UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549










FORM 20-F



(Mark One)



| | ☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------------



OR



| | ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
| | - | --------------------------------------------------------------------------------------------------------------------------------



OR



| | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to                 .
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



OR



| | ☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of event requiring this shell company report
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



Commission file number: 001-33356














GAFISA
S.A.(Exact name of Registrant as specified in its charter)



GAFISA S.A.(Translation of Registrant’s name into English)



The Federative
Republic of Brazil(Jurisdiction of incorporation or organization)



Av. Pres. Juscelino Kubitschek, No. 1830,
Block 2, 3rd Floor
04543-900 – São Paulo, SP – Brazil
phone: + 55 (11) 3025-9000
fax: + 55 (11) 3025-9348
e mail: ri@gafisa.com
Attn: André Luis Ackermann – Chief Financial Officer and Investor Relations Officer
(Address of principal executive offices)



Securities registered or to be registered
pursuant to Section 12(b) of the Act:



None



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



None









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



|Title
        of each class       | Name
        of each exchange on which registered
|--------------------------------- | -------------------------------------------------
|Common Shares, without par value* | N/A                                              



* Traded only in the form of American
Depositary Shares (as evidenced by American Depositary Receipts), each representing two common shares which are registered under
the Securities Act of 1933.



Indicate the number of outstanding shares of each of the issuer’s
classes of capital or common stock as of the close of the period covered by the annual report.



The number of outstanding shares as
of December 31, 2018 was:



|Title
        of Class | Number
        of Shares Outstanding
|---------------------- | ------------------------------------
|Common Stock           | 43,727,589*                         



*Includes3,943,420 common shares that are held in treasury.





Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.



|Yes ☐ | No ☒
|----- | ----
|      |     

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



|Yes ☐ | No ☒
|----- | ----
|      |     

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.



|Yes ☐ | No ☒
|----- | ----
|      |     

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).



|Yes ☐ | No ☐
|----- | ----
|      |     

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



|Large Accelerated Filer  ☐ | Accelerated Filer  ☒ | Non-accelerated Filer  ☐  
|-------------------------- | -------------------- | --------------------------
|                           |                      | Emerging growth company  ☐
|                           |                      |                           

If an emerging growth company that prepares
its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a)
of the Exchange Act.



† The term “new or revised financial
accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards
Codification after April 5, 2012.



Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:



| | ☐ | U.S. GAAP
| | - | ---------



| | ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board
| | - | -----------------------------------------------------------------------------------------------------



| | ☒ | Other
| | - | -----



If “Other” has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant has elected to follow.



|☐ Item 17 | ☒ Item 18
|--------- | ---------
|          |          

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



|Yes ☐ | No ☒
|----- | ----
|      |     
|      |     
















TABLE
OF CONTENTS














Page





|INTRODUCTION                                                                          | 1  
|------------------------------------------------------------------------------------- | ---
|PRESENTATION OF FINANCIAL AND OTHER INFORMATION                                       | 1  
|CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS                             | 3  
|PART I                                                                                | 4  
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                         | 4  
|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                       | 4  
|ITEM 3. KEY INFORMATION                                                               | 4  
|ITEM 4. INFORMATION ON THE COMPANY                                                    | 24 
|ITEM 4A. UNRESOLVED STAFF COMMENTS                                                    | 55 
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  | 55 
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    | 85 
|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             | 96 
|ITEM 8. FINANCIAL INFORMATION                                                         | 97 
|ITEM 9. THE OFFER AND LISTING                                                         | 104
|ITEM 10. ADDITIONAL INFORMATION                                                       | 108
|ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 131
|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 133
|PART II                                                                               | 134
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 134
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 134
|ITEM 15. CONTROLS AND PROCEDURES                                                      | 134
|ITEM 16. RESERVED                                                                     | 136
|ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                            | 136
|ITEM 16B. CODE OF BUSINESS CONDUCT AND ETHICS                                         | 136
|ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      | 137
|ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  | 137
|ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      | 138
|ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT                                | 138
|ITEM 16G. CORPORATE GOVERNANCE                                                        | 138
|ITEM 16H. MINE SAFETY DISCLOSURE                                                      | 138
|PART III                                                                              | 139
|ITEM 17. FINANCIAL STATEMENTS                                                         | 139
|ITEM 18. FINANCIAL STATEMENTS                                                         | 139
|ITEM 19. EXHIBITS                                                                     | 139









i


Table of Contents


INTRODUCTION



In this annual report,
references to “Gafisa,” “we,” “our,” “us,” “our company” and “the
Company” are to Gafisa S.A. and its consolidated subsidiaries (unless the context otherwise requires). In addition, the term
“Brazil” refers to the Federative Republic of Brazil, and the phrase “Brazilian government” refers to the
federal government of Brazil. All references to “real,” “reais” or “R$” are to
the Brazilian real, the official currency of Brazil, and all references to “U.S. dollar,” “U.S. dollars”
or “US$” are to U.S. dollars, the official currency of the United States. References to “Brazilian GAAP”
or “BR GAAP” are to accounting practices adopted in Brazil and references to “U.S. GAAP” are to generally
accepted accounting principles in the United States. Any reference to “financial statement” is related to our consolidated
financial statements.



PRESENTATION OF FINANCIAL AND OTHER
INFORMATION



Financial Information



We maintain our books
and records in reais. Our financial statements were prepared in accordance with Brazilian GAAP, which are based on:



| | · | Brazilian Law No. 6,404/76, as amended by Brazilian Law No. 9,457/97, Brazilian Law No. 10,303/01,
Brazilian Law No. 11,638/07, Brazilian Law No. 12,431/11 and Brazilian Law No. 12,973/14, which we refer to hereinafter as “Brazilian
corporate law;”
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the rules and regulations of the Brazilian Securities Commission (Comissão de Valores
Mobiliários), or the “CVM;” and
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | the accounting standards issued by the Brazilian Federal Accounting Council (Conselho Federal
de Contabilidade), or the “CFC”, and the Accounting Standards Committee (Comitê de Pronunciamentos Contábeis),
or the “CPC.”
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Brazilian corporate
law was amended by Law No. 11,638, dated December 28, 2007, in order to facilitate the convergence of Brazilian GAAP with International
Financial Reporting Standards, or “IFRS,” and thereafter, the CPC issued new accounting standards that generally converged
Brazilian GAAP with IFRS, except for revenue recognition related to real estate transactions.



In preparing our financial
statements, we have applied: (1) Circular Letter/CVM/SNC/SEP 02/2018 regarding the application of Technical Pronouncement CPC 47
– Revenue from contracts with customers (IFRS 15), and (2) CPC 37 (R1), which requires that an entity develops accounting
policies based on the standards and interpretations of the CPC. We have adopted all pronouncements, guidelines and interpretations
of the CPC issued through December 31, 2018. As a result, our financial statements are prepared in accordance with Brazilian GAAP,
which allows revenue recognition on a percentage of completion basis for construction companies (i.e., revenue is recorded in accordance
with the percentage of financial evolution of the construction project), and are therefore not compliant with IFRS as issued by
the International Accounting Standards Board (“IASB”), which require revenue recognition on transferring control.



Brazilian GAAP differs
in significant respects from U.S. GAAP. The notes to our financial statements included elsewhere in this annual report contain
a reconciliation of equity and net income (loss) from Brazilian GAAP to U.S. GAAP. Unless otherwise indicated, all financial information
of our company included in this annual report is derived from our Brazilian GAAP financial statements.



Our consolidated financial
statements reflect statement of operations and balance sheet information for all of our subsidiaries, and also separately disclose
the interest of non-controlling shareholders.



As set forth in “Item
4. Information on the Company—A. History and Development of the Company”, on December 9, 2013, we completed the sale
of a controlling stake in Alphaville Urbanismo S.A., or “Alphaville”, the leading residential community development
company in Brazil. The transaction involved the sale of 50% interest by Gafisa and 20% interest by our subsidiary Construtora Tenda
S.A., or “Tenda”, with Gafisa retaining the remaining 30% of Alphaville capital stock. As a result, since November
30, 2013, Alphaville is no longer consolidated in the financial statements of the Company.






