of a U.S.issuer.

***Information to Shareholders***

The Mexican GeneralBusiness Corporations Act establishes that companies, acting through theirboards 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 and informationpolicies and criteria followed in the preparation of the financial information;

·                  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 Actrequires that information relating to matters to be discussed at shareholders’meetings be made available to shareholders from the date on which the noticefor the relevant meeting is published.

**Restrictions Affecting Non-Mexican Shareholders**

Foreign investment in capitalstock of Mexican corporations is regulated by the 1993 Foreign Investment Lawand by the 1998 Foreign Investment Regulations to the extent they are notinconsistent with the Foreign Investment Law. The Ministry of Economy and theNational Commission on Foreign Investment are responsible for theadministration of the Foreign Investment Law and the Foreign InvestmentRegulations.

Our bylaws do notrestrict the participation of non-Mexican investors in our capital stock. However,approval of the National Foreign Investment Commission must be obtained forforeign investors to acquire a direct

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or indirectparticipation in excess of 49% of the capital stock of a Mexican company thathas an aggregate asset value that exceeds, at the time of filing the correspondingnotice of acquisition, an amount determined annually by the National ForeignInvestment Commission.

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

·                  shares held bythem;

·                  property rights;

·                  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 providethat non-Mexican shareholders agree to refrain from invoking the protection oftheir governments in matters relating to their ownership of our shares. Therefore,a non-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.

**Summaryof Differences between Mexican and U.S. Corporate Law**

You should be aware that the Mexican GeneralCorporations Act and the Mexican Securities Market Act, which apply to us,differ in material respects from laws generally applicable to U.S. corporationsand their shareholders. In order to highlight these differences, set forthbelow is a summary of provisions applicable to us (including modificationsadopted pursuant to our bylaws) which differ in material respects fromprovisions of the corporate law of the State of Delaware.

***Duties of Directors***

Under the Mexican Securities Market Act, directors nowhave fiduciary duties of care and loyalty specified therein. The duties ofdirectors of public companies are more extensive than the duties of directorsof private companies. Actions against directors may be initiated by holders ofat least 5% of our outstanding share capital, although any damages recoveredfrom directors are awarded solely to the company.

Under the new Mexican Securities Market Act, thebusiness and affairs of a corporation are managed by or under the direction ofits board of directors. In exercising their powers, directors are charged witha fiduciary 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 aninformed and deliberate manner, and inform themselves, prior to making abusiness decision, of all relevant material information reasonably available tothem. The duty of care also requires that directors exercise care in overseeingand investigating the conduct of corporate employees. The duty of loyalty maybe summarized as the duty to act in good faith, not out of self-interest, andin a manner which the director reasonably believes to be in the best interestsof the shareholders.

Under the “business judgment rule,” courts generallydo not question 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. Ifthe 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

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board of directors takesdefensive actions in response to a threat to corporate control and approves atransaction resulting in a sale of control of the corporation, Delaware courtssubject directors’ conduct to enhanced scrutiny.

***Under the newMexican Securities Market Act, directors are exempted from liability in their decisionswhen they act in good faith and in compliance with all legal and by-lawrequirements, and based on information provided by management, having selectedthe best alternative, according to their best judgment and after consideringthe foreseeable negative effects. Mexican courts have not yet interpreted thesenew standards of conduct for directors.***

***Interested Directors***

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 withregard to 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 companymust reserve 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 restrictionscontained in the company’s certificate of incorporation, a company may paydividends out of surplus or, if there is no surplus, out of net profits for thefiscal year in which the dividend is declared and for the preceding fiscal year.Delaware law also provides that dividends may not be paid out of net profits atany time when capital is less than the capital represented by the outstandingstock of all classes having a preference upon the distribution of assets.

***Mergers, Consolidations, andSimilar Arrangements***

A Mexican company may merge with another company onlyif a majority of the shares representing its outstanding share capital approvethe merger at a duly convened general extraordinary shareholders’ meeting,unless the company’s bylaws impose a higher threshold. Dissenting shareholdersare not entitled to appraisal rights. Creditors have ninety days to oppose amerger judicially, provided they have a legal 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. Delawarelaw also provides that a parent corporation, by resolution of its board ofdirectors and without any shareholder vote, may merge with any subsidiary ofwhich it owns at least 90% of each class of capital share. Upon any suchmerger, dissenting shareholders of the subsidiary would have appraisal rights.

***Anti-Takeover Provisions***

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 such provisions is not opposed by holdersof 5% or more of our share capital;

b)             no shareholder is excluded from the benefits that maydrive from such provisions;

c)              takeovers cannot be absolutely banned and any required approval from the company’s boardof directors must be subject to established criteria and a deadline not toexceed three months; and

d)             takeover procedures conform to compulsory tenderoffering rules.

Under Delaware law, corporations can implementshareholder rights plans and other measures, including staggered terms fordirectors and super-majority voting requirements, to prevent takeover attempts.Delaware law also prohibits a publicly-held Delaware corporation from engagingin a business combination with an interested shareholder for a period of threeyears after the date of the transaction in which the shareholder became aninterested shareholder 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 with SignificantShareholders***

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

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with prior approval fromour board of directors. Prior approval from our shareholders is not requiredfor this kind of transaction.

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

***Shareholders’ Suits***

As mentioned above, holders of at least 5% of ouroutstanding share capital may bring derivative actions for civil liabilitiesagainst our directors, members of the audit committee, and the corporategovernance committee. However, the grounds for shareholder derivative actionsunder Mexican law are limited, which effectively bars most of these kinds ofsuits in Mexico. In addition, subject to certain requirements, holders of atleast 20% of a company’s outstanding share capital may contest and suspend anyshareholder resolution that violates Mexican law or our bylaws. Class actionlawsuits are not permitted under Mexican law.

Class actions and derivative actions aregenerally available to shareholders under Delaware law for, among other things,breach of fiduciary duty, corporate waste and actions not taken in accordancewith applicable law. In these kinds of actions, the court generally hasdiscretion to permit the winning party to recover attorneys’ fees incurred inconnection with the action.

***Indemnification of Directors andOfficers***

Under Mexican law, a company may indemnify directorsor members 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 adirector or 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 of Corporate 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 orobtain copies of a corporation’s shareholder list and its other books andrecords for any purpose reasonably related to a person’s interest as ashareholder.

***Shareholder Proposals***

Under Mexican law and our bylaws, holders of at least10% of our outstanding share capital are entitled to appoint one member of ourboard of directors.

Delaware law does not include a provision restrictingthe manner in which nominations for directors may be made by shareholders orthe manner in which business may be brought before a meeting.

***Calling of Special Shareholders’Meetings***

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Under Mexican lawand 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 shareholders’ meeting to discuss thematters indicated in the written request. If the board of directors fails to calla meeting within 15 calendar days following date of the written request, theshareholder or group of shareholders may request that a competent court callthe meeting. A single shareholder may call a shareholders’ meeting if nomeeting has been held for two consecutive years or if matters to be dealt withat an ordinary shareholders’ meeting have not been considered.

Delaware law permits the board of directors or anyperson who is authorized under a corporation’s certificate of incorporation orbylaws to call a special meeting of shareholders.

***Cumulative Voting***

Under Mexican law, cumulative voting for the electionof directors is not permitted.

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

***Approval of Corporate Matters byWritten 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 bywritten consent of holders of outstanding shares having more than the minimumnumber of votes necessary to take the action at a shareholders’ meeting atwhich all voting shares were present and voted.

***Amendment of Certificate ofIncorporation***

Under Mexican law, it is not possible to amend acompany’s certificate of incorporation (*actaconstitutiva*). However, the provisions that govern a Mexican companyare contained in its bylaws, which may be amended as described below.

Under Delaware law, amending a company’s certificateof incorporation, which is equivalent to a memorandum of association, must bemade by 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 be consideredat the next annual meeting of the shareholders. Delaware law requires that,unless a different percentage is provided for in the certificate ofincorporation, a majority of the outstanding shares entitled to vote thereon isrequired 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.

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***Amendment of Bylaws***

Under Mexican law, amending a company’s bylawsrequires shareholder approval at an extraordinary shareholders’ meeting. Mexicanlaw requires that at least 75% of the shares representing a company’soutstanding capital share be present at the meeting (unless the bylaws requirea higher threshold) and that the resolutions be approved by a majority of theshares representing a company’s outstanding capital share.

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

***Staggered Board of Directors***

Mexican law does not permit companies to have astaggered board of directors.

Delaware law permits corporations to have a staggeredboard of directors.

**MATERIALCONTRACTS**

**Acquisitionof Controladora 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) incash and 47.0% of Beta’s stock for approximately 22.0 million of ourcommon shares valued at approximately Ps.961.8 million (or approximatelyUS$90.5 million). Beta was then merged into us. Beta shareholders ownedapproximately 6.6% of Homex after the merger and sold their position in January 2006through a non-dilutive secondary offer. We financed the cash portion of thepurchase price principally with bank financing.

Forfurther discussion of our material contracts, see “Item 7. MajorShareholders and Related Party Transactions.”

**EXCHANGE CONTROLS**

Mexican law does not restrict our ability to remitdividends and interest payments, if any, to non-Mexican holders of oursecurities. Payments of dividends to equity-holders, to the extent made,generally will not be subject to Mexican withholding tax. Mexico has had a freemarket for foreign exchange since 1991, and the government has allowed the pesoto float freely against 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

·                  arenot residents of Mexico for tax purposes and

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·                  willnot hold the ADSs or Common Shares or a beneficial interest therein inconnection with the conduct of a trade or business through a permanentestablishment, for tax purposes, 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

·                  arecitizens or residents of the United States,

·                  areU.S. domestic corporations, or

·                  thatotherwise will be subject to U.S. federal income tax on a net income basis inrespect of the 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 de intereses vitales*) is located in Mexico. Individuals’core of vital interests will be deemed to be located in Mexico if, among otherthings,

·                  atleast 50% of the individuals’ aggregate annual income derives from Mexicansources 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 apermanent establishment in Mexico for tax purposes, all income attributable tothe permanent establishment will be subject to Mexican taxes, in accordancewith applicable Mexican tax law.

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

However, the following summary does not purport to bea comprehensive description of all of the tax considerations that may berelevant to a decision to purchase the ADSs or Common Shares. In particular,the summary of U.S. Federal income tax consequences deals only with U.S.holders that will hold the ADSs or Common Shares as capital assets and does notaddress the tax treatment of U.S. holders that own or are treated as owning 10%or more of our outstanding voting shares. In addition, the summary does notaddress any U.S. or Mexican state or local tax considerations that may berelevant to non-resident holders and to U.S. holders. The discussion of U.S.federal income tax considerations below assumes that we are not a passiveforeign investment company, or PFIC. We are not and do not expect to become aPFIC, but this determination is made annually and it is possible that ourstatus could change.

**TO ENSURE COMPLIANCE WITH INTERNAL REVENUE SERVICECIRCULAR 230, HOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS DISCLOSURESTATEMENT IS NOT INTENDED OR WRITTEN BY US TO BE RELIED UPON, AND CANNOTBE RELIED UPON BY HOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BEIMPOSED ON HOLDERS UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION ISWRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERSADDRESSED HEREIN (WITHIN THE MEANING OF INTERNAL**

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**REVENUE SERVICE CIRCULAR 230);AND (C) HOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCESFROM AN INDEPENDENT TAX ADVISOR.**

The summary is based upon the federal income tax lawsof the 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.

**Taxationof Dividends**

***Mexican Tax Considerations***

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

Dividends paid from distributable earnings that havenot been subject to corporate income tax are subject to a corporate-leveldividend tax at a rate of 42.86% for the year ended December 31, 2005 and38.89% thereafter. The corporate-level dividend tax on the distribution ofearnings is not final and may be credited against income tax payable during thefiscal year in which the dividend tax was paid and for the following two years.Dividends paid from distributable earnings, after corporate income tax has beenpaid with respect to these earnings, are not subject to this corporate-leveldividend tax.

***U.S. Federal Income TaxConsiderations***

The gross amount of any distributions (beforereduction for Mexican withholding tax) paid with respect to the Common Sharesrepresented by the ADSs, to the extent paid out of our current or accumulatedearnings and profits, as determined for U.S. federal income tax purposes,generally will be includible in the gross income of a U.S. holder as ordinaryincome on the date on which the distributions are received by the depositaryand will not be eligible for the dividends received deduction allowed tocertain corporations under the U.S. Internal Revenue Code of 1986, as amended. Tothe extent that a distribution exceeds our current and accumulated earnings andprofits, it will be treated as a non-taxable return of basis to the extentthereof, and thereafter 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, “financialservices income,” and for taxable years beginning after December 31, 2006,“general” category income, (depending on whether the U.S. Holder ispredominantly engaged in the active conduct of a banking, insurance, finance,or similar business) in each case which is treated separately from other typesof income for U.S. foreign tax credit purposes.

Mexican tax withheld from dividend distributions willbe treated as foreign income tax that, subject to generally applicablelimitations under U.S. federal income tax regulations, is eligible for creditagainst U.S. holders’ federal income tax liability or, for those U.S. holderswho elect to treat foreign taxes as such, may be deducted in computing taxableincome. The calculation of foreign tax credits and, in the case of U.S. holdersthat elect to deduct foreign taxes, the availability of deductions involve theapplication of rules that depend on U.S. holders’ particular circumstances.U.S. holders should consult their own tax advisors regarding the availabilityof foreign tax credits and deductions.

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Under rules enacted by the United States Congressas part of the U.S. Taxpayer Relief Act of 1997, foreign tax credits will notbe allowed for withholding taxes imposed in respect of certain short-term orhedged positions. U.S. holders should consult their own advisors concerning theimplications of these rules in light of their particular circumstances.

Distributions of additional Common Shares to holdersof ADSs with respect to their ADSs that are made as part of a pro ratadistribution to all our shareholders generally will not be subject to U.S.federal income tax.

The U.S. Jobs and GrowthTax Relief Reconciliation Act of 2003, or the Tax Relief Act, enacted on May 28,2003, reduces the maximum rate of tax imposed on certain dividends received byU.S. shareholders that are individuals to 15%, provided that certain holdingperiod requirements are met. These reduced rates apply to dividends receivedafter December 31, 2002 and before January 1, 2009. In order fordividends paid by a foreign corporation to be eligible for the reduced rates,the foreign corporation must be a “qualified foreign corporation” within themeaning of the Tax Relief Act. We believe that we will be considered a “qualifiedforeign corporation” within the meaning of the Tax Relief Act because our ADSswill be listed on the New York Stock Exchange and thus any distributions wemake that are treated as taxable dividends, whether in cash, shares, or otherproperty, should qualify for reduced rates. It is possible, however, that wewill not continue to be considered a “qualified foreign corporation” and thatour dividends will not continue to be eligible for reduced rates under the TaxRelief Act.

**Taxation of Dispositions of Shares or ADSs**

***Mexican Tax Considerations***

Gain on the sale or otherdisposition of ADSs by a non-resident holder will generally not be subject toMexican tax. Deposits and withdrawals of Common Shares in exchange for ADSswill not give rise to Mexican tax or transfer duties.

Gain on the sale of the Common Shares by anon-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 the Mexican StockExchange or other approved stock exchanges or securities markets, non-residentholders who held the Common Shares as of the date they were initiallyregistered with the CNBV may apply the above exemption to the extent that:

·                  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 is forall shares representing our share capital and at the same price for allshareholders; and

·                  all shareholdersare permitted to accept more competitive offers than those received prior to orduring the tender offer period, without penalty.

Under the Tax Treaty, a holder that is eligible toclaim the benefits of the Tax Treaty will be exempt from Mexican tax on gainsrealized on a sale or other disposition of the Common Shares, in a transactionthat is not carried out through the Mexican Stock Exchange or such otherapproved securities markets, so long as the holder did not own, directly orindirectly, 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. Tax Considerations***

Upon the sale or other disposition of the ADSs orCommon Shares, a U.S. holder generally will recognize capital gain or loss inan amount equal to the difference between the amount realized on the sale orother disposition and such U.S. holder’s tax basis in the ADSs or Common Shares.Gain or loss recognized by a U.S. holder on such sale or other dispositiongenerally will be long-term capital gain or loss if, at the time of the sale orother disposition, the ADSs or Common Shares have been held for more than oneyear. Under the Tax Relief Act, the top individual tax rate on adjusted netcapital gains for sales and exchanges of capital assets on or after May 6,2003 and before January 1, 2009 is 15%. The deduction of a capital loss issubject to limitations for U.S. federal income tax purposes. Gain or lossgenerally will be treated as U.S. source gain or loss and a U.S. holder may beunable to credit any Mexican taxes imposed on these gains unless it has certainother income from foreign sources. Deposits and withdrawals of Common Shares byU.S. holders in exchange for ADSs will not result in the realization of gain orloss for U.S. federal income tax purposes. The deductibility of capital lossesis subject to limitations.

**OtherMexican Taxes**

There are no Mexican inheritance, gift, succession, orvalue added taxes applicable to the purchase, ownership, or disposition of theADSs or Common Shares by non-resident holders. However, gratuitous transfers ofthe ADSs or Common Shares may result in a Mexican federal tax obligation forthe recipient in certain circumstances.

There are no Mexican stamp, issue, registration, orsimilar taxes or duties payable by non-resident holders of the ADSs or CommonShares.

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

A U.S. shareholder may, under certain circumstances,be subject to “backup withholding” with respect to some payments to the U.S.shareholder, such as dividends or the proceeds of a sale or other dispositionof the ADSs, unless the holder:

·                  is a corporationor comes within certain exempt categories, and demonstrates this fact when sorequired; or

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

Anyamount withheld under these rules will be creditable against the U.S.shareholder’s federal income tax liability.

**DOCUMENTS ON DISPLAY**

We are subject to the information requirements of the ExchangeAct and, in accordance therewith, we are required to file reports and otherinformation with the SEC. These materials, including this Form 20-Fand the exhibits thereto, may be inspected and copied at the SEC’s PublicReference Room at 450 Fifth Street, NW, Washington, D.C. 20549. The publicmay obtain information on the operation of the Public Reference Room by

**ITEM 11.**             Quantitative AndQualitative Disclosures About Market Risk.

** **

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**InterestRate Risk**

In connection with our business activities, we haveissued and hold financial instruments that currently expose us to market risksrelated to changes in interest rates. Interest rate risk exists principallywith respect to our indebtedness that bears interest at floating rates. At December 31,2005, we had outstanding indebtedness of Ps. 3,353.5 million, the majority ofwhich bore interest at fixed interest rates. The interest rate on our variablerate debt is determined primarily by reference to the 28-day MexicanInterbank Rate, or TIIE (Tasa de Interés Interbancaria de Equilibrio). TIIEincreases would, consequently, increase our interest payments.

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

We manageour exposure to changes in interest rates by efficiently timing constructionand delivery 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 with the issuance of the US$250 million longterm US Dollar denominated senior notes due 2015, Homex entered into aPrincipal Only Swap to hedge and cover the economic and cash flow principal USdollar exposure. The notes bear 7.5% p.a. six months interest coupons exposedto US dollars currency fluctuations. The company used a Fair  Value accounting methodology for thefinancial periodic re-measurement as per FAS 133, consequently  financial periodic statements reports aforeign exchange non cash effect from the mark to market of the Principal OnlySwap,  that at due date on year 2015 willequate to the change of the value of the underlying note.

**ITEM 12.**             Description OfSecurities Other Than Equity Securities.

Not Applicable.

# **PART II**

**ITEM 13.**             Defaults, DividendArrearages And Delinquencies.

Not Applicable.

**ITEM 14.**             MaterialModifications To The Rights Of Security Holders And Use Of Proceeds.

Not Applicable

**ITEM 15.**             Controls andProcedures.

**EVALUATION OFDISCLOSURE CONTROLS AND PROCEDURES**

The conclusions ofour Chief Executive Officer and Chief Financial Officer****aboutthe effectiveness of our disclosure controls and procedures, based on theirevaluation of these controls and procedures as of December 31, 2005, areas follows:

We are responsiblefor establishing and maintaining adequate internal control over the financialreporting of the company. Our disclosure controls and procedures are designedto ensure that information required to be disclosed by us is recorded,processed, summarized and reported within required timeframes. Our disclosurecontrols and procedures include controls and procedures designed to ensure thatinformation required to be disclosed is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate to allow timely decisions regarding required disclosure. Basedon our assessments of our disclosure controls and procedures, our ChiefExecutive Officer and Chief Financial Officer have concluded that thedisclosure controls and procedures have functioned effectively.

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We are in the process of implementing a plan to align our internal controlsystems with the requirements established in Section 404 of the SarbanesOxley Act, Section 404 requires that, in addition to the annual audit,management prepares a report on the design, maintenance and periodic evaluationof our internal control system for financial reporting.

**CHANGES IN INTERNAL CONTROLS**

There has been nochange in our internal control over financial reporting during 2005 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

**ITEM 16. (Reserved)**

**ITEM 16A.**    Financial Expert

Our audit committee consists of Wilfrido CastilloSánchez-Mejorada (Chairman), Z. Jamie Behar, and Edward Lowenthal. 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. Our board of directors have also determined that Mr. Castillois independent as that term is defined in the listing rules of the NewYork Stock Exchange.

**ITEM 16B.**    Code of Ethics

We have adopted a code ofethics, 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.

### **ITEM 16C.****                                    ****Principal Accountant Fees and Services**

**Auditand Non-Audit Fees**

The following tablesummarizes the aggregate fees billed to us by Galaz, Yamazaki, Ruiz Urquiza,S.C., a member of Deloitte Touche Tohmatsu and an independent registered publicaccounting 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 tableare the aggregate fees billed by Galaz, Yamazaki, Ruiz Urquiza, S.C., a memberof Deloitte Touche Tohmatsu and an independent public registered publicaccounting firm, in connection with the audit of our annual financialstatements and statutory and regulatory audits.

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*Audit-related Fees*. Audit-related fees inthe above table are the aggregate fees billed by Galaz, Yamazaki, Ruiz Urquiza,S.C., a member 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 arefees billed by Galaz, Yamazaki, Ruiz Urquiza, S.C., a member of Deloitte ToucheTohmatsu and an independent registered public accounting firm, for servicesbased upon existing facts and prior transactions in order to document, compute,and obtain government approval for amounts included in tax filings such asvalue-added tax return assistance, transfer pricing documentation and requestsfor technical advice from taxing authorities.

*Other Fees*. Other fees in the above tableare fees billed by Galaz, Yamazaki, Ruiz Urquiza, S.C., a member of DeloitteTouche Tohmatsu and an independent registered public accounting firm, fornon-audit services. As a percentage of total fees billed to us, other fees represent0.2% and 23% for 2004 and 2005, respectively.

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

Wehave adopted pre-approval policies and procedures under which all audit andnon-audit services provided by our external auditors must be pre-approved bythe audit committee. Any service proposals submitted by external auditors needto be discussed and approved by the audit committee during its meetings, whichtake place at least four times a year. Once the proposed service is approved,we or our subsidiaries formalize the engagement of services. The approval ofany audit and non-audit services to be provided by our external auditors isspecified in the minutes of our audit committee. In addition, the members ofour board of directors are briefed on matters discussed in the meetings of theaudit committee.

**ITEM 16D.            Exemptionsfrom the Listing Standards for Audit Committees**.

Not Applicable.

**ITEM 16E.             Purchasesof Equity Securities by the Issuer and Affiliated Purchasers**

Not Applicable.

# **PART III**

## **ITEM 17.       FinancialStatements.**

Not Applicable.

## **ITEM 18.       FinancialStatements.**

See pages F-1through F-45, 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.** |
|             |       |                                                                                                                                                                                                                                                                                                    |

 

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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, 2006.                                                                                                                                                                         |
|     |   |                                                                                                                                                                                                                                                                                 |
| 12(a)(2) |   | CFO Certification pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002, dated June 28, 2006.                                                                                                                                                                         |
|     |   |                                                                                                                                                                                                                                                                                 |
| 13       |   | Officer Certifications pursuant to Section 906  of the Sarbanes-Oxley Act of 2002, dated June 28, 2006.                                                                                                                                                                    |

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*                       Previously filed in RegistrationStatement on Form F-1/A (File No. 333-116257),  originally filed 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.Incorporated herein by reference.

***         Previously filed in Registration Statement on Form F-4(File No. 333-129100), originally filed with the SEC on October 18,2005. Incorporated herein by reference.

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

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**SIGNATURE**

The registrant,Desarrolladora Homex, S.A.B. de C.V., hereby certifies that it meets all of therequirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf.

 
|        | DESARROLLADORA  HOMEX, S.A.B. de C.V.            |
|--------|--------------------------------------------------|
|   |                                             |
|   | /s/ Mario  Alberto Gonzalez Padilla              |
|   | Name: Mario  Alberto Gonzalez Padilla       |
|   | Title:   Chief  Financial Officer |
|   |                                             |

Dated: June 29, 2006

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TABLE OF CONTENTS
| Report of Independent  Registered Public Accounting Firm                                                               |   |   |   |
|------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Consolidated  Balance Sheets as of December 31, 2005 and 2004                                                     |   |   |   |
| Consolidated  Statements of Income for the years ended December 31, 2005, 2004 and 2003                                |   |   |   |
| Consolidated  Statements of Changes in Stockholders’ Equity for the years ended December  31, 2005, 2004 and 2003 |   |   |   |
| Conlidated  Statement of Changes in Financial Position for the years ended December 31,  2005, 2004 and 2003           |   |   |   |
| Notes to  Consolidated Financial Statements for the years ended December 31, 2005, 2004  and 2003                      |   |   |   |

 

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**Report of Independent Registered Public AccountingFirm to the Board of Directors 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 and 2004,and the related consolidated statements of income, changes in stockholders’equity and changes in financial position for each of the three years in theperiod ended December 31, 2005, all expressed in thousands of Mexicanpesos of purchasing power of December 31, 2005. These financial statementsare the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial 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 obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. The Company is not required to have, nor were we engagedto perform, an audit of its internal control over financial reporting. Ouraudits included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not 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 and 2004, and the results of theiroperations, changes in their stockholders’ equity and changes in theirfinancial position for each of the three years in the period ended December 31,2005 in conformity with the accounting principles generally accepted in Mexico.

As mentioned in Note 3 to the consolidatedfinancial statements, effective January 1, 2005 the Company adopted theprovisions of Bulletin B-7, “Business acquisitions”. On July 1, 2005a subsidiary was acquired (see Note 2.c) utilizing the purchase method ofaccounting, under which the assets acquired and liabilities assumed arerecorded at fair value, through the allocation of the acquisition cost of thesubsidiary, and goodwill of 635,908 thousand Mexican pesos was determined.