Table of Contents


As explained in Note
8.2 to our consolidated financial statements for the year ended December 31, 2018, the results of operations of Tenda have been
presented as discontinued operations under Brazilian GAAP in the Company’s 2017, 2016, 2015 and 2014 consolidated statements
of operations. Under Brazilian GAAP, previous period balance sheet information is not retrospectively adjusted. Brazilian GAAP
selected consolidated statements of operations financial data for the year ended December 31, 2017 has also been retrospectively
adjusted to also reflect the results of operations of Tenda as discontinued operations for comparability purposes. Additionally,
earnings per share amounts have been adjusted retroactively to reflect the reverse split of our common shares at the ratio of 13.483023074
to 1, which was consummated on March 23, 2017.



Additionally,
as of December 31, 2018, for comparability purposes, our statement of profit or loss for the year ended December 31, 2017 and 2016
has been adjusted to consider changes in accounting practice derived from the adoption of CPC 48 – Financial Instruments
(IFRS 9) and CPC 47 – Revenue from Contracts with Customers (IFRS 15). As required by CPC 23 – Accounting Policies,
Changes in Accounting Estimates and Errors, the retrospective effects of the adoption of CPCs 47 and 48 are demonstrated as follows:



|                                          |  | For the Year ended December 31,               |          | For the Year ended December 31,    
|----------------------------------------- |  | --------------------------------------------- | -------- | -----------------------------------
|                                          |  | 2017                                          |          | 2016                               
|                                          |  | Balances originally reported as of 12/31/2017 |          | Impact from applying CPCs 47 and 48
|Statement of profit or loss               |  |                                               |          |                                    
|Net operating revenue                     |  |                                               | 608,823  |                                    
|Operating costs                           |  |                                               | (818,751 | )                                  
|Operating (expenses) income               |  |                                               | (654,216 | )                                  
|Financial income (expenses)               |  |                                               | (107,268 | )                                  
|Income tax and social contribution        |  |                                               | 23,100   |                                    
|Non-controlling interests                 |  |                                               | (281     | )                                  
|Profit or loss of discontinued operations |  |                                               | 98,175   |                                    
|Net income (loss) for the year            |  |                                               | (849,856 | )                                  



Market Information



Certain industry,
demographic, market and competitive data, including market forecasts, used in this annual report were obtained from internal surveys,
market research, publicly available information and industry publications. We have made these statements on the basis of information
from third-party sources that we believe are reliable, such as the Brazilian Property Studies Company (Empresa Brasileira de
Estudos de Patrimônio), or “EMBRAESP,” the Association of Managers of Real Estate Companies (Associação
de Dirigentes de Empresas do Mercado Imobiliário), or “ADEMI,” the Getulio Vargas Foundation (Fundaçao
Getulio Vargas), or “FGV,” the National Bank of Economic and Social Development (Banco Nacional de Desenvolvimento
Econômico e Social), or “BNDES,” the Real Estate Companies’ Union (Sindicato das Empresas de Compra,
Venda, Locação e Administração de Imóveis Residenciais e Comerciais), or “SECOVI,”
the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or “IBGE,”
and the Brazilian Central Bank (Banco Central do Brasil), or the “Central Bank,” among others. Industry and
government publications, including those referenced here, generally state that the information presented therein has been obtained
from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Although we
have no reason to believe that any of this information or these reports are inaccurate in any material respect, such information
has not been independently verified by us. Accordingly, we do not make any representation as to the accuracy of such information.



Rounding and Other Information



Some percentages and
certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals
in certain tables in this annual report may not be an arithmetic aggregation of the figures that precede them.



In this annual report,
all references to “contracted sales” are to the aggregate amount of sales resulting from all agreements for the sale
of units (including residential communities and land subdivisions) entered into during a certain period, including new units and
units in inventory. Further, in this annual report we use the term “value of launches” as a measure of our performance.
Value of launches is not a GAAP measurement. Value of launches, as used in this annual report, is calculated
by multiplying the total numbers of units in a real estate development by the average unit sales price.



2


Table of Contents






All references to
“potential sales value” are to our estimates of the total amount obtained or that can be obtained from the sale of
all launched units of a certain real estate development, calculated by multiplying the number of units in a development by the
sale price of the unit. Investors should be aware that our potential sales value may not be realized or may significantly differ
from the amount of contracted sales, since the total number of units actually sold may be lower than the number of units launched
and/or the contracted sales price of each unit may be lower than the launching price.



In addition, we present
information in square meters in this annual report. One square meter is equal to approximately 10.76 square feet.



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS



The statements contained
in this annual report in relation to our plans, forecasts, expectations regarding future events, strategies, and projections, are
forward-looking statements which involve risks and uncertainties and which are therefore not guarantees of future results. Our
estimates and forward-looking statements are mainly based on our current expectations and estimates on projections of future events
and trends, which affect or may affect our businesses and results of operations. Although we believe that these estimates and forward-looking
statements are based upon reasonable assumptions, they are subject to several uncertainties and are made in light of information
currently available to us. Our estimates and forward-looking statements may be influenced by the following factors, among others:



| | · | changes in overall economic conditions, including employment levels, population growth and consumer
confidence;
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | changes in real estate market prices and demand, estimated budgeted costs and the preferences and
financial condition of our customers;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | · | demographic factors and available income;
| | - | -----------------------------------------



| | · | our ability to repay our indebtedness and comply with our financial obligations;
| | - | --------------------------------------------------------------------------------



| | · | our ability to arrange financing and implement our expansion plan;
| | - | ------------------------------------------------------------------



| | · | our ability to compete and conduct our businesses in the future;
| | - | ----------------------------------------------------------------



| | · | changes in our business;
| | - | ------------------------



| | · | inflation and interest rate fluctuations;
| | - | -----------------------------------------



| | · | changes in the laws and regulations applicable to the real estate market;
| | - | -------------------------------------------------------------------------



| | · | government interventions, resulting in changes in the economy, taxes, rates or regulatory environment;
| | - | ------------------------------------------------------------------------------------------------------



| | · | other factors that may affect our business, market share, financial condition, liquidity and results
of our operations; and
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | other risk factors discussed under “Item 3. Key Information—D. Risk Factors.”
| | - | -----------------------------------------------------------------------------



The words “believe,”
“may,” “will,” “estimate,” “continue,” “anticipate,” “intend,”
“expect” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking
statements speak only as of the date they were made, and we undertake no obligation to update or to review any estimate and/or
forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements
involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those
expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates
and forward-looking statements discussed in this annual report might not occur and our future results and our performance may differ
materially from those expressed in these forward-looking statements due to, inclusive of, but not limited to, the factors mentioned
above.



3


Table of Contents


PART I



ITEM 1. IDENTITY OF DIRECTORS, SENIOR
MANAGEMENT AND ADVISERS



Not applicable.



ITEM 2. OFFER STATISTICS AND EXPECTED
TIMETABLE



Not applicable.



ITEM 3. KEY INFORMATION



A. Selected Financial Data



The following selected
financial data for 2018, 2017, 2016, 2015 and 2014 has been derived from our audited consolidated financial statements presented
herein. The consolidated financial statements presented herein for the years ended 2017 and 2016 have been retrospectively adjusted
to reflect the adoption of the new accounting pronouncements CPCs 47 (IFRS 15), CPC 48 (IFRS 9) and ASC 606, as explained in Notes
3 and 33 to our consolidated financial statements for the year ended December 31, 2018. The aforementioned retrospective adjustments
(2017 and 2016) were audited by BDO therefore, KPMG audit report makes reference to the consolidated financial statements before
those adjustments. The following selected financial data for 2018, 2017, 2016, 2015 and 2014 are derived from these audited consolidated
financial statements presented herein.



Our financial statements
are prepared in accordance with Brazilian GAAP, which differs in significant respects from U.S. GAAP. For a discussion of the significant
differences relating to these consolidated financial statements and a reconciliation of net income (loss) and equity from Brazilian
GAAP to U.S. GAAP, see the notes to our consolidated financial statements included elsewhere in this annual report. See also “Presentation
of Financial and Other Information.”



This financial information
should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual
report.



As explained in Note
8.2 to our consolidated financial statements for the year ended December 31, 2018, Notes 1 and 8.2 to our consolidated financial
statements for the year ended December 31, 2017 and Notes 2.3 and 8.2 to our consolidated financial statements for the year ended
December 31, 2016, the results of operations of Tenda have been presented as discontinued operations under Brazilian GAAP in the
Company’s 2017, 2016, 2015 and 2014 consolidated statements of operations. Additionally, earnings per share amounts have
been adjusted retroactively to reflect the reverse split of our common shares at the ratio of 13.483023074 to 1, which was consummated
on March 23, 2017.