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 each of the three years in the period ended December 31,2005, and the determination of consolidated stockholders’ equity at December 31,2005, 2004 and 2003 to the extent summarized in Note 25.

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 amounts intoU.S. dollars and the translation of the financial statements into English havebeen made solely for the convenience of readers in the United States ofAmerica.

Galaz, Yamazaki, RuizUrquiza, S.C.Member of Deloitte Touche Tohmatsu

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

F-2

----

**DesarrolladoraHomex, 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.) ofpurchasing power of December 31, 2005)**
| ** **                                                             | ** ** | **2005**                           | ** ** | **2005**   | ** **                                                                                                | **2004**   | ** **                                                                               |
|------------------------------------------------------------------------|------------|------------------------------------|------------|------------|-----------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|
| ** **                                                             | ** ** | **(Convenience translation;** | ** ** | ** ** | ** **                                                                                                | ** ** | ** **                                                                               |
| ** **                                                             | ** ** | **Note 2.a)**                 | ** ** | ** ** | ** **                                                                                                | ** ** | ** **                                                                               |
| **As****sets**                                                         |       |                               |       |       |                                                                                                      |       |                                                                                     |
|                                                                   |       |                               |       |       |                                                                                                      |       |                                                                                     |
| 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)                                                     |       | 59,847                             |       | 635,908    |                                                                                                      | —     |                                                                                     |
| Other assets  (Note 9)                                                 |       | 61,140                             |       | 649,643    |                                                                                                      | 87,459     |                                                                                     |
| Total                                                                  |       | $                                  | 1,327,245  |       | Ps.          14,102,660                                 |       | 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) |       | 122,342                            |       | 1,299,943  |                                                                                                      | 654,419    |                                                                                     |
| Total liabilities                                                      |       | 780,901                            |       | 8,297,483  |                                                                                                      | 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                                                      |       | 195,166                            |       | 2,073,734  |                                                                                                      | 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                                     |       | 542,818                            |       | 5,767,707  |                                                                                                      | 3,851,387  |                                                                                     |
| Minority interest in consolidatedsubsidiaries                          |       | 3,526                              |       | 37,470     |                                                                                                      | 51,502     |                                                                                     |
| Total stockholders’ equity                                        |       | 546,344                            |       | 5,805,177  |                                                                                                      | 3,902,889  |                                                                                     |
|                                                                   |       |                               |       |       |                                                                                                      |       |                                                                                     |
| Total                                                                  |       | $                                  | 1,327,245  |       | Ps.          14,102,660                                 |       | Ps.          7,001,043                 |   |

 

Seeaccompanying notes to consolidated financial statements.

F-3

----

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

**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)** | ** ** | ** ** | ** **                                              | ** ** | ** **                                              | ** **          | ** **                                        |
|                                                              |       |                             |       |       |                                                    |       |                                                    |                |                                              |
| Revenues                                                          |       | $                                | 803,026    |       | Ps.8,536,162                                            |       | Ps.5,491,294                                            |                | Ps.3,008,841                                      |   |
| Costs                                                             |       | 548,310                          |       | 5,828,534  |                                                    | 3,823,572  |                                                    | 2,152,170           |                                              |
|                                                              |       |                             |       |       |                                                    |       |                                                    |                |                                              |
| Gross profit                                                      |       | 254,716                          |       | 2,707,628  |                                                    | 1,667,722  |                                                    | 856,671             |                                              |
|                                                              |       |                             |       |       |                                                    |       |                                                    |                |                                              |
| Selling and  administrative expenses (Notes 15 and 16)            |       | 75,284                           |       | 800,272    |                                                    | 447,901    |                                                    | 275,643             |                                              |
|                                                              |       |                             |       |       |                                                    |       |                                                    |                |                                              |
| Income from  operations                                           |       | 179,432                          |       | 1,907,356  |                                                    | 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)                                        |       | 39,429                           |       | 419,127    |                                                    | 136,633    |                                                    | 121,678             |                                              |
| Interest income                                                   |       | (5,485                           | )          | (58,310    | )                                                       | (48,348    | )                                                       | (6,732              | )                                                 |
| Exchange loss (gain)                                              |       | 6,158                            |       | 65,461     |                                                    | (7,354     | )                                                       | (1,349              | )                                                 |
| Monetary position loss                                            |       | 2,943                            |       | 31,283     |                                                    | 84,017     |                                                    | 18,237              |                                              |
|                                                              |       | 43,045                           |       | 457,561    |                                                    | 164,948    |                                                    | 131,834             |                                              |
| Income before  income taxes and employee statutory profit sharing |       | 138,592                          |       | 1,473,238  |                                                    | 1,099,346  |                                                    | 529,648             |                                              |
|                                                              |       |                             |       |       |                                                    |       |                                                    |                |                                              |
| Income tax  expense (Note 19)                                     |       | 44,407                           |       | 472,044    |                                                    | 350,945    |                                                    | 189,474             |                                              |
| Employee  statutory profit sharing expense (Note 19)              |       | 902                              |       | 9,590      |                                                    | 8,806      |                                                    | 285                 |                                              |
|                                                              |       |                             |       |       |                                                    |       |                                                    |                |                                              |
| Consolidated net  income                                          |       | $                                | 93,283     |       | Ps.  991,604                                  |       | Ps.  739,595                                  |                | Ps.  339,889                            |   |
|                                                              |       |                             |       |       |                                                    |       |                                                    |                |                                              |
| Net income of  majority stockholders                              |       | $                                | 93,915     |       | Ps.  998,320                                  |       | Ps.  730,227                                  |                | Ps.  334,410                            |   |
| Net (loss)  income of minority stockholders                       |       | (632                             | )          | (6,716     | )                                                       | 9,368      |                                                    | 5,479               |                                              |
|                                                              |       |                             |       |       |                                                    |       |                                                    |                |                                              |
| Consolidated net  income                                          |       | $                                | 93,283     |       | Ps.  991,604                                  |       | 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)                           |       | $                                | 0.29       |       | Ps.        3.07 |       | Ps.        2.59 |                | Ps.       1.38 |   |

 

See accompanying notes toconsolidated financial statements.

 

F-4

----

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**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.e)             |       | 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.e)           |       | 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                                       |       | —                 |       | —                           |       | 998,320                           |       | —                                                   |       | —                                                           |       | (6,716                                                     | )          | 991,604                                               |       |
| Balances as of December 31, 2005                       |       | Ps.  489,059 |       | Ps.3,038,236                     |       | Ps.2,073,734                      |       | Ps.  312,863                                   |       | Ps.(146,185)                                                     |       | Ps.  37,470                                      |       | Ps.5,805,177                                          |       |

 

See accompanying notes toconsolidated financial statements.

 

F-5

----

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**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)** | ** ** | ** ** | ** **       | ** ** | ** **       | ** **          | ** **       |
| Operating activities                                |       |                             |       |       |             |       |             |                |             |
| Consolidated net  income                            |       | $                                | 93,283     |       | Ps. 991,604 |       | Ps. 739,595 |                | Ps. 339,889 |   |
| Add items that  did not require resources:          |       |                             |       |       |             |       |             |                |             |
| Depreciation                                        |       | 5,850                            |       | 61,711     |             | 25,054     |             | 11,436              |             |
| Loss from sale  of subsidiary                       |       | —                           |       | —     |             | 1,180      |             | —              |             |
| Deferred income  taxes                              |       | 23,610                           |       | 250,867    |             | 287,091    |             | 162,144             |             |
|                                                |       | 122,743                          |       | 1,304,182  |             | 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                                        |       | (9,210                           | )          | (97,856    | )                | (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         |       | (13,178                          | )          | (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             |             |
|                                                     |            |                                  |            |            |                  |            |                  |                     |                  |  |

(Continued)

F-6

----

 
| ** **                                         | ** ** | **2005**                         | ** ** | **2005**   | ** **   | **2004**   | ** **             | **2003**            | ** **             |
|----------------------------------------------------|------------|----------------------------------|------------|------------|--------------|------------|------------------------|---------------------|------------------------|
| ** **                                         | ** ** | **(Convenience**                 | ** ** | ** ** | ** **   | ** ** | ** **             | **(Note 2.e)** | ** **             |
| ** **                                         | ** ** | **translation;  Note 2.a)** | ** ** | ** ** | ** **   | ** ** | ** **             | ** **          | ** **             |
|                                               |       |                             |       |       |         |       |                   |                |                   |
| 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                                       |       | 68,414                           |       | 726,937    |         | 321,878    |                   | 156,306             |                   |
| Cash held by subsidiary at the time of acquisition |       | 4,025                            |       | 42,765     |         | —     |                   | —              |                   |
| Balance at beginning of year                       |       | 51,704                           |       | 549,385    |         | 227,507    |                   | 71,201              |                   |
|                                               |       |                             |       |       |         |       |                   |                |                   |
| Balance at end of year                             |       | $                                | 124,143    |       | Ps.1,319,087 |       | Ps.  549,385 |                | Ps.  227,507 |   |
|                                                    |            |                                  |            |            |              |            |                        |                     |                        |  |

(Concluded)

See accompanying notes toconsolidated financial statements.

F-7

----

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**Notesto 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.****                          Natureof business**

Desarrolladora Homex,S.A. de C.V. and subsidiaries (the “Company”) is a vertically integratedcompany engaged in the development, construction and sale of affordable entrylevel, middle income and upper-income housing in Mexico. The Company engages inland acquisition, constructing, marketing and selling homes, obtaining individualfinancing for its clients and developing communities to satisfy housing needsin Mexico.

The Company participatesin housing supply offers from the main housing funds in Mexico, such as theNational Workers’ Housing Fund, or INFONAVIT (Instituto Nacional del Fondo deAhorro para 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 and2003, 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’s operations present aseasonal cycle: normally, the highest volume of sales takes place in the secondhalf of the year. Construction times of real-estate developments vary dependingon the type of housing: entry-level, middle-income or upper-income;accordingly, construction revenues are recognized in different fiscal years,and the revenues from work completed and generation of accounts receivablefluctuate depending on the project construction starting date, and may becancelled in the subsequent period.

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

a.                             ***Explanation for translation intoEnglish and convenience translation*** - The accompanyingconsolidated financial statements have been translated from Spanish intoEnglish for use outside of Mexico. These consolidated financial statements arepresented on the basis of accounting principles generally accepted in Mexico(Mexican GAAP).

Thefinancial statements are stated in Mexican pesos, the currency of the countryin which the Company is incorporated and operates. The translations of Mexicanpeso amounts into U.S. dollar amounts are included solely for the convenienceof readers 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.

F-8

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b.                            ***Consolidation of financialstatements*-****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:

 

| Company                                                          | ** ** | **Ownership Percentage** | ** ** | **Activity** |
|------------------------------------------------------------------|------------|--------------------------|------------|--------------|
| ** **                                                       | ** ** | **2005**                 | ** ** | **2004**     | ** ** | ** ** |
| 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 the outstanding stock of Comercializadora Cántaros, S.A. de C.V. and SuperAbastos Centrales y Comerciales, S.A. de C.V., which are engaged in thepromotion, design, construction and sale of entry-level housing.

(2) To efficiently manage its operations, theCompany decided to reduce the number of subsidiaries. Therefore, thesecompanies, as of December 15, 2005, began a process of legal liquidationthat entails the transfer of all of their assets and liabilities, at bookvalue, to other companies in the group.

c.                             ***Acquisition of shares inControladora Casas Beta, S.A. de C.V. -***On July 1, 2005, the Company acquired100% of the voting stock of Controladora Casas Beta, S.A. de C.V. (“BETA”),whose primary activity is the construction and sale of entry-level housingprimarily in the Mexican states of Baja California, Nuevo León and the State ofMexico. The results of BETA’s operations starting July 1, 2005, have beenincluded in the Company’s consolidated financial statements. Among the mainreasons for the acquisition of BETA was that, prior to the acquisition, BETAwas considered to be the sixth largest homebuilder in Mexico, in terms of thenumber of units sold. The acquisition of BETA is expected to significantlyimprove the Company’s financial results and will strengthen its position in thedomestic market, enhancing its presence in the three previously mentionedstates, which have substantial housing markets where BETA has majorconstruction developments.

F-9

----

The purchase price of BETA was 2.08 billion Mexicanpesos (2.04 billion Mexican pesos at nominal value), and the acquisitionincluded the cash purchase of 53% of the shares of BETA for 1.08 billionMexican pesos (1.07 billion Mexican pesos at nominal value) and the purchase ofthe remaining 47% of the shares of BETA in exchange for 22,013,060 shares inthe Company with a value of 996 million pesos (977 million pesos at nominalvalue). Upon completion of the acquisition of BETA, it was merged with theCompany.

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** | ** ** |
|------------------------------------|------------|-------------------------------------------------------|------------|
| Current assets                     |       | Ps.2,150,383                                          |       |
| Fixed assets,  net                 |       | 316,539                                               |       |
| Intangible asset  (BETA trademark) |       | 455,270                                               |       |
| Current  liabilities               |       | (695,043                                              | )          |
| Long-term debt                     |       | (700,007                                              | )          |
| Minority  interest                 |       | (82,829                                               | )          |
| Net assets  acquired               |       | 1,444,313                                             |       |
| Cost of the  acquired entity       |       | 2,080,221                                             |       |
|                               |       |                                                  |       |
| Goodwill                           |       | Ps.   635,908                          |       |

 

The intangible asset represents the value assigned tothe BETA trademark, which was determined as part of the assessment performed bythe Company to assign the purchase price to the assets acquired and theliabilities assumed. This value was established by independent appraisers.