The following table
sets forth financial information as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, which has been prepared
in accordance with Brazilian GAAP in effect as of December 31, 2018. Certain information below is presented in accordance with
U.S. GAAP.



|                                                        |  | As of and for the year ended December 31,                            
|------------------------------------------------------- |  | ---------------------------------------------------------------------
|                                                        |  | 2018 (4) (5)                                                         
|                                                        |  |                                                                      
|                                                        |  | (in thousands of reais, except per share, per ADS and operating data)
|Consolidated Statement of Operations Data:              |  |                                                                      
|Brazilian GAAP:                                         |  |                                                                      
|Net operating revenue                                   |  |                                                                      
|Operating costs                                         |  |                                                                      
|Gross profit (loss)                                     |  |                                                                      
|Operating expenses, net                                 |  |                                                                      
|Financial expenses, net                                 |  |                                                                      
|Income (loss) before income tax and social contribution |  |                                                                      
|Income tax and social contribution                      |  |                                                                      
|Net income (loss) from continuing operations            |  |                                                                      

4


Table of Contents






|                                                                                                  |  | As of and for the year ended December 31,                            
|------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------
|                                                                                                  |  | 2018 (4) (5)                                                         
|                                                                                                  |  |                                                                      
|                                                                                                  |  | (in thousands of reais, except per share, per ADS and operating data)
|Net income (loss) from discontinued operations	.                                                  |  |                                                                      
|Net income (loss) for the year attributable to non-controlling interest                           |  |                                                                      
|Net income (loss) for the year attributable to owners of Gafisa                                   |  | R$                                                                   
|Share and ADS data (1):                                                                           |  |                                                                      
|Per common share data—R$ per share:                                                               |  |                                                                      
|Earnings (loss) per weighted average number of shares—Basic                                       |  |                                                                      
|From continuing operations                                                                        |  |                                                                      
|From discontinued operations	.                                                                    |  |                                                                      
|Earnings (loss) per weighted average number of shares —Diluted                                    |  |                                                                      
|From continuing operations                                                                        |  |                                                                      
|From discontinued operations                                                                      |  |                                                                      
|Weighted average number of shares outstanding—in thousands                                        |  |                                                                      
|Dividends and interest on shareholders’ equity declared—in thousands of reais                     |  |                                                                      
|Earnings (loss) per share—R$ per share                                                            |  |                                                                      
|Number of common shares outstanding as at end of period—in thousands*                             |  |                                                                      
|Earnings (loss) per ADS—R$ per ADS(1)                                                             |  |                                                                      
|U.S. GAAP:                                                                                        |  |                                                                      
|Net operating revenue                                                                             |  |                                                                      
|Operating costs                                                                                   |  |                                                                      
|Gross profit (loss)                                                                               |  |                                                                      
|Operating expenses, net                                                                           |  |                                                                      
|Financial expenses, net                                                                           |  |                                                                      
|Income from disposal on controlling interests                                                     |  |                                                                      
|Income (loss) before income tax and social contribution and income from equity method investments |  |                                                                      
|Income tax and social contribution                                                                |  |                                                                      
|Equity pick-up                                                                                    |  |                                                                      
|Net income (loss) from continuing operations                                                      |  |                                                                      
|Net income (loss) from discontinued operations                                                    |  |                                                                      
|Net income (loss) for the year                                                                    |  |                                                                      
|Net income (loss) attributable to non-controlling interests                                       |  |                                                                      
|Net income (loss) attributable to owners of Gafisa                                                |  |                                                                      
|Per share and ADS data (1):                                                                       |  |                                                                      
|Per common share data—R$ per weighted average number of shares:                                   |  |                                                                      
|Earnings (loss) per weighted average number of shares—Basic                                       |  |                                                                      
|Earnings (loss) per weighted average number of shares—Diluted                                     |  |                                                                      
|Weighted average number of shares outstanding — in thousands                                      |  |                                                                      
|Dividends declared and interest on equity                                                         |  |                                                                      
|Per ADS data—R$ per ADS(1):                                                                       |  |                                                                      
|Profit (loss) per ADS —Basic(1)                                                                   |  |                                                                      

5


Table of Contents




|                                                                                        |  | As of and for the year ended December 31,                            
|--------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------
|                                                                                        |  | 2018 (4) (5)                                                         
|                                                                                        |  |                                                                      
|                                                                                        |  | (in thousands of reais, except per share, per ADS and operating data)
|Profit (loss) per ADS —Diluted(1)                                                       |  |                                                                      
|Weighted average number of ADSs outstanding—in thousands                                |  |                                                                      
|Dividends and interest on equity declared                                               |  |                                                                      
|Consolidated Balance Sheet Data:                                                        |  |                                                                      
|Brazilian GAAP:                                                                         |  |                                                                      
|Cash, cash equivalents and short-term investments                                       |  |                                                                      
|Current and non-current properties for sale                                             |  |                                                                      
|Working capital(2)                                                                      |  |                                                                      
|Total assets                                                                            |  |                                                                      
|Total debt(3)                                                                           |  |                                                                      
|Total Gafisa equity                                                                     |  |                                                                      
|Equity of non-controlling interests                                                     |  |                                                                      
|Total equity                                                                            |  |                                                                      
|U.S. GAAP:                                                                              |  |                                                                      
|Cash and cash equivalents, short-term investments and restricted short-term investments |  |                                                                      
|Current and non-current properties for sale                                             |  |                                                                      
|Working capital(2)                                                                      |  |                                                                      
|Total assets                                                                            |  |                                                                      
|Total debt(3)                                                                           |  |                                                                      
|Total Gafisa equity                                                                     |  |                                                                      
|Equity of non-controlling interests                                                     |  |                                                                      
|Total equity                                                                            |  |                                                                      
|Consolidated cash flow provided by (used in):                                           |  |                                                                      
|Brazilian GAAP                                                                          |  |                                                                      
|Operating activities                                                                    |  |                                                                      
|Investing activities                                                                    |  |                                                                      
|Financing activities                                                                    |  |                                                                      






* Common
shares held in Treasury are not included.





| | (1) | Earnings (loss) per ADS is calculated based on each ADS representing two common shares. On March
23, 2017, we consummated a reverse split of our common shares at the ratio of 13.483023074 to 1, decreasing the number of our total
common shares from 378,066,162 common shares to 28,040,162 common shares. All Brazilian GAAP and U.S. GAAP information relating
to the number of shares and ADSs has been adjusted retroactively for the periods ended December 31, 2016, 2015 and 2014 to reflect
the reverse split of our common shares.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | (2) | Working capital equals current assets less current liabilities.
| | --- | ---------------------------------------------------------------





| | (3) | Total debt comprises current and non-current portion of loans and financings and debentures.
| | --- | --------------------------------------------------------------------------------------------





| | (4) | As explained in Note 8.2 to our consolidated financial statements for the year ended December 31,
2017, the results of operations of Tenda have been presented as discontinued operations under Brazilian GAAP and U.S. GAAP in the
consolidated statements of operations. Under Brazilian GAAP, previous period balance sheet information is not retrospectively reclassified.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | (5) | As explained in Note 3 to our consolidated financial statements for the year ended December 31,
2018, under Brazilian GAAP,we have adopted CPC 48 – Financial Instruments (IFRS 9) and CPC 47 – Revenue from Contracts
with Customers (IFRS 15) retrospectively from January 1, 2016. Under U.S. GAAP, we have adopted ASUs Topic 606 – Revenue
from Contracts with Customers retrospectively from January 01, 2016. The consolidated financial information as of and for the years
ended December 31, 2015 and 2014 has been derived from our historical financial statements but was not restated for the retrospective
application of IFRS 9 and IFRS 15, for Brazilian GAAP purposes, and Topic 606 for U.S. GAAP purposes, due to unreasonable effort
or expense.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Exchange Rates



All transactions involving
foreign currency in the Brazilian market, whether carried out by investors resident or domiciled in Brazil or investors resident
or domiciled abroad, must now be conducted on the consolidated exchange market through institutions authorized by the Central Bank
and subject to the rules of the Central Bank.