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 Companyfor the period from July 1, 2005 to December 31, 2005, BETAcontributed net revenues of Ps.1,981,082, operating income of Ps.596,763 andnet income of Ps.358,453.

If BETA had been acquired on January 1, 2005 and2004, for the years ended December 31, 2005 and 2004, total consolidatedrevenues of the Company would have been Ps.9,806,728 and Ps.8,052,689,respectively; operating income would have been Ps.2,111,252 and Ps.1,730,941,respectively; net income would have been Ps.1,153,009 and Ps.1,045,142,respectively; and basic and diluted earnings per share would have been Ps.3.54and Ps.3.70, respectively.

d.                            ***Acquisition of shares of Super Abastos Centrales yComerciales, S.A. de C.V.*-**d.    In February 2005, Casas Beta del Centro, S.A. de C.V. (“Beta del Centro”),a subsidiary of the Company, acquired 50% of the outstanding shares of SuperAbastos Centrales y Comerciales, S.A. de C.V. (“SACC”) in order to participatein a program of entry-level housing construction in Mexico City. The excesscost of the acquired assets over their book value and the liabilities assumedtotaled Ps.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 Centro acquired the remaining 50% of SACC’s outstanding shares.The excess cost of the shares acquired from minority owners totaled Ps.73,577,which was recorded as a capital distribution, since this was a transactionbetween common shareholders.

F-10

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e.                             ***Merger*-** On May 16, 2004, Econoblock, S.A. deC.V. (affiliated company) merged with Desarrolladorade Casas del Noroeste, S.A. de C.V. (subsidiary company) with the latter assuming all the rights and obligations of the mergedcompany. As the companies were under common control, the merger wasrecorded by recognizing the assets and liabilities transferred at theircarrying amounts in the accounts of the transferring entity at the date oftransfer, based on the guidance incorporated in Statement of FinancialAccounting Standards No. 141, “Business Combinations”, issued by theFinancial 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 financial statements include those of the merged company as ifthe merger had taken place as of the beginning of the earliest periodpresented. This transaction resulted in a gain of Ps.10.949, which wasaccounted for as an increase in retained earnings.

f.                               ***Sale of subsidiary*-**In May 2004, the subsidiary Homex Cuautitlán,S.A. de C.V. was sold, generating a loss of Ps.1,180.

g.                            ***Comprehensive income***-Represents changes in stockholders’equity during the year, for concepts other than distributions and activity incontributed common stock, and is comprised of the net income of the year, plusother comprehensive income (loss) items of the same period, which are presenteddirectly in stockholders’ equity without affecting the consolidated statementsof income. In 2005, 2004 and 2003, there were no other comprehensive income orloss items.

**3.****                          Summaryof significant accounting policies**

Theaccounting policies followed by the Company are in conformity with MexicanGAAP, which require that management make certain estimates and use certainassumptions that affect the amounts reported in the consolidated financialstatements and the accompanying notes. Although these estimates are based onmanagement’s best knowledge of current events, actual results may differ. Thesignificant accounting policies of the Company are as follows:

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

***Business acquisitions***-As of January 1, 2005, the Company adopted the provisions of Bulletin B-7,“Business Acquisitions”. Bulletin B-7 provides rules for theaccounting treatment of business acquisitions and investments in associatedentities. It establishes, among others, that a) the adoption of the purchasemethod as the sole valuation rule for these transactions; b) goodwillarising from an acquired entity should not be amortized, but should be subjectto impairment tests, at least on an annual basis in conformity with Bulletin C-15,“Accounting for Impairment and Disposal of Long-lived Assets”; and******c) any unamortized excess ofrecorded value over cost of subsidiaries and associated companies should beimmediately considered in the year’s results. It also provides rules forthe accounting treatment of asset transfers or share exchanges between entitiesunder common control and for the acquisition of minority interest, the effectsof which are recorded in stockholders’ equity.

***Severance payments***- Effective January 1,2005, the Company adopted the revised provisions to Bulletin D-3, “LaborObligations”, related to the recognition of the liability for severancepayments for reasons other than restructuring, which is recorded using theprojected unit credit method, based on calculations by independent actuaries. BulletinD-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. Through December 31,2004, severance payments were charged to results when the liability wasdetermined to be payable. The accrued liability as of January 1, 2005calculated by independent actuaries is Ps.21,268. The Company chose to recordsuch amount as a transition liability to be amortized using the straight-linemethod over 12 years, which represents the average labor life of employeesexpected to receive such benefits.

F-11

----

b.                            ***Recognition of the effects of inflation***-The Company restates its consolidated financial statements to Mexican pesopurchasing power of the most recent balance sheet date presented. Accordingly, the consolidated financialstatements of the prior years, that are presented for comparative purposes,have also been restated to Mexican pesos of the same purchasing power and,therefore, differ from those originally reported in the prior year. Recognition of the effects of inflation resultsmainly in inflationary gains or losses on nonmonetary and monetary items thatare presented in the financial statements under the following two line items:

***Excess in restated stockholders’ equity*** - Excessin restated 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,which resulted from restating certain nonmonetary assets above inflationutilizing appraisal values.

***Monetary position result*********- Monetary position result, which represents the erosion of purchasing powerof monetary items caused by inflation, is calculated by applyingNational Consumer Price Index (“NCPI”) factors to the monthly net monetaryposition. Losses result from maintaining a net monetary asset position.

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

d.                            ***Inventories and costs of sales*** -Finished construction, construction-in-process and land for development arerecorded at acquisition cost and restated using the NCPI. Cost of sales is alsorestated by applying such index.

Landfor future developments refers to land reserves yet to be developed by theCompany. Land for future development is recorded at acquisition cost and isrestated by applying factors derived from the NCPI.

e.                             ***Property and equipment*** - Propertyand equipment are initially recorded at acquisition cost and restated using theNCPI. 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 recordedvalue of subsidiaries as of the date of acquisition. It is restatedusing the NCPI and at least once a year, is subject to impairment tests.

g.                            ***Impairment of long-lived assets in use***- The Company reviews the carrying amounts of long-lived assets in use when animpairment indicator suggests that such amounts might not be recoverable,considering the greater of the present value of future net cash flows using anappropriate discount rate, or the net sales price upon disposal. Impairment isrecorded when the carrying amounts exceed the greater of the amounts mentionedabove. The impairment indicators considered for these purposes are, amongothers, the operating losses or negative cash flows in the period if they arecombined with a history or projection of losses, depreciation and amortizationcharged to results, which in percentage terms in relation to revenues aresubstantially higher than that of previous years, obsolescence, reduction inthe demand for the products manufactured, competition and other legal andeconomic factors.

F-12

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h.                            ***Derivative financial instruments -***TheCompany values all of its derivatives at fair value in the balance sheet,regardless of the purpose for holding them, based on market prices forderivatives traded on recognized markets, and based on technical determinationsof their fair value, estimated by means of technical valuation models,supported by sufficient, reliable and demonstrable information. The fair valueis recorded on the balance sheet as an asset or liability, according to therights or obligations stemming 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 uses foreigncurrency forward contracts to manage its exposure to foreign currencyfluctuations. As a policy, the Company does not carry out derivativetransactions of a speculative nature.

While certain derivativefinancial instruments are contracted for hedging from an economic point ofview, they are not designated as hedges because they do not meet all of therequirements and are instead classified as trading for accounting purposes. Changesin fair value are recognized in current earnings as a component ofcomprehensive financing cost.

i.                                ***Other assets*** - Costs incurred in the development phase thatmeet certain requirements and that the Company has determined will have futureeconomic benefits are capitalized and amortized based on the straight-linemethod over five years. Disbursements that do not meet such requirements, aswell as research costs, are recorded in results of the period in which they areincurred. Preoperating costs incurred are recorded directly to results of theperiod in which they are incurred. Debt issuance costs are capitalized andrestated by applying the NCPI. Amortization is calculated using thestraight-line method over the term of the loan. The value assigned to the BETAtrademark is restated by applying the NCPI and amortized using thestraight-line method over 5 years, which is its estimated useful life.

j.                                ***Employee retirement obligations***- Seniority premiums and pension plans,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, theliability is being accrued which, at present value, will cover the obligationfrom benefits projected to the estimated retirement date of the Company’semployees.

k.                             ***Business acquisitions*-** All businessacquisitions are recognized and valued initially by the purchase method, whichincludes the cash delivered or its fair value equivalent. Goodwill or anextraordinary item will be recognized, as the case may be.

l.                                ***Provisions*** - Provisions are recognized forcurrent obligations that result from a past event, are probable to result inthe use of economic resources, and can be reasonably estimated.

m.                          ***Warranties*** - The Company offers warrantiesagainst manufacturing defects in its housing for a period of two years,covering problems such as electrical installations, plumbing, gas, andwaterproofing; and for ten years against hidden defects that affect the safetyof the homes (foundations and structure). The Company has an insurance policythat covers these guarantees.

n.                            ***Income tax, tax on assets and employee statutoryprofit sharing*** - Income tax (ISR) and employee statutory profitsharing (PTU) are recorded in results of the year in which they are incurred.Deferred income tax assets and liabilities are recognized for temporarydifferences resulting from comparing the book and tax values of assets andliabilities plus any future benefits from tax loss carryforwards. Deferred ISRassets are reduced by any benefits about which there is uncertainty as to theirrealizability. Deferred PTU is derived from temporary differences between theaccounting result and income for PTU purposes and is recognized only when itcan be reasonably assumed that they will generate a liability or benefit, andthere is no indication that circumstances will change in such a way that theliabilities will not be paid or benefits will not be realized.

 

F-13

----

The tax on assets paid that is expected to berecoverable is recorded as an advance payment of ISR and is presented in thebalance sheet decreasing the deferred ISR liability.

o.                            ***Foreign currency balances and transactions***- Foreign currency transactions are recorded at the applicable exchange rate ineffect at the transaction date. Monetary assets and liabilities denominated inforeign currency are translated into Mexican pesos at the applicable exchangerate in effect at the balance sheet date. Exchange fluctuations are recorded asa component of net comprehensive financing cost (income) in the consolidatedstatements of income.

p.                            ***Revenue and 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:

·                               Thehomebuyer has submitted all required documents in order to obtain the financingfrom the mortgage lender;

·                               TheCompany establishes that the homebuyer will obtain the required financing fromthe mortgage lender;

·                               Thehomebuyer has signed a purchase agreement; and

·                               Thehomebuyer has made a down payment, where down payments are required.

q.                            ***Earnings per share*** - Earnings pershare is calculated by dividing net income of majority interest by the weightedaverage number of shares outstanding during the year. The Company does not haveany dilutive securities; therefore, basic and diluted earnings per share arethe 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 |       |

 

**5.****                          Tradeaccounts 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                 |       |

 

F-14

----

 

Unbilled revenues on developments in progress******represent revenuesrecognized on costs incurred, in accordance with the percentage-of-completionmethod, which have not yet been billed.

The changes in the allowance for doubtful accounts areas follows:

 

|                           | ** ** | **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 eachyear, classifying land currently being developed and land planned to bedeveloped within the next year as a part of current assets, and classifying allremaining land as noncurrent assets.

**7.****                          Othercurrent assets**

 

|                                                     | ** ** | **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-15

----

 

**8.****                          Propertyand equipment**

 
| ** **                      | ** ** | **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.****                          Otherassets**

 
| ** **                                                                | ** ** | **2005**   | ** ** | **2004**                                            | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|
|                                                                      | ** ** | ** ** | ** ** | ** **                                          | ** ** |
| Value of the  “BETA” trademark                                  |       | Ps.455,270 |       | 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.649,643 |       | Ps.87,459                                           |       |

 

**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-16

----

 
| ** **                                                                                                                                                                                                                                                             | ** ** | **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    |       |
|                                                                                                                                                                                                                                                                   |       |       |       |       |       |
|                                                                                                                                                                                                                                                                   |       |       |       |       |       |
| **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     |       |
|                                                                                                                                                                                                                                                                   |       |       |       |       |       |
| **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     |       | —     |       |
| ** **                                                                                                                                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| **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     |       |
|                                                                                                                                                                                                                                                                   |       |       |       |       |       |

 

F-17

----

 
| ** **                                                                                                 | ** ** | **2005**     | ** ** | **2004**               | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|--------------|------------|------------------------|------------|
| 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 |       |

 

The value of the inflation-indexed Investment Unit(UDI) as of December 31, 2005 and 2004 was Ps.3.6375 and Ps.3.534716, andthe TIIE was 8.54% and 8.95%, respectively. U.S. dollar-denominated debenturesas of December 31, 2005 were converted to Mexican pesos at the exchangerate of Ps.10.6255 per U.S. dollar.

(1)                        Covenantson loan contracts require the Company and its subsidiaries under guarantee tomeet certain 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)                        Inorder to convert the principal of the U.S. dollar bonds to Mexican pesos, in September 2005the Company entered into two “Principal Only Swaps” with a notional value ofUS$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 meet currenthedge accounting requirements, it was classified and recorded as a tradingderivative. As of December 31, 2005, the fair value of this derivative wasPs.118,254 (US$11.1 million), which represents the estimated present value offuture cash flows to be paid out by the Company.