The Central Bank has
allowed the real to float freely against the U.S. dollar since January 15, 1999. Since the beginning of 2001, the Brazilian
exchange market has been increasingly volatile, and, until early 2003, the value of the real declined relative to the U.S.
dollar, primarily due to financial and political instability in Brazil and Argentina. According to the Central Bank, in 2005, 2006
and 2007, however, the period-end value of the real appreciated in relation to the U.S. dollar 13.4%, 9.5% and 20.7%, respectively.
In 2008, the period-end value of the real depreciated in relation to the U.S. dollar by 24.2%. In 2009 and 2010, the period-end
value of the real appreciated in relation to the U.S. dollar by 34.2% and 4.3%. In 2011, the real depreciated against
the U.S. dollar by 11.2%. In 2014, the period-end value of the real depreciated in relation to the U.S. dollar by 13.4%.
On December 31, 2014, the period-end real/U.S. dollar exchange rate was R$2.6562 per U.S. $1.00. In 2015, the period-end
value of the real depreciated in relation to the U.S. dollar by 47.0%. On December 31, 2015, the period-end real/U.S.
dollar exchange rate was R$3.9048 per U.S. $1.00. On December 31, 2016, the period-end real/U.S. dollar exchange rate was
R$3.2591 per U.S. $1.00. On December 31, 2017, the period-end real/U.S. dollar exchange rate was R$3.308 per U.S. $1.00.
On December 31, 2018, the period-end real/U.S. dollar exchange rate was R$3.875 per U.S. $1.00. Although the Central Bank
has intervened occasionally to control unstable movements in the foreign exchange rates, the exchange market may continue to be
volatile as a result of this instability or other factors, and, therefore, the real may substantially decline or appreciate
in value in relation to the U.S. dollar in the future.



The following table
shows the selling rate, expressed in reais per U.S. dollar (R$/US$), for the periods and dates indicated.



|                                         |  | Period-end        |       | Average for period(1) |  | Low |       | High
|---------------------------------------- |  | ----------------- | ----- | --------------------- |  | --- | ----- | ----
|                                         |  | (per U.S. dollar)
|Year Ended December 31:                  |  |                   |       |                       |  |     |       |     
|2014                                     |  |                   | 2.656 |                       |  |     | 2.355 |     
|2015                                     |  |                   | 3.905 |                       |  |     | 3.339 |     
|2016                                     |  |                   | 3.259 |                       |  |     | 3.483 |     
|2017                                     |  |                   | 3.308 |                       |  |     | 3.193 |     
|2018                                     |  |                   | 3.875 |                       |  |     | 3.656 |     
|Month Ended:                             |  |                   |       |                       |  |     |       |     
|May 2019                                 |  |                   | 3.941 |                       |  |     | 4.002 |     
|June 2019                                |  |                   | 3.832 |                       |  |     | 3.859 |     
|July 2019                                |  |                   | 3.765 |                       |  |     | 3.779 |     
|August 2019                              |  |                   | 4.139 |                       |  |     | 4.020 |     
|September 2019                           |  |                   | 4.164 |                       |  |     | 4.123 |     
|October 2019                             |  |                   | 4.004 |                       |  |     | 4.087 |     
|November 2019 (through November 8, 2019) |  |                   | 4.137 |                       |  |     | 4.040 |     




| | (1) | Annually, represents the average of the exchange rates on the last day of each month during the
periods presented; monthly, represents the average of the end-of-day exchange rates during the periods presented.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Source:
Central Bank.



On November 8, 2019,
the selling rate was R$4.137 to US$1.00. The real/dollar exchange rate fluctuates and, therefore, the selling rate at November
8, 2019, may not be indicative of future exchange rates.



Brazilian law provides
that, whenever there is a serious imbalance in Brazil’s balance of payments or serious reasons to foresee such imbalance,
temporary restrictions may be imposed on remittances of foreign capital abroad. For approximately six months in 1989, and early
1990, for example, the Federal Government froze all dividend and capital repatriations that were owed to foreign equity investors.
These amounts were subsequently released in accordance with Federal Government directives. There can be no assurance that similar
measures will not be taken by the Federal Government in the future.



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B. Capitalization and Indebtedness



Not applicable.



C. Reasons for the Offer and Use of
Proceeds



Not applicable.



D. Risk Factors



This section is
intended to be a summary of the more detailed discussion included elsewhere in this annual report. Our business, results of operations,
financial condition or prospects could be adversely affected if any of these risks occurs, and as a result, the trading price of
our common shares and ADSs could decline. The risks described below are those known to us and those that we currently believe may
materially affect us.



Risks Relating to Our Business and
to the Brazilian Real Estate Industry



Our business, results
of operations, financial condition and the market price of our common shares or the ADSs may be adversely affected by weaknesses
in general economic, real estate and other conditions.



The residential homebuilding
and land development industry is cyclical and is significantly affected by changes in general and local economic conditions, such
as:



| | · | employment levels;
| | - | ------------------



| | · | population growth;
| | - | ------------------



| | · | consumer demand, confidence, stability of income levels and interest rates;
| | - | ---------------------------------------------------------------------------



| | · | availability of financing for land home site acquisitions and the availability of construction
and permanent mortgages;
| | - | -----------------------------------------------------------------------------------------------------------------------



| | · | inventory levels of both new and existing homes;
| | - | ------------------------------------------------



| | · | supply of rental properties; and
| | - | --------------------------------



| | · | conditions in the housing resale market.
| | - | ----------------------------------------



Furthermore, the market
value of undeveloped land, buildable lots and housing inventories held by us can fluctuate significantly as a result of changing
economic and real estate market conditions. If there are significant adverse changes in economic or real estate market conditions,
we will have to sell homes at a loss or hold land in inventory longer than planned.



For example, in 2008,
the global financial crisis adversely impacted Brazil’s gross domestic product, or “GDP,” resulting in a decrease
in both the number of developments launched and the rate of sales of our units. Since 2014, weakening economic conditions and political
instability in Brazil, leading to fluctuations in interest rates and inflation and an increase in levels of unemployment, among
other factors, had an adverse impact on the real estate market, including a decrease in the volume of Gafisa launches and a sharp
decrease in the overall volume of real estate launches in Brazil. Worldwide financial market volatility may also adversely impact
government plans for the Brazilian real estate industry, which may have a material adverse effect on our business, our financial
condition and results of operations.



We operate in a
highly competitive industry and our failure to compete effectively could adversely affect our business.



The Brazilian real
estate industry is highly competitive and fragmented. We compete with several developers on the basis of land availability and
location, price, funding, design, quality, and reputation as well as for partnerships with other developers. Because our industry
does not have high barriers to entry, new competitors, including international companies working in partnership with Brazilian
developers, may enter into the industry, further intensifying this competition. Some of our current potential competitors may have
greater financial and other resources than we do. Furthermore, a significant portion of our real estate development and construction
activity is conducted in the state of São Paulo, an area where the real estate market is highly competitive due to a scarcity
of properties in



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desirable locations and
the relatively large number of local competitors. If we are not able to compete effectively, our business, our financial condition
and the results of our operations could be adversely affected.



Problems with the
construction and timely completion of our real estate projects, as well as third party projects for which we have been hired as
a contractor, may damage our reputation, expose us to civil liability and decrease our profitability.



The quality of work
in the construction of our real estate projects and the timely completion of these projects are major factors that affect our reputation,
and therefore our sales and growth. We may experience delays in the construction of our projects or there may be defects in materials
and/or workmanship. Any defects could delay the completion of our real estate projects, or, if such defects are discovered after
completion, expose us to civil lawsuits by purchasers or tenants. These factors may also adversely affect our reputation as a contractor
for third party projects, since we are responsible for our construction services and the building itself for five years. Construction
projects often involve delays in obtaining, or the inability to obtain, permits or approvals from the relevant authorities. In
addition, construction projects may also encounter delays due to adverse weather conditions, natural disasters, fires, delays in
the provision of materials or labor, accidents, labor disputes, unforeseen engineering, environmental or geological problems, disputes
with contractors and subcontractors, unforeseen conditions at construction sites, disputes with surrounding landowners, or other
events. In addition, we may encounter previously unknown conditions at or near our construction sites that may delay or prevent
construction of a particular project. If we encounter a previously unknown condition at or near a site, we may be required to correct
the condition prior to continuing construction and there may be a delay in the construction of a particular project. The occurrence
of any one or more of these problems in our real estate projects could adversely affect our reputation and our future sales.