Asof December 31, 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                            |   |

 

**11.****                   Employeeretirement obligations**

TheCompany has a plan for covering seniority premiums which consist of a lump sumpayment of 12 days’ wages for each year worked, calculated using the mostrecent salary, not to exceed twice the legal minimum wage established by law.Since 2005, the Company has recognized a liability for personal severance pay. Therelated liability and annual cost of such benefits are calculated by anindependent actuary on the basis of formulas defined in the plans using theprojected unit credit method.

F-18

----

As of December 31,2005, the present values of these obligations and the rate used for thecalculations 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.****                   Tradeaccounts 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 ofcredit established for many of its suppliers through a factoring programsponsored by Nacional Financiera (AAA-Homex, a non-bank financial intermediarytrust with a revolving credit line for suppliers totaling Ps.260,000 with aguarantee fund of Ps.34,824 in the investment account), and other financialinstitutions. This mechanism ensures more timely payments to suppliers andreduces the need for further construction financing. As of December 31,2005 and 2004, this factoring program encompassed approximately 1,000 suppliersand amounts of Ps.212,916 and Ps.263,426, respectively, who’s financing wascovered by the suppliers themselves.

**13.****                   Stockholders’equity**

a.                             Commonstock at par 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-19

----

b.                Majoritystockholders’ equity consists of the following as of December 31, 2005:

|                                                     | ** ** | **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                                  |       | 1,984,126                                                                                                         |       | 89,608                                                                                                                       |       | 2,073,734                                                                                                         |       |
| Excess in  restated stockholders’ equity       |       |                                                                                                              |       | 312,863                                                                                                                      |       | 312,863                                                                                                           |       |
| Initial  cumulative effect of deferred income taxes |       | (116,956                                                                                                          | )          | (29,229                                                                                                                      | )          | (146,185                                                                                                          | )          |
|                                                |       | Ps                 5,099,690           |       | Ps.                   668,017           |       | Ps.                5,767,707                |       |

 

c.                 Thestockholders’ general extraordinary meeting held on June 30, 2005approved, among other resolutions, an increase in fixed capital derived fromthe merger with Controladora Casas Beta, S.A. de C.V. (see Note 2), for a totalof 22,013,060 common nominative single series shares at no-par value, whichwere delivered to stockholders of the merged company as released stock inexchange for the shares they owned in the merged company, which was canceledpursuant to such merger at a ratio of 134.7807 shares of the Company for everyshare of the merged company.  Accordingly, capital stock increased byPs.258,808, at par value, with a share subscription premium of Ps.718,792 atpar value, equivalent to Ps.264,681 and Ps.735,106 constant Mexican pesos,respectively.

d.                Ata stockholders’ general ordinary meeting held on June 1, 2004, amongothers, resolutions were approved to convert the 256,666,490 shares of series “B”,sub series B1, B2 and B3, representing the Company’s variable capital,currently outstanding, for the same number of ordinary, nominative shares, atno par value, representing the Company’s fixed capital without right ofwithdrawal by issuing 64,220,000 ordinary nominative shares at no par value,which may be freely subscribed, and will be made available in a placementthrough a primary offering of shares and ADR’S issued based on common stockshares;

At the same time, aresolution was approved whereby the Company’s Board of Directors will beempowered to determine the amount of the Company’s common stock as a result ofthe offering, and then make the respective amendments to the corporate bylawsand the resulting cancellation of any shares issued, which were not placedamong public investors.

e.                 Ameeting of the Board of Directors of Desarrolladora Homex, S.A. de C. V.approved a resolution, among others, to increase common stock by Ps.40,792(Ps.38,257 historical pesos) to the amount of Ps.166,636, which is representedby 313,856,490 shares. Consequently, the board approved the cancellation of7,130,000 shares, which were issued by the stockholders’ ordinary andextraordinary meeting held on June 1, 2004, which were not available forsubscription in the public offering. Furthermore, it was agreed to modify thefirst paragraph of article six of the corporate bylaws to reflect thefollowing:

Article Six. Commonstock is variable. Fixed capital without right of withdrawal is Ps.166,636 and willbe represented by 313,856,490 ordinary, nominative shares, at no par value,fully subscribed and paid in, of a single series ( ̈single series ̈). Thevariable portion of common stock is unlimited and will be represented byordinary, nominative shares at no par value, of the single series. Except forthe right of withdrawal to which the holders of shares representing thevariable part of common stock are entitled, all common stock shares confer thesame rights and obligations.

f.                   Ata meeting of the Board of Directors held on July 22, 2004, it was agreedthat the total number of the Company’s outstanding common shares after thepublic offering is 313,856,490 shares, and a resolution was approved toincrease common stock by the amount resulting from decreasing the totalproceeds from the placement by the expenses incurred in relation to the publicoffering, and the amount applicable to additional paid in capital.

F-20

----

 

g.                Pursuant to a resolution of the general ordinary stockholders’ meeting on May 26,2004, variable common stock was increased by 8,481,673 no-par value Series B, Sub Series B1 shares for Ps.4,516(Ps. 4,236 historical pesos) through cash contributions.Shares were paid at Ps.0.49942646 each.

h.                Retained earnings include the statutory legalreserve. The General Corporate Law requires that at least 5% of net income ofthe year be transferred to the legal reserve until the reserve equals 20% of capital stock atpar value (historical pesos). The legal reserve may be capitalized but may notbe distributed unless the entity is dissolved. The legal reserve must bereplenished if it is reduced for any reason.

i.                    Stockholders’ equity, except restated paid-incapital and tax retained earnings, will be subject to income tax at the rate ineffect when the dividend is distributed. In 2005 and 2004, the ISR rate was 30%and 33%, respectively; it will decrease to 29% in 2006 and 28% in 2007 and thereafter. Any tax paid on such distribution, may becredited against the income tax payable of the year in which the tax on thedividend is paid and the two fiscal years following such payment.

j.                    The balances of the stockholders’ equity tax account asof December 31 are:

|                              | ** ** | **2005**                                                                                                                              | ** ** | **2004**                                                                                                                              | ** ** |
|------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|
| Contributed capital  account |       | Ps.                     3,527,295 |       | Ps.                     2,527,508 |       |

 

**14.****          Foreigncurrency balances and transactions**

a.                 AtDecember 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 assetsof foreign origin 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.                 Theexchange rates in effect at the dates of the consolidated balance sheets and ofissuance of 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 |   |

 

**15.****          Transactionswith related parties**

a.                 Transactions withrelated 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 |       |

*** ***

F-21

----

***b.***                            TheCompany is a party to an administrative service agreement with two entitieswhose principal owners are officers of the Company. The amounts paid for thoseservices totaled Ps.48,139, Ps.48,630 and Ps.52,304 in 2005, 2004 and 2003,respectively.

**16.****          Selling andadministrative expenses**

|                | ** ** | **2005**                                  | ** ** | **2004**                                  | ** ** | **2003**                                  | ** ** |
|----------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| Administrative |       | Ps.      366,968 |       | Ps.      241,428 |       | Ps.      186,428 |       |
| Selling        |       | 433,304                                   |       | 206,473                                   |       | 89,215                                    |       |
|           |       | Ps.      800,272 |       | 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.****          Interest expense**

|                                  | ** ** | **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.****          Incometaxes, tax on assets and employee statutory profit sharing**

In accordance with Mexican taxlaw, the Company is subject to income tax (ISR) and tax on assets (IMPAC). ISRis computed taking into consideration the taxable and deductible effects ofinflation, such as depreciation calculated on restated asset values. Taxableincome is increased or reduced by the effects of inflation on certain monetaryassets and liabilities through the inflationary component, which is similar tothe gain or loss from monetary position.

On December 1, 2004 certain amendments to the ISRand IMPAC laws were enacted and were effective in 2005. The most significantamendments 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) taxpayershad the ability to elect, in 2005, to ratably increase taxable income over aperiod from 4 to 12 years by the tax basis of inventories as of December 31,2004 determined in conformity with the respective tax rules; when electing toamortize the tax basis of inventories into taxable income, any remaining taxbalance of inventories that had not been deducted and any unamortized tax losscarryforwards were deducted from the tax basis of the December 31, 2004inventory balance; as a consequence, cost of sales of such inventories werededucted; d) as of 2006,employee statutory profit sharing paid will be fully deductible; and e) bank liabilities and liabilities withforeign entities are included to determine the IMPAC taxable base.

IMPAC is calculated by applying1.8% on the net average of the majority of restated assets less certainliabilities and is payable only to the extent that it exceeds ISR payable forthe same period; any required payment of IMPAC is creditable against the excessof ISR over IMPAC of the following ten years.

The Company files ISR and IMPAC tax returns on an individual entity basisand the related tax results are combined in the consolidated financialstatements.

F-22

----

a.                 ISR and PTUconsist of the following:

|                                                        | ** ** | **2005**                                                                                 | ** ** | **2004**                                                                                 | ** ** | **2003**                                                                                                 | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|
| ISR:                                                   |       |                                                                                     |       |                                                                                     |       |                                                                                                     |       |
| Current                                                |       | Ps.          179,834                        |       | Ps.               2,411 |       | Ps.                  232 |       |
| Deferred                                               |       | 305,056                                                                                  |       | 406,487                                                                                  |       | 189,242                                                                                                  |       |
| Effect of reduction in statutory rate on deferred  ISR |       | (12,846)                                                                                 |       | (57,953)                                                                                 |       | —                                                                                                   |       |
|                                                   |       | Ps.          472,044                        |       | 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 thedifferent tax rates that will be in effect beginning in 2006 and 2005,respectively, to temporary differences according to their estimated dates ofreversal. The result derived from applying the different tax rates is shown inthe income tax provision table above and in the rate reconciliation table belowunder the caption effect of reduction in statutory rate on deferred ISR. Inaddition, in accordance with tax regulations in effect as of 2005, certainsubsidiaries elected to amortize the tax inventory of Ps 394,019 at December 31,2004 into taxable income over a 6-year period beginning in 2005, based oninventory turnover. Accordingly, the initial effect of the new regulation of nolonger deducting inventory purchases is deferred.

b.                The reconciliationof the statutory and effective ISR rates expressed as a percentage of incomebefore 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**                                              | ** ** |
|----------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| 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-23

----

 

|                                       | ** ** | **2005**                                                                                      | ** ** | **2004**                                                                                                      | ** ** |
|---------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|------------|
| Deferred ISR liability:               |       |                                                                                          |       |                                                                                                          |       |
| Trade accounts receivable             |       | (1,287,870                                                                                    | )          | (759,952                                                                                                      | )          |
| Inventories                           |       | (229,628                                                                                      | )          | (521,814                                                                                                      | )          |
| Property and equipment                |       | (24,959                                                                                       | )          | —                                                                                                        |       |
| Other assets                          |       | (39,993                                                                                       | )          | —                                                                                                        |       |
| Debt issuance costs                   |       | (19,609                                                                                       | )          | —                                                                                                        |       |
| Labor obligations, net                |       | (6,601                                                                                        | )          | —                                                                                                        |       |
| Prepaid expenses                      |       | (5,229                                                                                        | )          | (26,199                                                                                                       | )          |
| Deferred ISR liability                |       | (1,613,889                                                                                    | )          | (1,307,965                                                                                                    | )          |
|                                  |       | (1,358,046                                                                                    | )          | (666,976                                                                                                      | )          |
|                                  |       |                                                                                          |       |                                                                                                          |       |
| Recoverable tax  on assets paid       |       | 58,103                                                                                        |       | 20,031                                                                                                        |       |
|                                  |       |                                                                                          |       |                                                                                                          |       |
| Net long-term  deferred ISR liability |       | (1,299,943                                                                                    | )          | (646,945                                                                                                      | )          |
|                                  |       |                                                                                          |       |                                                                                                          |       |
| Deferred PTU liability:               |       |                                                                                          |       |                                                                                                          |       |
| Inventories                           |       | —                                                                                        |       | (7,474                                                                                                        | )          |
| Net long-term deferred PTU liability  |       | —                                                                                        |       | (7,474                                                                                                        | )          |
|                                  |       |                                                                                          |       |                                                                                                          |       |
| Total liability                       |       | Ps.               (1,299,943 | )          | Ps.                  (654,419 | )          |

 

d.                Tax loss carryforwards and recoverable IMPAC for which the deferred ISR assetand prepaid ISR, respectively, have been recognized can be recovered subject tocertain conditions. Restated amounts as of December 31, 2005 and expiration dates 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 obtainfinancing from various financial institutions, in part through a factoringprogram sponsored by Nacional Financiera. In relation to this program, theCompany established a trust fund called Fiedicomiso AAA-Homex with NacionalFinanciera, S,N.C. (“Nafinsa”), which granted a line of credit for Ps.260,000. Underthis program, 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 other trust resources. As of December 31,

F-24

----

2005 and 2004, Ps.34,824 is invested in the reservefund, in compliance with the trust contract. As mentioned in Note 2, the AAAHomex trust is a consolidated subsidiary of the Company.

Additionally, the Companyestablished a factoring contract for suppliers with IXE Banco, S.A., throughwhich the Company was obliged to create a securities collateral contract toguarantee performance of the payment obligations derived from the factoringcontract. As of December 31, 2004, the amount of that collateral wasPs.44,374; this collateral was released in 2005.

**21.****          Contingencies**

a.                 TheMexican Social Security Institute, in official letter 572/2004 addressed toNational Banking and Securities Commission, ordered the identification andtotal seizure of all the bank accounts of DECANO (subsidiary company), whichonly affects the Company’s bankaccount with IXE Bank, which contains a balance of Ps.21,162. Such action wastaken to guarantee the liabilities assessed during their review, which includesthe years 1997 to 2000. The Company believes that it has meritorious defensesto the assertion of the claim. On April 5, 2005, the Company obtained anorder 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 providedin order to construct infrastructure projects (such as roads and utilityservices) for various of the Company’s housing projects, as well as value-addedtaxes derived from the acquisition of developed land. In addition, the Companyapplied for a refund in respect of such value-added taxes paid for years 1997through 2003. As of the date of the financial statements, the Company has obtaineda refund in respect of such taxes paid for the years 1997 through 2003 in theamount of approximately Ps.100,000 and is currently in the process of obtainingthe ruling mentioned in this paragraph.

**22.****          Subsequentevent**

Secondary stock offering. On January 19, 2006,the Company established the price per share for the Global Secondary StockOffering of approximately 40 million shares representing its capital stock. TheNational Banking and Securities Commission authorized that offering on January 18,2006. Based on the authorization from that Commission, the offering was settledon January 25, 2006.

**23.****          Newaccounting principles**

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 establishing bulletins ofMexican GAAP and circulars issued by the IMCP was transferred to CINIF, whosubsequently renamed standards of Mexican GAAP as “Normas de InformaciónFinanciera” (Financial Reporting Standards, or “NIFs”), and determined thatNIFs encompass (i) new bulletins established under the new function; (ii) anyinterpretations issued thereon; (iii) any Mexican GAAP bulletins that havenot been amended, replaced or revoked by the new NIFs; and (iv) InternationalFinancial Reporting Standards (“IFRS”) that are supplementary guidance to beused when Mexican GAAP does not provide primary guidance.

One of the main objectives of CINIF is to achievegreater 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, whichcomprise the NIF-A series. The NIF-A series, together with NIF B-1, wereissued on October 31, 2005. Their provisions are effective for yearsbeginning January 1, 2006, superseding all existing Mexican GAAP series Abulletins.

F-25

----

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 thesestandards are as follows:

·                               Inaddition to the statement of changes in financial position, NIF A-3includes the statement of cash flows, which should be issued when required by aparticular standard.

·                               NIFA-5 includes a new classification for revenues and expenses: ordinary andnot ordinary. 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.

·                               NIFA-7 requires the presentation of comparative financial statements for atleast the preceding period. Through December 31, 2004, the presentation ofprior years’ financial statements was optional. The financial statements mustdisclose the authorized date for their issuance, and the name(s) of theofficer(s) or administrative body(ies) authorizing the related issuance.

·                               NIFB-1 establishes that changes in particular standards, reclassificationsand correction 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.****          Summaryof differences between Mexican GAAP and U.S. GAAP**

The consolidated financial statements of the Company are prepared inaccordance with Mexican GAAP, which vary in certain significant respects fromU.S. GAAP. A reconciliation of the reported majority net income, majoritystockholders’ equity andmajority comprehensive income to U.S. GAAP is presented in Note 25. It shouldbe noted that this reconciliation to U.S. GAAP does not include the reversal ofthe restatement of the financial statements for the effects of inflation asrequired by Bulletin B-10, “Recognition of the Effects of Inflation inFinancial Information”, of Mexican GAAP. The application of this Bulletin representsa comprehensive measure of the effects of price-level changes in the Mexicaneconomy and, as such, is considered a more meaningful presentation thanhistorical cost-based financial reporting in Mexican pesos for purposes of bothMexican and U.S. GAAP.

The differences betweenMexican GAAP and U.S. GAAP included in the reconciliation that affect theconsolidated financial statements of the Company are described as follows:

**a)****                Revenueand Cost Recognition**

Under Mexican GAAP, the Company uses thepercentage-of-completion method of accounting to account for housing projectrevenues and costs related to housing construction, progress towards completionis measured in terms of comparing the actual costs incurred to the estimatedtotal cost of a project.

F-26

----

 

In accordance with U.S.GAAP sales are recognized when all of the followingconditions are met: a sale is consummated, a significant down payment is received, the earnings process is completeand the collection of any remaining receivables is reasonably assured. All suchconditions are met at the time title passes to the buyer.

Accordingly, a reconcilingitem for the additional revenues and additional costs recognized under thepercentage-of-completion of accounting under Mexican GAAP is included in theU.S. GAAP reconciliation of net income and stockholders’ equity.

**b)****                 Recoveryof Value-Added Taxes Paid**

Under Mexican GAAP theCompany recognized other income in 2003 for the recovery of value-addedtaxes paid and expensed by the Company in 2002 in the amount of Ps.18.9million, since in the opinion of management and its tax advisors, the futurerecovery of these amounts was probable.

In accordance with U.S. GAAP the recovery of suchtaxes was considered a contingent gain due to the prolonged challenge faced bythe Company insettling the related tax dispute and was not recorded as income until the cashwas received, which occurred during the first quarter of 2004.

**c)****                 Capitalization ofNet****Comprehensive Financing Cost**

Under Mexican GAAP, thecapitalization of net comprehensive financing costs (interest, foreign exchangegains and losses and monetary position gains and losses) incurred to financeinvestment projects is optional. The Company does not capitalize the integralcost of financing for Mexican GAAP reporting.

In accordance with U.S. GAAP,if interest is incurred during the construction of qualifying assets,capitalization is required as part of the cost of such assets. The Companyapplies the weighted-average interest rate on all outstanding debt to thebalance of construction-in-progress and such amount is reduced by the gain onmonetary position associated with the debt to determine the amount of interestto be capitalized in accordance with U.S. GAAP.

Accordingly, a reconciling item for the capitalizationof interest is included in the U.S. GAAP reconciliation of net income andstockholders’ equity, and the effect of interest capitalized to the cost ofinventories is included within operating income for U.S. GAAP purposes.

**d)****                 Deferred IncomeTaxes and****Employee Statutory Profit Sharing**

The Company follows SFAS No. 109,“Accounting for Income Taxes”, for U.S. GAAP purposes, which differs fromMexican GAAP as follows:

a.                            Under Mexican GAAP the effects of inflation onthe deferred tax balance generated by monetary items are recognized in theresult on monetary position. Under U.S. GAAP the deferred tax balance isclassified as a nonmonetary item. As a result, the consolidated statement ofoperations differs with respect to the presentation of the gain (loss) onmonetary position and deferred income tax provision.

b.                           Under Mexican GAAP deferred employee statutoryprofit sharing is calculated considering only those temporary differences thatarise during the year and which are expected to reverse within a defined periodand the effect is recorded as a component of income tax expense. For purposesof applying U.S. GAAP the liability is determined using a methodology similarto the 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.

As a result of thedifferences 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.

 

F-27

----

Reconciliation ofdeferred income taxes:

|                                                               | ** ** | **2005**                                              | ** ** | **2004**                                              | ** ** |
|---------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                    | ** ** | ** **                                            | ** ** | ** **                                            | ** ** |
| Deferred income  tax liability according to Mexican GAAP, net |       | Ps.     1,299,943                 |       | Ps.        646,944 |       |
| Effect of U.S. GAAP  adjustments:                             |       |                                                  |       |                                                  |       |
| Accounts  receivable                                          |       | (1,281,214                                            | )          | (759,952                                              | )          |
| Inventories                                                   |       | 751,125                                               |       | 547,973                                               |       |
| Employee profit  sharing                                      |       | (1,002                                                | )          | (2,968                                                | )          |
|                                                          |       |                                                  |       |                                                  |       |
| Deferred income tax  liability according to U.S. GAAP, net    |       | Ps.        768,852 |       | Ps.        431,997 |       |

 

Deferred incometax balance sheet classification:
| ** **                          | ** ** | **2005**                                             | ** ** | **2004**                                  | ** ** |
|-------------------------------------|------------|------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                          | ** ** | **Current**                                          | ** ** | **Noncurrent**                            | ** ** | **Current** | ** ** | **Noncurrent** | ** ** |
| ** **                          | ** ** | ** **                                           | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Deferred tax  assets                |       | Ps.        70,399 |       | Ps.      243,547 |       | Ps.               — |   | Ps.      349,940 |   |
| Deferred tax  liability             |       | (1,056,588                                           | )          | (26,210                                   | )          | (781,937 | ) | — |   |
| Net deferred tax (liability)  asset |       | Ps.    (986,189                       | )          | Ps.     217,337       |       | 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)****                Acquisitionof Minority Interest**

As described in Note 2.d, on September 12, 2005,Beta del Centro acquired the remaining 50% of Super Abastos Centrales yComerciales, S.A. de C.V.’s outstanding shares. Under Mexican GAAP, the excesscost of the shares acquired from the minority shareholders was recorded as acapital distribution, since this was a transaction between common shareholders.

Under U.S. GAAP the acquisition of the remainingoutstanding shares from the minority shareholders was accounted for under thepurchase method of accounting.

Accordingly, a reconciling item for the acquisition ofminority interest is included in the U.S. GAAP reconciliation of stockholders’equity.

F-28

----

 

**f)****                  Statementof Cash Flows**

Under Mexican GAAP, the Company presents aconsolidated 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 withU.S. GAAP the Company follows the requirements of SFAS No. 95, “Statementof Cash Flows”, excluding the effects of inflation (see Note 25g).

**g)****               ClassificationDifferences**

Under Mexican GAAP advances for the purchase of landand construction materials are recorded as part of the cost of real estateinventories. Under U.S. GAAP such advances are classified as prepaid expenses.

Under Mexican GAAP, deferred taxes are classified asnon-current; U.S. GAAP requires a current, non-current classification based onthe classification of the related asset or liability.

Under Mexican GAAP, amounts due under the Company’sfactoring agreements are included in trade accounts payable; U.S. GAAP requiresthat such amounts be recorded as a borrowing from the financial intermediary.

**25.**          Reconciliation ofMexican GAAP net income and equity to U.S. GAAP net income and equity and the presentation of condensedfinancial statements in accordance with U.S. GAAP.

a.                 Reconciliationof majority net income for the year:
| ** **                                                                                      | ** ** | **2005**                                              | ** ** | **2004**                      | ** ** | **2003**                      | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                                                                                      | ** ** | ** **                                            | ** ** | ** **                    | ** ** | ** **                    | ** ** |
| Majority net  income according to Mexican GAAP                                                  |       | Ps.        998,320 |       | 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                        |       |
| 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                                                 |       | (5,207                                                | )          | (432,554                      | )          | (106,582                      | )          |
| Tax effects on  U.S. GAAP adjustments                                                           |       | 222,885                                               |       | 138,638                       |       | 26,739                        |       |
| Total U.S. GAAP  adjustments                                                                    |       | 217,678                                               |       | (293,916                      | )          | (79,843                       | )          |
|                                                                                            |       |                                                  |       |                          |       |                          |       |
| Net income  according to U.S. GAAP                                                              |       | Ps.     1,215,998                 |       | Ps.    436,311 |       | Ps.    254,567 |       |

 

F-29

----

 

b.                Reconciliation ofmajority stockholders’ equity:
| ** **                                                                                      | ** ** | **2005**            | ** ** | **2004**            | ** ** | **2003**            | ** ** |
|-------------------------------------------------------------------------------------------------|------------|---------------------|------------|---------------------|------------|---------------------|------------|
|                                                                                            |       |                |       |                |       |                |       |
| Majority  stockholders’ equity according to Mexican GAAP                                   |       | Ps.  5,767,707 |       | 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)     |       | 3,310,032           |       | 1,728,014           |       | 936,879             |       |
| 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                                                 |       | (758,642            | )          | (727,439            | )          | (298,959            | )          |
| Tax effects on  U.S. GAAP adjustments                                                           |       | 530,089             |       | 214,947             |       | 91,333              |       |
| Total U.S. GAAP  adjustments                                                                    |       | (228,553            | )          | (512,492            | )          | (207,626            | )          |
|                                                                                            |       |                |       |                |       |                |       |
| Stockholders’ equity  according to U.S. GAAP                                               |       | Ps.  5,539,154 |       | Ps.  3,338,895 |       | Ps.  1,155,909 |       |

 

c.                 Reconciliation ofmajority comprehensive income:

|                                                          | ** ** | **2005**                            | ** ** | **2004**                            | ** ** | **2003**                            | ** ** |
|----------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
|                                                     |       |                                |       |                                |       |                                |       |
| Majority  comprehensive income according to Mexican GAAP |       | Ps.     998,320 |       | Ps.     730,227 |       | Ps.     334,410 |       |
|                                                     |       |                                |       |                                |       |                                |       |
| Net U.S. GAAP  adjustments:                              |       |                                |       |                                |       |                                |       |
| Net income                                               |       | 217,678                             |       | (293,916                            | )          | (79,843                             | )          |
|                                                     |       |                                |       |                                |       |                                |       |
| Net income according to  U.S. GAAP                       |       | Ps.  1,215,998                 |       | Ps.     436,311 |       | Ps.     254,567 |       |