We may incur construction
and other development costs for a project that exceeds our original estimates due to increases over time in interest rates, real
estate taxes or costs associated with materials and labor, among others. We may not be able to pass these increased costs on to
purchasers. Construction delays, scarcity of skilled workers, default and or bankruptcy of third party contractors, cost overruns
and adverse conditions may also increase project development costs. In addition, delays in the completion of a project may result
in a delay in the commencement of cash flow, which would increase our capital needs.



Our inability to
acquire adequate capital to finance our projects could delay the launch of new projects and adversely affect our business.



We expect that the
continued expansion and development of our business will require significant capital, including working capital, which we may be
unable to obtain on acceptable terms, or at all, to fund our capital expenditures and operating expenses, including working capital
needs. We may fail to generate sufficient cash flow from our operations to meet our cash requirements. Furthermore, our capital
requirements may vary materially from those currently planned if, for example, our revenues do not reach expected levels or we
have to incur unforeseen capital expenditures and make investments to maintain our competitive position. If this is the case, we
may require additional financing sooner than anticipated, or we may have to delay some of our new development and expansion plans
or otherwise forgo market opportunities. Future borrowing instruments such as credit facilities are likely to contain restrictive
covenants, particularly in light of the recent economic downturn and unavailability of credit, and/or may require us to pledge
assets as security for borrowings under those facilities. Our inability to obtain additional capital on satisfactory terms may
delay or prevent the expansion of our business, which would have an adverse effect on our business. As of December 31, 2018, our
net debt plus payable to venture partners (indebtedness from debentures, loans and financing, and project financing balance, net
of our cash and short term investments position) was R$752.3 million, our cash and cash equivalents and short-term investments
were R$137.2 million and our total debt was R$ 889.4 million.



Changing market
conditions may adversely affect our ability to sell our property inventories at expected prices, which could reduce our margins
and adversely affect the market price of our common shares or the ADSs.



We must constantly
locate and acquire new tracts of land for development and development home sites to support our homebuilding operations. There
is a lag between the time we acquire land for development or development home sites and the time that we can bring the properties
to market and sell homes. As a result, we face the risk that demand for housing may decline, costs of labor or materials may increase,
interest rates may increase, currencies may fluctuate and political uncertainties may occur during this period and that we will
not be able to dispose of developed properties at expected prices or profit margins or within anticipated time frames or at all.
Significant expenditures associated with investments in real estate, such as maintenance costs, construction costs and debt payments,
cannot generally be reduced if changes in the economy cause a decrease in revenues from our properties. The market value of property
inventories, undeveloped tracts of land and desirable locations can fluctuate significantly because of changing market



9


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conditions. In addition,
inventory carrying costs (including interest on funds unused to acquire land or build homes) can be significant and can adversely
affect our performance. Because of these factors, we may be forced to sell homes and other real properties at a loss or for prices
that generate lower profit margins than we anticipate. We may also be required to make material write-downs of the book value of
our real estate assets in accordance with Brazilian and U.S. GAAP if values decline. The occurrence of any of these factors may
adversely affect our business and results of operations.



We are subject to
risks normally associated with permitting our purchasers to make payments in installments; if there are higher than anticipated
defaults or if our costs of providing such financing increase, then our profitability could be adversely affected.



As is common in our
industry, we and the special purpose entities, or “SPEs,” in which we participate permit some purchasers of the units
in our projects to make payments in installments. As a result, we are subject to the risks associated with this financing, including
the risk of default in the payment of principal or interest on the loans we make as well as the risk of increased costs for the
funds raised by us. In addition, our term sales agreements usually bear interest and provide for an inflation adjustment. If the
rate of inflation increases, the loan payments under these term sales agreements may increase, which may lead to a higher rate
of payment default. If the default rate among our purchasers increases, our cash generation and, therefore, our profitability could
be adversely affected.



In the case of a payment
default after the delivery of financed units, Brazilian law provides for the filing of a collection claim to recover the amount
owed or to repossess the unit following specified procedures. The collection of overdue amounts or the repossession of the property
is a lengthy process and involves additional costs. It is uncertain that we can recover the full amount owed to us or that if we
repossess a unit, we can re-sell the unit at favorable terms or at all.



If we or the Special
Purpose Entities (Sociedade de Propósito Específico or “SPEs )in which we participate fail to comply with or
become subject to more onerous government regulations, our business could be adversely affected.



We and the SPEs in
which we participate are subject to various federal, state and municipal laws and regulations, including those relating to construction,
zoning, soil use, urban regulations, environmental protection, historical sites, consumer protection and antitrust. We are required
to obtain, maintain and renew on a regular basis permits, licenses and authorizations from various governmental authorities in
order to carry out our projects. We strive to maintain compliance with these laws and regulations, as well as with conditions of
permits, licenses and authorizations. If we are unable to achieve or maintain compliance with these laws, regulations and conditions,
we could be subject to fines, project shutdowns, cancellation of licenses and revocation of authorizations or other restrictions
on our ability to develop our projects, which could have an adverse impact on our business, financial condition and results of
operations. In addition, our contractors and subcontractors are required to comply with various labor and environmental regulations
and tax and other regulatory obligations. Because we are secondary obligors to these contractors and subcontractors, if they fail
to comply with these regulations or obligations, we may be subject to penalties by the relevant regulatory bodies, and to indemnification
claims from affected third parties.



Regulations governing
the Brazilian real estate industry as well as environmental laws have tended to become more restrictive over time. We cannot assure
that new and stricter standards will not be passed or become applicable to us, or that stricter interpretations of existing laws
and regulations will not be adopted. Furthermore, we cannot assure that any such more onerous regulations would not cause delays
in our projects or that we would be able to secure the relevant permits and licenses. Any such event may require us to spend additional
funds to achieve compliance with such new rules and therefore make the development of our projects more costly, which could adversely
affect our business and the market price of our common shares or the ADSs.



Scarcity of financing
and/or increased interest rates could cause a decrease in the demand for real estate properties, which could negatively affect
our results of operations, financial condition and the market price of our common shares or the ADSs.



The scarcity of financing
and/or an increase in interest rates or in other indirect financing costs may adversely affect the ability or willingness of prospective
buyers to purchase our products and services, especially prospective low income buyers. A majority of the bank financing obtained
by prospective buyers comes from the Housing Financial System (Sistema Financeiro de Habitação), or the “SFH,”
which is financed by funds raised from savings account deposits. The Brazilian Monetary Council (Conselho Monetário Nacional),
or the “CMN,” often changes the amount of such funds that banks are required to make available for real estate financing.
If the CMN restricts the amount of available funds that can be used to finance the purchase of real estate properties, or if there
is an increase



10


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in interest rates, there
may be a decrease in the demand for our residential and commercial properties and for the development of lots of land, which may
adversely affect our business, financial condition and results of operations.



We and other companies
in the real estate industry frequently extend credit to our clients. As a result, we are subject to risks associated with providing
financing, including the risk of default on amounts owed to us, as well as the risk of increased costs of funding our operations.
An increase in inflation would raise the nominal amounts due from our clients, pursuant to their sales agreements, which may increase
their rates of default. If this were to occur, our cash generation and, therefore, our operating results may be adversely affected.
In addition, we obtain financings from financial institutions at different rates and subject to different indexes and may be unable
to match our debt service requirements with the terms of the financings we grant to our clients. The mismatch of rates and terms
between the funds we obtain and the financings we grant may adversely affect us.



We may sell portions
of our landbank located in nonstrategic regions, which is in line with our future strategies. As a result, we will prepare an annual
analysis for impairment of our landbank.



As part of our strategy
to focus our future operations on regions where our developments have historically been successful, and where we believe there
is homebuilding potential based on market opportunities, we may sell portions of our landbank located outside of these regions.
As a result, we prepare an annual impairment analysis of our landbank based on the acquisition cost of the land in our portfolio.
In 2011, we made a decision to sell a portion of our landbank given our narrowed geographic focus and our evaluation of impairment
resulted in recording a provision for impairment on landbank and properties for sale in the amount of R$92.1 million. In December
2012, we had R$53.8 million recorded as a provision for impairment on landbank and properties for sale. As of December 31, 2013,
we had R$68.5 million recorded as a provision for impairment on landbank and properties for sale. As of December 31, 2014, we had
R$63.5 million recorded as a provision for impairment on landbank and properties for sale. As of December 31, 2015, we had R$50.3
million recorded as a provision for impairment on landbank and properties for sale. Since 2016, our impairment analysis has been
negatively impacted by the challenging macroeconomics conditions in the real estate sector and in Brazil as a whole, which has
led to a decrease in sales prices for our commercial and residential units. As of December 31, 2016, we had R$174.4 million recorded
as a provision for impairment on landbank and properties for sale. As of December 31, 2017, we had R$310.6 million recorded as
a provision for impairment on landbank and properties for sale. As of December 31, 2018, we had R$63.1 million recorded as a provision
for impairment on landbank and properties for sale.