 

d.                Condensedbalance sheets according to U.S. GAAP:

|                                                  | ** ** | **2005**                              | ** ** | **2004**                              | ** ** |
|--------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| **Assets**                                       | ** ** | ** **                            | ** ** | ** **                            | ** ** |
| Current assets                                   |       | Ps.     9,808,135 |       | Ps.     5,731,857 |       |
| Land for  development                            |       | 1,785,044                             |       | 520,853                               |       |
| Property and  equipment                          |       | 460,831                               |       | 259,838                               |       |
| Goodwill                                         |       | 635,908                               |       | —                                |       |
| Other assets                                     |       | 870,435                               |       | 131,834                               |       |
|                                             |       |                                  |       |                                  |       |
| Total assets                                     |       | Ps.   13,560,353            |       | Ps.     6,644,382 |       |
|                                             |       |                                  |       |                                  |       |
| **Liabilities and stockholders’  equity**   |       |                                  |       |                                  |       |
| Current  liabilities                             |       | Ps.     4,597,135 |       | 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                       |       | 5,539,154                             |       | 3,338,895                             |       |
|                                             |       |                                  |       |                                  |       |
| Total liabilities and  stockholders’ equity |       | Ps.   13,560,353            |       | Ps.     6,644,382 |       |

 

F-30

----

e.                 Condensedstatements of income according to U.S. GAAP:

|                                                                | ** ** | **2005**                                                             | ** ** | **2004**                                                             | ** ** | **2003**                                                             | ** ** |
|----------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                     | ** ** | ** **                                                           | ** ** | ** **                                                           | ** ** | ** **                                                           | ** ** |
| Revenues                                                       |       | Ps.  7,607,045                                                  |       | Ps.  4,077,639                                                  |       | Ps.  2,815,304                                                  |       |
| Costs                                                          |       | 5,422,486                                                            |       | 3,073,788                                                            |       | 2,159,223                                                            |       |
| Gross profit                                                   |       | 2,184,559                                                            |       | 1,003,851                                                            |       | 656,080                                                              |       |
| Operating income                                               |       | 1,378,152                                                            |       | 539,636                                                              |       | 380,105                                                              |       |
| Income before  income taxes                                    |       | 1,461,896                                                            |       | 657,984                                                              |       | 422,919                                                              |       |
| Income taxes                                                   |       | 252,614                                                              |       | 212,306                                                              |       | 162,872                                                              |       |
| Minority  interest                                             |       | (6,716                                                               | )          | 9,368                                                                |       | 5,480                                                                |       |
| Net income                                                     |       | Ps.  1,215,998                                                  |       | 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.           3.74 |       | Ps.           1.55 |       | Ps.           1.05 |       |

 

f.                   Reconciliationof changes in stockholders’ equity according to U.S. GAAP:

|                                                 | ** ** | **2005**                  | ** ** | **2004**                  | ** ** | **2003**                                  | ** ** |
|-------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|-------------------------------------------|------------|
| ** **                                      | ** ** | ** **                | ** ** | ** **                | ** ** | ** **                                | ** ** |
| Stockholders’  equity at beginning of year |       | Ps.   3,338,895 |       | Ps.   1,155,909 |       | Ps.      834,792 |       |
| Net income                                      |       | 1,215,998                 |       | 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.   5,539,154 |       | Ps.   3,338,895 |       | Ps.   1,155,909                 |       |

 

g.                Condensedstatements of cash flows according to U.S. GAAP

|                                                         | ** ** | **2005**                                                        | ** ** | **2004**                                                        | ** ** | **2003**                                                        | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
|                                                    |       |                                                            |       |                                                            |       |                                                            |       |
| Operating activities:                                   |       |                                                            |       |                                                            |       |                                                            |       |
| Consolidated net income                                 |       | Ps.   1,275,229                                       |       | Ps.      446,443                       |       | Ps.      274,421                       |       |
| Non-cash items:                                         |       |                                                            |       |                                                            |       |                                                            |       |
| Depreciation                                            |       | 59,913                                                          |       | 22,141                                                          |       | 8,228                                                           |       |
| Allowance for doubtful  accounts                        |       | —                                                          |       | 5,244                                                           |       | 1,439                                                           |       |
| Deferred income tax and  statutory profit sharing       |       | (41,633                                                         | )          | 153,384                                                         |       | 127,171                                                         |       |
| Working capital  investment                             |       | (1,651,683                                                      | )          | (2,137,670                                                      | )          | (830,949                                                        | )          |
| Recoverable taxes, net                                  |       | (90,808                                                         | )          | 28,306                                                          |       | 36,780                                                          |       |
| Interest payable                                        |       | —                                                          |       | 1,244                                                           |       | (799                                                            | )          |
| Net cash flows used in  operating activities            |       | (448,982                                                        | )          | (1,480,908                                                      | )          | (383,709                                                        | )          |
|                                                    |       |                                                            |       |                                                            |       |                                                            |       |
| Investing activities:                                   |       |                                                            |       |                                                            |       |                                                            |       |
| Investments in:                                         |       |                                                            |       |                                                            |       |                                                            |       |
| Property and equipment                                  |       | (141,048                                                        | )          | (211,125                                                        | )          | (33,477                                                         | )          |
| Other assets and  acquisition of Beta                   |       | (1,928,125                                                      | )          | (16,807                                                         | )          | (26,124                                                         | )          |
| Net cash flows used in  investing activities       |       | (2,069,173                                                      | )          | (227,932                                                        | )          | (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                                                        | )          |
| Related parties:                                        |       |                                                            |       |                                                            |       |                                                            |       |
| Loans from related  parties                             |       | —                                                          |       | 30,000                                                          |       | 387,939                                                         |       |
| Payments of related  party loans                        |       | —                                                          |       | (167,076                                                        | )          | (415,292                                                        | )          |
| Proceeds from issuance  of common stock                 |       | 977,470                                                         |       | 1,643,469                                                       |       | 95,109                                                          |       |
| Net cash flows from  financing activities          |       | 3,309,174                                                       |       | 2,023,943                                                       |       | 596,732                                                         |       |
|                                                    |       |                                                            |       |                                                            |       |                                                            |       |
| Net increase in cash  and cash equivalents              |       | 791,019                                                         |       | 315,103                                                         |       | 153,422                                                         |       |
| Cash and cash  equivalents at the beginning of the year |       | 531,524                                                         |       | 216,421                                                         |       | 62,999                                                          |       |
| Cash and cash  equivalents at the end of the year       |       | Ps.   1,322,543                                       |       | Ps.      531,524                       |       | 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 |       |

 

F-31

----

**26.   Additional U.S. GAAP disclosure information**

**Recently IssuedAccounting Standards.**

**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 thesecosts and expenses be recognized as current-period charges regardless ofwhether they meet the criterion of “so abnormal” as previously defined underARB No. 43. In addition, SFAS No. 151 requires that the allocation offixed production overhead to the costs of conversion be based on the normalcapacity of the production facilities. This statement is effective forinventory costs incurred during fiscal years beginning after June 15, 2005.The Company does not anticipate the adoption of this new accounting principlewill have a material effect on its financial position, results of operations orcash flows.

In December 2004, theFASB issued Statement No. 123 (revised 2004), Share-Based Payments or SFASNo. 123(R). This statement eliminates the option to apply the intrinsicvalue measurement provisions of 

F-32

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Accounting Principles Board (“APB”)Opinion No. 25, Accounting for Stock Issued to Employees to stock compensationawards issued to employees. Rather, SFAS No. 123(R) requirescompanies to measure the cost of employee services received in exchange for anaward of equity instruments based on the grant-date fair value of the award.That cost will be recognized over the period during which an employee isrequired to provide services in exchange for the award—the requisite serviceperiod (usually the vesting period). SFAS No. 123(R) applies to allawards granted after the required effective date as well as to existing awardsthat are modified, repurchased, or cancelled after the effective date. SFAS No. 123(R) willbe effective for the Company’s fiscal year ending December 31, 2006. ThisFinancial Accounting Standard is non-applicable to us because the company does nothave any stock compensation plans.

In December 2004, the FASB issued SFAS No. 153,*Exchanges of Nonmonetary Assets - an amendment ofAPB Opinion No. 29*, which amends APB Opinion No. 29, *Accounting for Nonmonetary Transactions*, to eliminate theexception for nonmonetary exchanges of similar productive assets and replacesit with a general exception for exchanges of nonmonetary assets that do nothave commercial substance. SFAS No. 153 is effective for nonmonetaryassets exchanges occurring in fiscal periods beginning after June 15, 2005.The Company 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, the FASB issued SFAS No. 154, *Accounting Changes and Error Corrections — a replacement of APB OpinionNo. 20 and FASB Statement No. 3*. SFAS No. 154requires retrospective application to prior periods’ financial statements ofchanges in accounting principles, 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 adoptionof this standard will have a material effect on its financial position, resultsof operations or cash flows.

On November 2, 2005, the FASB issued FinancialStaff 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 of EmergingIssues 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 doesnot expect 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 November 17and 18, 2004 Emerging Issues Task Force (“EITF”) meetings, the EITF discussedIssue 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 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 similareconomic characteristics, and that the segments share a majority of theaggregation criteria listed in (a) through (e) of paragraph 17 ofSFAS No. 131. The consensus in EITF 04-10 should be applied forfiscal years ending after September 15, 2005. The Company does notanticipate that the application of this consensus will affect the presentationor aggregation of its operating segments.

At the September 15, 2005 EITF meeting, the EITFdiscussed 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 

F-33

----

deemed to have been entered into are in contemplationof one another and would be considered a single exchange transaction subject toAccounting Principles Board Opinion 29, *Accounting for NonmonetaryTransactions*. The Task Force also stated indicators of when apurchase transaction and a sales transaction would not be considered as enteredinto in contemplation of one another, and thus, may have the ability to berecorded as separate purchases and sales. EITF 04-13 is effective for newarrangements entered into, or modifications or renegotiations of existingarrangements, beginning in the first annual reporting period beginning after March 15,2006. The Company has not yet determined the effects of adoption of EITF 04-13on its financial position, results of operations or cash flows.

At the June 15 and 16 EITF meeting, and furthermodified at the September 15, 2005 meeting, the EITF discussed Issue 05-6,Determining the Amortization Period for Leasehold Improvements Purchased afterLease Inception or Acquired in a Business Combination, (“EITF 05-6”), andconcluded on the appropriate amortization periods for leasehold improvementseither acquired in a business combination or which were not preexisting andwere placed in service significantly after, and not contemplated at, thebeginning of the lease term. This Issue is effective for leasehold improvements(that are within the scope of this Issue) that are purchased or acquired inreporting periods beginning after June 29, 2005. The Company does notanticipate the adoption of EITF 05-6 will have a material effect on itsfinancial position, results of operations or cash flows.

For the fiscal year ending December 31, 2005 theCompany adopted FASB Interpretation No. 47, *Accountingfor Conditional Asset Retirement Obligations* (“FIN 47”), whichclarifies the term “conditional asset retirement obligation” as defined in SFASNo. 143, *Accounting for Asset Retirement Obligations*,and clarifies when an entity would have sufficient information to reasonablyestimate the fair value of an asset retirement obligations. The adoption of FIN47 did not have a material effect on the Company’s financial position, resultsof operations or cash flows.

At the June 15 and 16 meeting of the EITF, theEITF agreed to amend Item 4 of the Protective Rights section of Issue No. 96-16,*Investor’s Accounting for an Investee When the InvestorHas 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 theconsensus 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 adoptionof these amendments did not have a material impact on the Company’s financialposition, results of operations or cash flows.

**27.**          Supplemental guarantorinformation

The Senior Guaranteed Notes are fully and unconditionallyguaranteed, on an unsecured senior, joint and several basis, by each of theCompany’s significant subsidiaries. Each of the guarantor subsidiaries(Proyectos Inmobiliarias de Culiacán, S. A. de C. V., Desarrollodora de Casasdel Noroeste, S. A. de C. V., Casas Beta del Centro, S.A. de C.V., Casas Betadel Norte, S.A. de C.V.,  Casas Beta delNoroeste, S.A. de C.V., Edificaciones Beta, S.A. de C.V., Edificaciones Betadel Norte, S.A. de C.V. and Edificaciones Beta del Norte, S.A. de C.V.) is awholly-owned subsidiary. The following condensed combining financialinformation includes the guarantor subsidiaries, non-guarantor-subsidiaries andthe parent company.

Investments in subsidiaries are accounted for by theparent company under the equity method for purpose of the supplementalcombining presentation. Earnings of subsidiaries are therefore reflected in theparent company’s investment account and earnings. The principal eliminationentries eliminate the parent company’s investment in subsidiaries and intercompanybalances and transactions.