The real estate
industry is dependent on the availability of credit, especially in the entry-level segment.



One of our main strategies
is to expand our operations to the entry-level segment in which clients are strongly dependent on bank financing to purchase homes.
This financing may not be available on favorable terms to our clients, or at all. Changes in the Real Estate Financing System (Sistema
de Financiamento Imobiliário), or the “SFI,” and in the SFH rules, the scarcity of available resources or
an increase in interest rates may affect the ability or desire of such clients to purchase homes, consequently affecting the demand
for homes. These factors would have a material adverse effect on our business, financial condition and results of operations.



Because we recognize
sales revenue from our real estate properties under the percentage of completion method of accounting under Brazilian GAAP as generally
adopted by construction companies and under U.S. GAAP, by transferring control, an adjustment in the cost of a development project
may reduce or eliminate previously reported revenue and income.



We recognize revenue
from the sale of units in our properties based on the percentage of completion method of accounting, which requires us to recognize
revenue as we incur the cost of construction. Total cost estimates are revised on a regular basis as the work progresses, and adjustments
based upon such revisions are reflected in our results of operations in accordance with the method of accounting used. To the extent
that these adjustments result in an increase, a reduction or an elimination of previously reported income, we will recognize a
credit to or a charge against income, which could have an adverse effect on our previously reported revenue and income.



Our participation
in SPEs creates additional risks, including potential problems in our financial and business relationships with our partners.



We invest in SPEs
with or without other real estate developers and construction companies in Brazil. The risks involved with SPEs include the potential
bankruptcy of our SPE partners and the possibility of diverging or inconsistent economic or business interests between us and our
partners. If an SPE partner fails to perform or is financially unable to bear its portion of the required capital contributions,
we could be required to make additional investments and provide additional services in order to make up for our partner’s
shortfall. In addition, under Brazilian



11


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law, the partners of
an SPE may be liable for certain obligations of an SPE, including with respect to tax, labor, environmental and consumer protection
laws and regulations. These risks could adversely affect us.



We may experience
difficulties in finding desirable land tracts, and increases in the price of land may increase our cost of sales and decrease our
earnings.



Our continued growth
depends in large part on our ability to continue to acquire land and to do so at a reasonable cost. As more developers enter or
expand their operations in the Brazilian home building industry, land prices could rise significantly and suitable land could become
scarce due to increased demand, decreased supply or both. A resulting rise in land prices may increase our cost of sales and decrease
our earnings on future developments. We may not be able to continue to acquire suitable land at reasonable prices in the future,
which could adversely affect our business.



The market value
of our inventory of undeveloped land may decrease, thus adversely affecting our results of operations.



We own tracts of undeveloped
land that are part of our inventory for future developments. We also intend to increase our inventory and acquire larger tracts
of land. The market value of these properties may significantly decrease from the acquisition date to the development of the project
as a result of economic downturns or market conditions, which would have an adverse effect on our results of operations.



Increases in the
price of raw materials and fixtures may increase our cost of sales and reduce our earnings.



The basic raw materials
and fixtures used in the construction of our homes include concrete, concrete block, steel, aluminum, bricks, windows, doors, roof
tiles and plumbing fixtures. Increases in the price of these and other raw materials, including increases that may occur as a result
of shortages, duties, restrictions, or fluctuations in exchange rates, could increase our cost of sales. Any such cost increases
could reduce our earnings and adversely affect our business.



If we are not able
to implement our growth strategy as planned, or at all, our business, financial condition and results of operations could be adversely
affected.



We plan to grow our
business by selectively expanding to meet the growth potential of the Brazilian residential market. We believe that there is increasing
competition for suitable real estate development sites. We may not find suitable additional sites for development of new projects
or other suitable expansion opportunities. We anticipate that we will need additional financing to implement our expansion strategy
and we may not have access to the funding required for the expansion of our business or such funding may not be available to us
on acceptable terms. We may finance the expansion of our business with additional indebtedness or by issuing additional debt or
equity securities.



In March 2016, we
entered into a CCI transaction related to a portfolio comprising selected residential real estate receivables from Gafisa and its
subsidiaries. The assigned portfolio of receivables amounts to R$36.4 million in exchange for cash at the transfer date, discounted
to present value, for R$27.3 million.



In May 2016, we entered
into a CCI transaction related to a portfolio comprising selected residential real estate receivables from Gafisa and its subsidiaries.
The assigned portfolio of receivables amounts to R$23.0 million in exchange for cash at the transfer date, discounted to present
value, for R$17.5 million.



In August 2016, we
entered into a CCI transaction related to a portfolio comprising selected residential real estate receivables from Gafisa and its
subsidiaries. The assigned portfolio of receivables amounts to R$21.4 million in exchange for cash at the transfer date, discounted
to present value, for R$14.9 million.



In September 2016,
we issued a certificate of bank credit (Cédula de Crédito Bancário, or “CCB”) in the amount
of R$65 million to finance our operation and to provide working capital for the Company. The CCB is guaranteed by a specific portion
of our landbank and real estate receivables.



In December 2016,
we entered into a CCI transaction relating to a portfolio comprising selected residential real estate receivables from Gafisa and
its subsidiaries. The assigned portfolio of receivables amounts to R$27.0 million in exchange for cash at the transfer date, discounted
to present value, for R$19.5 million.



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In March 2017, we
entered into a CCI transaction relating to a portfolio comprising selected residential real estate receivables from Gafisa and
its subsidiaries. The assigned portfolio of receivables amounts to R$30.2 million in exchange for cash at the transfer date, discounted
to present value, for R$23.0 million.



In March 2017, we
issued a CCB in the amount of R$47 million to finance our operation and to provide working capital for the Company. The CCB is
guaranteed by real estate receivables.



In April 2017, we
issued a CCB in the amount of R$12 million to finance our operation and to provide working capital for the Company. The CCB is
guaranteed by a specific portion of our landbank.



In November 2017,
we issued a CCB in the amount of R$40 million to finance our operation and to provide working capital for the Company. The CCB
is guaranteed by real estate receivables.



In November 2017,
we issued two series of non-convertible debentures totaling R$120 million on a private placement basis. The first series of debentures
totaling R$90 million is secured by (i) first-priority mortgages over select real estate ventures of the Company and (ii) fiduciary
assignments of real estate receivables generated by such select real estate ventures. In November 2017, the debenture holders assigned
their fiduciary rights in the real estate receivables to a real estate securitization special purpose entity, which issued Certificates
of Real Estate Receivables (Certificados de Recebíveis Imobiliários) or “CRIs”, backed by such
real estate receivables. The second series of debentures totaling R$30 million, and guaranteed by a fiduciary guarantee, has not
been placed with investors as of the date of this annual report. The proceeds of the debentures will be used to fund the development
of the aforementioned real estate ventures only.



In May 2018, we issued
R$76 million in non-convertible debentures on a private placement basis. The debentures are secured by (i) a fiduciary assignment
of current and future receivables derived from the sale of a specific residential project’s individual units; (ii) fiduciary
assignment of receivables over future sales of the project’s residential units, which are currently not set aside for sale,
and over units which have been set aside for sale but which are subject to cancellation by the buyer; and (iii) a performance bond
issued to ensure the completion of the residential project’s construction. The debentures are scheduled to mature on July
20, 2020. The proceeds of the debentures will be used to build the “Moov Espaço Cerâmica” residential
project, which is being developed on property registered under No. 49.375 at the 2nd Property Registrar of São
Caetano do Sul – SP. The face value of the private placement will accrue interest corresponding to the cumulative variation
of Interbank Deposit (DI) plus 3.75% per annum.



In July 2018, we issued
R$90 million in non-convertible debentures on a private placement basis, with a final maturity of June 2022. The proceeds from
the placement will be used in the development of select real estate ventures and their guarantees are over conditional sales of
real estate receivables. The face value of the private placement will accrue interest corresponding to the cumulative variation
of Interbank Deposit (DI) plus 3% per annum.



In September 2018,
we issued a CCB in the amount of R$40 million to finance our operations and to provide working capital for the Company. The CCB
is guaranteed by real estate receivables.



We could face financial
risks, covenant restrictions and restrictions on our ability to employ assets associated with incurring additional indebtedness,
such as reducing our liquidity and access to financial markets and increasing the amount of cash flow required to service such
indebtedness, or associated with issuing additional stock, such as dilution of ownership and earnings.



There are risks
for which we do not have insurance coverage or the insurance coverage we have in place may not be sufficient to cover damages that
we may suffer.



We maintain insurance
policies with coverage for certain risks, including damages arising from engineering defects, fire, landslides, storms, gas explosions
and civil liabilities stemming from construction errors. We believe that the level of insurance we have contracted for accidents
is consistent with market practice. However, there can be no assurance that such policies will always be available or provide sufficient
coverage for certain damages. In addition, there are certain risks that may not be covered by such policies, such as damages resulting
from war, force majeure or the interruption of certain activities and, therefore any requirement to pay amounts not covered by
our insurance may have a negative impact on our business and our results of operations. Furthermore, we are required to pay penalties
and other fines whenever there is delay in the delivery of our units, and such penalties and fines are not covered by our insurance
policies.



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Moreover, we cannot
guarantee that we will be able to renew our current insurance policies under favorable terms, or at all. As a result, insufficient
insurance coverage or our inability to renew existing insurance policies could have an adverse effect on our financial condition
and results of operations.



Our level of indebtedness
could have an adverse effect on our financial health, diminish our ability to raise additional capital to fund our operations and
limit our ability to react to changes in the economy or the real estate industry.



As of December 31,
2018, our total debt (loans, financing and debentures) was R$889.4 million and our short-term debt was R$348.4 million. In addition,
as of December 31, 2018 our cash and cash equivalents and short-term investments available was R$137.2 million and our net debt
represented 152.5% of our shareholders’ equity including the non-controlling interest. Our indebtedness has variable interest
rates. Our level of indebtedness could have important negative consequences for us. For example, it could:



| | · | require us to dedicate a large portion of our cash flow from operations to fund payments on our
debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate
purposes;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | increase our vulnerability to adverse general economic or industry conditions;
| | - | ------------------------------------------------------------------------------



| | · | limit our flexibility in planning for, or reacting to, changes in our business or the industry
in which we operate;
| | - | -------------------------------------------------------------------------------------------------------------------



| | · | limit our ability to raise additional debt or equity capital in the future or increase the cost
of such funding;
| | - | ----------------------------------------------------------------------------------------------------------------



| | · | restrict us from making strategic acquisitions or exploring business opportunities; and
| | - | ---------------------------------------------------------------------------------------



| | · | place us at a competitive disadvantage compared to our competitors that have less debt.
| | - | ---------------------------------------------------------------------------------------



Certain of our debt
agreements contain financial and other covenants and any default under such debt agreements may have a material adverse effect
on our financial condition and cash flows.



Certain of our existing
debt agreements contain restrictions and covenants and require the maintenance or satisfaction of specified financial ratios, ratings
and tests, cash generation, capitalization, debt coverage, maintenance of shareholding position, and others. Our ability to meet
these financial ratios, ratings and tests can be affected by events beyond our control and we cannot assure that we will meet those
tests, especially given the lower yield environment in which the industry currently operates. Failure to meet or satisfy any of
these covenants, financial ratios or financial tests could result in an event of default under these and other agreements, as a
result of cross-default provisions. If we are unable to comply with our debt covenants, we could be forced to seek waivers.



If we are unable to
obtain waivers, a large portion of our debt could be subject to acceleration. We do not believe such occurrence to be likely; however,
if it were to happen, we could be required to renegotiate, restructure or refinance our indebtedness, seek additional equity capital
or sell assets, which could materially and adversely affect us.



We cannot guarantee
that we will be successful in obtaining any waivers. As of December 31, 2018, the Company and its subsidiaries were in compliance
with the contractual covenants provided for in our debentures and our credit instruments, except for non-compliance with a certain
restrictive covenant in one of the Company’s CCB’s and three SFH loans, for which we need to re-establish their guarantees.
This breach occurred mainly as a result of an impairment adjustment of R$112.8 million related to AUSA’s goodwill. In addition,
we recorded an impairment adjustment of R$63.1 million in our landbank and inventory units, which were being sold below their accounting
value due to the effects of the challenging macroeconomic conditions in the real estate sector and in Brazil as a whole. These
debt agreements were classified as short term debt in the Company’s financial statements. As of the date of this annual report,
we have settled the CCB transaction and we are in the process of negotiating the re-establishment of the related SFH loans guarantees
and we have not received an acceleration notice in connection with such non-compliance. The Company analyzed all of its other debt
agreements and did not identify any impact on its restrictive covenants in such other debt agreements resulting from this non-compliance.
Failures or delays by our third party contractors may adversely affect our reputation and business and expose us to civil liability.



Failures or delays
by our third party contractors may adversely affect our reputation and business and exposes us to civil liability.



We engage third party
contractors to provide services for our projects. Therefore, the quality of work in the construction of our real estate projects
and the timely completion of these projects may depend on factors that are



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beyond our control, including
the quality and timely delivery of building materials and the technical skills of the outsourced professionals. Such outsourcing
may delay the identification of construction problems and, as a result, the correction of such problems. Any failures, delays or
defects in the services provided by our third party contractors may adversely affect our reputation and relationship with our clients,
which would adversely affect our business and results of operations.



Unfavorable judicial,
administrative or arbitration decisions may adversely affect us.



We currently are,
and may be in the future, defendants in several judicial, administrative proceedings related to civil, labor and tax matters. We
cannot assure you that we will obtain favorable decisions in such proceedings, that such proceedings will be dismissed, or that
our provisions for such proceedings are sufficient in the event of an unfavorable decision. Unfavorable decisions that impede our
operations, as initially planned, or that result in a claim amount that is not adequately covered by provisions in our balance
sheet, may adversely affect our business and financial condition.



We may be held responsible
for labor liabilities of our third party contractors.



We may be held responsible
for the labor liabilities of our third party contractors and obligated to pay for fines imposed by the relevant authorities in
the event that our third party contractors do not comply with applicable legislation. As of December 31, 2018, R$36.6 million of
our R$57.7 million of total labor liabilities and provisions were for such liabilities. Approximately 79% of the labor claims were
commenced by employees of our third party contractors. An adverse result in such claims would cause an adverse effect on our business.



Failure to keep
members of our senior management and/or our ability to recruit and retain qualified professionals may have a material adverse effect
on our business, financial condition and results of operations.



Our future success
depends on the continued service and performance of our senior management and our ability to recruit and retain qualified professionals.
None of the members of our senior management are bound to long-term labor contracts or non-compete agreements and there can be
no assurance that we will successfully recruit and retain qualified professionals to our management as our business grows. The
loss of any key professionals or our inability to recruit or retain qualified professionals may have an adverse effect on our business,
financial condition and results of operations.



Risks Relating to Brazil



Brazilian economic,
political and other conditions, and Brazilian government policies or actions in response to these conditions, may negatively affect
our business and results of operations and the market price of our common shares or the ADSs.



The Brazilian economy
has been characterized by unstable economic cycles and frequent and occasionally extensive intervention by the Brazilian government.
The Brazilian government has often changed monetary, fiscal, credit, tariff and other policies to influence the course of the Brazilian
economy. For example, the government’s actions to control inflation have at times involved setting wage and price controls,
blocking access to bank accounts, imposing exchange controls and limiting imports into Brazil. We have no control over, and cannot
predict, what policies or actions the Brazilian government may take in the future.



Our business, results
of operations, financial condition and prospects, as well as the market prices of our common shares or the ADSs, may be adversely
affected by, among others, the following factors:



| | · | exchange rate movements;
| | - | ------------------------



| | · | exchange control policies;
| | - | --------------------------



| | · | expansion or contraction of the Brazilian economy, as measured by rates of GDP;
| | - | -------------------------------------------------------------------------------



| | · | inflation;
| | - | ----------



| | · | tax policies;
| | - | -------------



| | · | other economic, political, diplomatic and social developments in or affecting Brazil;
| | - | -------------------------------------------------------------------------------------



| | · | interest rates;
| | - | ---------------



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| | · | energy shortages;
| | - | -----------------



| | · | liquidity of domestic capital and lending markets; and
| | - | ------------------------------------------------------



| | · | social and political instability.
| | - | ---------------------------------



Uncertainty over whether
the Brazilian government may implement changes in policy or regulations may contribute to economic uncertainty in Brazil and to
heightened volatility in the Brazilian securities markets as well as securities issued abroad by Brazilian issuers. As a result,
these uncertainties and other future developments in the Brazilian economy may adversely affect us and our business and results
of operations and the market price of our common shares and the ADSs.