F-34

----

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

**Supplemental Condensed Combining FinancialInformation**

**Balance Sheet as of December 31, 2005**

**(In thousands of Mexicanpesos (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                                                                                      | )          | —                                                    |       |
| Goodwill                                                     |       | 635,908                                                                                       |       |                                                |       |                                                                                                      |       | 635,908                                                               |       |                                                                                          |       |                                                                                          |       | 635,908                                                   |       |
| Other assets                                                 |       | 577,289                                                                                       |       | 20,313                                              |       |                                                                                                      |       | 597,602                                                               |       | 43,339                                                                                        |       | 8,702                                                                                         |       | 649,643                                                   |       |
| **Total**                                                    | ** ** | **Ps.   8,580,428**                                                                 | ** ** | **Ps. 12,581,532**                             | ** ** | **Ps.   (7,370,921**                                                                       | **)**      | **Ps. 13,791,039**                                               | ** ** | **Ps.   1,098,634**                                                            | ** ** | **Ps.    (787,013**                                                       | **)**      | **Ps. 14,102,660**                                   |       |
|                                                         |       |                                                                                          |       |                                                |       |                                                                                                      |       |                                                                  |       |                                                                                          |       |                                                                                          |       |                                                      |       |
| 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 |       | (90,589                                                                                       | )          | 1,385,154                                           |       | —                                                                                                    |       | 1,294,565                                                             |       | 5,378                                                                                         |       | —                                                                                        |       | 1,299,943                                                 |       |
| Total liabilities                                            |       | 2,812,722                                                                                     |       | 7,140,231                                           |       | (1,932,350                                                                                                | )          | 8,020,603                                                             |       | 840,291                                                                                       |       | (563,411                                                                                      | )          | 8,297,483                                                 |       |
| 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                                            |       | 2,073,733                                                                                     |       | 2,973,205                                           |       | (2,970,547                                                                                                | )          | 2,076,391                                                             |       | 51,867                                                                                        |       | (54,524                                                                                       | )          | 2,073,734                                                 |       |
| 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                           |       | 5,767,706                                                                                     |       | 5,441,229                                           |       | (5,438,571                                                                                                | )          | 5,770,364                                                             |       | 258,343                                                                                       |       | (261,000                                                                                      | )          | 5,767,707                                                 |       |
| Minority interest in consolidated subsidiaries               |       | —                                                                                        |       | 72                                                  |       | —                                                                                                    |       | 72                                                                    |       | —                                                                                        |       | 37,398                                                                                        |       | 37,470                                                    |       |
| Total stockholders’ equity                              |       | 5,767,706                                                                                     |       | 5,441,301                                           |       | (5,438,571                                                                                                | )          | 5,770,436                                                             |       | 258,343                                                                                       |       | (223,602                                                                                      | )          | 5,805,177                                                 |       |
| **Total**                                                    | ** ** | **Ps.   8,580,428**                                                            | ** ** | **Ps. 12,581,532**                             | ** ** | **Ps.   (7,370,921**                                                                            | **)**      | **Ps. 13,791,039**                                               | ** ** | **Ps.   1,098,634**                                                            | ** ** | **Ps.    (787,013**                                                       | **)**      | **Ps. 14,102,660**                                   | ** ** |

** **

F-35

----

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**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-36

----

** **

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

**Supplemental Condensed Combining FinancialInformation**

**Statement of Income for the Year Ended December 31,2005**

**(In thousands of Mexican pesos (Ps.) ofpurchasing 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                                                                    |       | —                                                                                        |       | 9,614,515                                        |       | 3,806,818                                       |       | 5,807,697                                                             |       | 20,837                                                                         |       |                                                                                                          |       | 5,828,534                                                      |       |
| Gross profit                                                             |       | —                                                                                        |       | 2,747,355                                        |       | 23,797                                          |       | 2,723,558                                                             |       | 455,351                                                                        |       | 471,281                                                                                                       |       | 2,707,628                                                      |       |
| Selling and administrative expenses                                      |       | 26,193                                                                                        |       | 786,893                                          |       | —                                          |       | 813,086                                                               |       | 458,467                                                                        |       | (471,281                                                                                                      | )          | 800,272                                                        |       |
| Income (loss) from operations                                            |       | (26,193                                                                                       | )          | 1,960,462                                        |       | (23,797                                         | )          | 1,910,472                                                             |       | (3,116                                                                         | )          | —                                                                                                        |       | 1,907,356                                                      |       |
| 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 |       | (182,160                                                                                      | )          | 1,596,445                                        |       | 57,231                                          |       | 1,471,516                                                             |       | 1,722                                                                          |       | —                                                                                                        |       | 1,473,238                                                      |       |
| Income tax (benefit) expense                                             |       | (56,552                                                                                       | )          | 535,435                                          |       | —                                          |       | 478,883                                                               |       | (6,839                                                                         | )          | —                                                                                                        |       | 472,044                                                        |       |
| 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.         991,604                              |       | Ps.      1,053,961 |       | Ps.    (1,062,403           | )          | Ps.       983,162                  |       | Ps.          8,442           |       | Ps.               —           |       | Ps.       991,604           |       |
| Net income of majority stockholders                                      |       | 998,320                                                                                       |       | 1,053,961                                        |       | (1,062,403                                      | )          | 989,878                                                               |       | 8,442                                                                          |       | —                                                                                                        |       | 998,320                                                        |       |
| Net income of minority stockholders                                      |       | (6,716                                                                                        | )          | —                                           |       | —                                          |       | (6,716                                                                | )          | —                                                                         |       | —                                                                                                        |       | (6,716                                                         | )          |
| Consolidated net  income                                                 |       | **Ps.        991,604**                                | ** ** | **Ps.     1,053,961**   | ** ** | **Ps.     (1,062,403** | **)**      | **Ps.        983,162**        | ** ** | **Ps.           8,442** | ** ** | **Ps.                —** | ** ** | **Ps.        991,604** | ** ** |

 

F-37

----

 

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

**Supplemental Condensed Combining FinancialInformation**

**Statement of Income for the Year Ended December 31,2004**

**(In thousands of Mexican pesos (Ps.) ofpurchasing 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-38

----

 

**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-39

----

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**SupplementalCondensed Combining Financial Information**

**Statementof Changes in Financial Position for the Year Ended December 31, 2005**

**(In thousands ofMexican 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.       991,604     |       | Ps.    1,053,961             |       | Ps.   (1,062,403 | )          | Ps.       983,162                       |       | Ps.           8,442 |       |             |       | Ps.       991,604 |       |
| 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                  |       |                                                                  |       |                                                                  |       |             |       |                                            |       |
| Deferred income taxes                               |       | (29,163                                             | )          | 288,544                                     |       |                       |       | 259,381                                                               |       | (8,514                                                                | )          |             |       | 250,867                                         |       |
|                                                |       | (154,768                                            | )          | 1,388,067                                   |       | 57,228                     |       | 1,290,527                                                             |       | 13,655                                                                |       |             |       | 1,304,182                                       |       |
| Changes in operating  assets and liabilities        |       |                                                |       |                                        |       |                       |       |                                                                  |       |                                                                  |       |             |       |                                            |       |
| (Increase) decrease in:                             |       | (5,551                                              | )          | (653,504                                    | )          | 12,718                     |       | (646,337                                                              | )          | 48,555                                                                |       | (50,508          | )          | (648,290                                        | )          |
| Trade accounts receivables                          |       | (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                                      | )          |
| Other current assets                                |       | (5,923                                              | )          | 16,640                                      |       |                       |       | 10,717                                                                |       | (78,504                                                               | )          |             |       | (67,787                                         | )          |
| Increase (decrease) in:                             |       |                                                |       |                                        |       |                       |       |                                                                  |       |                                                                  |       |             |       |                                            |       |
| Trade accounts payable                              |       | 7,228                                               |       | 1,247,047                                   |       |                       |       | 1,254,275                                                             |       | 112,957                                                               |       |             |       | 1,367,232                                       |       |
| Employee retirement obligations                     |       |                                                |       | 25,222                                      |       |                       |       | 25,222                                                                |       | 14,193                                                                |       |             |       | 39,415                                          |       |
| Due to related parties                              |       | 5,391                                               |       | 847,330                                     |       | (852,721                   | )          |                                                                  |       | 211,144                                                               |       | (211,144         | )          |                                            |       |
| Other, net                                          |       | (73,980                                             | )          | 28,288                                      |       | 3                          |       | (45,693                                                               | )          | (43,934                                                               | )          |             |       | (89,627                                         | )          |
| Net resources used in operating activities          |       | (1,450,863                                          | )          | 1,140,332                                   |       | 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.       146,830** | ** ** | **Ps.    1,095,498**         | ** ** | ** **                 | ** ** | **Ps.    1,242,328**                                   | ** ** | **Ps.         76,759**        | ** ** | ** **       | ** ** | **Ps.    1,319,087**             |       |

 

F-40

----

 

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**SupplementalCondensed Combining Financial Information**

**Statementof Changes in Financial Position for the Year Ended December 31, 2004**

**(In thousands ofMexican 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.      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                                      | )          |
| Investment in shares                              |       | (1,651,490                                               | )          |                                          |       | 1,625,670                                                                                          |       | (25,821                                                               | )          |                                                     |       | 25,821                                                                                             |       |                                          |       |
| Net resources used in investing activities        |       | (1,659,557                                               | )          | (148,147                                      | )          | 1,625,670                                                                                          |       | (182,034                                                              | )          | (27,853                                                  | )          | 25,821                                                                                             |       | (184,067                                      | )          |
|                                              |       |                                                     |       |                                          |       |                                                                                               |       |                                                                  |       |                                                     |       |                                                                                               |       |                                          |       |
| Cash, temporary  investments and restricted cash: |       |                                                     |       |                                          |       |                                                                                               |       |                                                                  |       |                                                     |       |                                                                                               |       |                                          |       |
| Net increase                                      |       | (76,393                                                  | )          | 378,486                                       |       | —                                                                                             |       | 302,093                                                               |       | 19,786                                                   |       | —                                                                                             |       | 321,878                                       |       |
| Balance at beginning of year                      |       | 98,198                                                   |       | 95,631                                        |       | —                                                                                             |       | 193,829                                                               |       | 33,677                                                   |       | —                                                                                             |       | 227,507                                       |       |
| Balance at end of year                            | ** ** | **Ps.        21,805** | ** ** | **Ps.      474,117** | ** ** | **Ps.               —** | ** ** | **Ps.      495,922**                         | ** ** | **Ps.        53,463** | ** ** | **Ps.               —** | ** ** | **Ps.      549,385** | ** ** |

 

F-41

----

**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.) ofpurchasing 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-42

----

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**SupplementalCondensed Combining Reconciliation of Mexican GAAP to US GAAP**

**Asof and for the Year Ended December 31, 2005**

**(In thousands of Mexican pesos (Ps.) ofpurchasing 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.      998,320 |       | Ps.   1,053,961                   |       | Ps.(1,062,403)     |       | Ps.      989,878                                   |       | Ps.          8,442     |       | Ps.               —     |       | Ps.      998,320 | ** ** |
| 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                                   |       |
| 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                                               |       | 11,593                                    |       | 211,292                                     |       | —             |       | 222,885                                                                     |       | —                                                              |       | —                                                                                             |       | 222,885                                   |       |
| Total adjustments                                                                   |       | 62,423                                    |       | 155,255                                     |       | —             |       | 217,678                                                                     |       | —                                                              |       | —                                                                                             |       | 217,678                                   |       |
| Net income according to  U.S. GAAP                                                  | ** ** | **Ps.   1,060,743**             | ** ** | **Ps.   1,209,216**               | ** ** | **Ps.(1,062,403)** | ** ** | **Ps.   1,207,556**                                               | ** ** | **Ps.          8,442** | ** ** | **Ps.               —** | ** ** | **Ps.   1,215,998**             | ** ** |
| ** **                                                                          | ** ** |                                      |       |                                        |       |               |       |                                                                        |       |                                                                |       |                                                                                               |       |                                      | ** ** |
| Majority stockholders’  equity according to Mexican GAAP                       |       | Ps.   5,767,706                 |       | Ps.   5,441,229                   |       | Ps.(5,438,571)     |       | Ps    5,770,364                                              |       | Ps.      258,343                           |       | Ps.   (261,000)                                                                          | ** ** | Ps.   5,767,707                 | ** ** |
| 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    |       | —                                    |       | 3,211,750                                   |       | —             |       | 3,211,750                                                                   |       | 98,282                                                              |       | —                                                                                             | ** ** | 3,310,032                                 | ** ** |
| 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                                     |       | 94,830                                    |       | (836,582                                    | )          | —             |       | (741,752                                                                    | )          | (16,890                                                             | )          | —                                                                                             | ** ** | (758,642                                  | **)**      |
| Tax effects on U.S. GAAP  adjustments                                               |       | 51,625                                    |       | 475,590                                     |       | —             |       | 527,215                                                                     |       | 2,874                                                               |       | —                                                                                             | ** ** | 530,089                                   | ** ** |
| Total adjustments                                                                   |       | 146,455                                   |       | (360,992                                    | )          | —             |       | (214,537                                                                    | )          | (14,016                                                             | )          | —                                                                                             | ** ** | (228,553                                  | **)**      |
| Stockholders’ equity according to U.S. GAAP                                    | ** ** | **Ps.   5,914,161**             | ** ** | **Ps.   5,080,237**               | ** ** | **Ps.(5,438,571)** | ** ** | **Ps.   5,555,827**                                               | ** ** | **Ps.      244,327**                       | ** ** | **Ps.   (261,000)**                                                                      | ** ** | **Ps.   5,539,154**             | ** ** |

 

F-43

----

 

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

** Supplemental Condensed CombiningReconciliation of Mexican GAAP to US GAAP**

**Asof and for the Year Ended December 31, 2004**

**(In thousands of Mexican pesos (Ps.) ofpurchasing 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-44

----

** **

**DesarrolladoraHomex, S.A. de C.V. and Subsidiaries**

**SupplementalCondensed Combining Reconciliation of Mexican GAAP to US GAAP**

**Asof and for the Year Ended December 31, 2003**

**In thousands of Mexican pesos (Ps.) ofpurchasing 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**             |       |

 

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F-45

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