In addition, the Brazilian Congress commenced
impeachment proceedings against then President Dilma Rousseff on December 2, 2015, for violating budgetary laws to prop up the
Brazilian economy during her reelection campaign in 2014. On April 17, 2016, more than two-thirds of Brazil’s Congress voted
to proceed with the impeachment proceedings. The proceedings then moved to the Senate, which on May 12, 2016 voted to commence
a trial of President Rousseff, resulting in her suspension from the post for up to 180 days, during which time the then-Vice President
Michel Temer assumed the Presidency. On August 31, 2016, President Rousseff was impeached by the Senate and definitively removed
from office. On the same date, Michel Temer assumed the Presidency of Brazil until the next general elections, which occurred in
October 2018 and which resulted in Jair Bolsonaro winning the election for the Presidency. The election of Mr. Bolsonaro as president
could significantly change the course of the ongoing fiscal reforms and the economic policies being undertaken. In this context,
it is uncertain whether Mr. Bolsonaro will enjoy the support of the Brazilian Congress, or what policies he will be able to implement.
We have no control over the political situation in Brazil and cannot foresee what policies or actions the Brazilian government
may pursue. Uncertainty about the new president’s ability to adopt and implement new policies may reduce investor and market
confidence, and as a result we are unable to predict the country’s political and economic direction in coming years.



Any of these factors
may adversely affect the Brazilian economy, our business, financial condition, results of operations and the trading price of our
common shares. The Brazilian government may be subject to internal pressure to change its current macroeconomic policies in order
the achieve higher rates of economic growth, and has historically maintained a tight monetary policy with high interest rates,
thus restricting the availability of credit and reducing economic growth. We cannot foresee what policies the government will adopt.
In addition, in the past, the Brazilian economy has been affected by political events in the country, which have also affected
the confidence of investors and the general public, which harms the performance of the Brazilian economy. Furthermore, any indecision
by the Brazilian government in implementing changes in certain policies or regulations may contribute to economic uncertainty in
Brazil, and increase stock market volatility.



Inflation, and government
measures to curb inflation, may adversely affect the Brazilian economy, the Brazilian securities market, our business and operations
and the market prices of our common shares or the ADSs.



At times in the past,
Brazil has experienced high rates of inflation. According to the General Market Price Index (Índice Geral de Preços—Mercado),
or “IGP-M”, inflation rates in Brazil were 7.8% in 2007, 9.8% in 2008, (1.7)% in 2009, 11.3% in 2010, 5.1% in 2011,
7.8% in 2012, 5.5% in 2013, 3.7% in 2014, 10.5% in 2015, 7.2% in 2016, (0.5)% in 2017 and 7.5% in 2018. In addition, according
to the Expanded Consumer Price Index (Índice de Preços ao Consumidor Ampliado), or “IPCA,” Brazilian
consumer price inflation rates were 3.1% in 2006, 4.5% in 2007, 5.9% in 2008, 4.3% in 2009, 5.9% in 2010, 6.5% in 2011, 5.8% in
2012, 5.9% in 2013, 6.4% in 2014, 10.7% in 2015, 6.3% in 2016, 2.9% in 2017 and 3.7%
in 2018. Our term sales agreements usually provide for an inflation adjustment linked to the National Construction Cost Index (Índice
Nacional de Custo de Construção), or “INCC”. The INCC increased by 6.2% in 2007, 11.9% in 2008, 3.25%
in 2009, 7.77% in 2010, 7.49% in 2011, 7.12% in 2012, 8.1% in 2013, 6.9% in 2014, 7.5% in 2015, 6.1% in 2016, 4.3% in 2017 and
3.8% in 2018. The Brazilian government’s measures to control
inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting availability of
credit and reducing economic growth. Inflation, actions to combat inflation and public speculation about possible additional actions
have also contributed materially to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets.



Brazil may experience
high levels of inflation in future periods. Periods of higher inflation may slow the rate of growth of the Brazilian economy, which
could lead to reduced demand for our products in Brazil and decreased net sales. Inflation is also likely to increase some of our
costs and expenses, which we may not be able to pass on to our customers and, as a result, may reduce our profit margins and net
income. In addition, high inflation generally leads to higher domestic interest rates, and, as a result, the costs of servicing
our reais-denominated debt may increase,



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resulting in lower net
income. Inflation and its effect on domestic interest rates can, in addition, lead to reduced liquidity in the domestic capital
and lending markets, which could affect our ability to refinance our indebtedness in those markets. In addition, increases in inflation
rates would increase the outstanding debt of our customers, which could increase default levels and affect our cash flows. Any
decline in our net operating revenue or net income and any deterioration in our financial condition would also likely lead to a
decline in the market price of our common shares and the ADSs.



Social, political
and economic events and the perception of risks, especially in other emerging economies, may adversely affect the Brazilian economy,
and consequently, our business, financial condition, results of operations and the market price of our securities.



The Brazilian capital
markets are influenced by the Brazilian market and economic conditions and, to a certain extent, by the conditions in other Latin
American countries and other emerging market countries. Investors’ reactions to developments in certain countries may have
an adverse effect on the market value of the securities of Brazilian issuers. Crises in other Latin American and emerging market
countries normally trigger a significant outflow of funds and the reduction of foreign investment in Brazil. For example, in 2001
Argentina announced a moratorium on its public debt after a recession and a period of political instability, which affected investor
perceptions towards the Brazilian capital markets for many years. Crises in other Latin American and emerging market countries
may diminish investor interest in the securities of Brazilian issuers, including ours, which could negatively affect the market
price of our common shares.



The market for securities
issued by Brazilian companies is influenced, to a varying degree, by international economic and market conditions generally, especially
in the United States. The prices of shares traded on the São Paulo Stock Exchange (B3
S.A. –Brasil, Bolsa, Balcão (formerly BM&FBOVESPA – Bolsa de Valores, Mercadorias e Futuros)),
or the “B3,” have been historically affected by the fluctuation of interest rates and stock exchange indexes in the
United States. Events in other countries or capital markets could have an adverse effect on the price of our shares, which could
make it more difficult for us to access the capital markets and obtain financing on acceptable terms in the future, or at all.



Political
instability and economic uncertainty in Brazil, including in relation to country-wide corruption probes, may adversely affect the
price of our ADSs and our business, operations and financial condition



Brazil’s
political environment has historically influenced, and continues to influence, the performance of the country’s economy.
Political crises have affected and continue to affect the confidence of investors and the general public, which have historically
resulted in economic deceleration and heightened volatility in the securities issued by companies with operations mainly in Brazil.



The
recent political instability in Brazil has contributed to a decline in market confidence in the Brazilian economy. Various ongoing
investigations into allegations of money laundering and corruption being conducted by the Office of the Brazilian Federal Prosecutor,
including “Lava Jato”, have negatively impacted the Brazilian economy and political environment.



A
number of senior politicians, including current and former members of Congress and the Executive Branch, and high-ranking executive
officers of major corporations and state-owned companies in Brazil were arrested, convicted of various charges relating to corruption,
entered into plea agreements with federal prosecutors and/or have resigned or been removed from their positions as a result of
these Lava Jato investigations. These individuals are alleged to have accepted bribes by means of kickbacks on contracts granted
by the government to several infrastructure, oil and gas and construction companies. The profits of these kickbacks allegedly financed
the political campaigns of political parties forming the previous government’s coalition that was led by former President
Dilma Rousseff, which funds were unaccounted for or not publicly disclosed. These funds were also allegedly destined toward the
personal enrichment of certain individuals. In addition, Petrobras S.A. and certain other Brazilian companies active in
the energy and infrastructure sectors are facing investigations by the CVM, the U.S. Securities and Exchange Commission, the Brazilian
Federal Police and the Brazilian Federal Prosecutor’s Office, in connection with the Lava Jato investigations. Depending
on the duration and outcome of such investigations, the companies involved may face downgrades from rating agencies, funding restrictions
and a reduction in their revenues. The potential outcome of these investigations is unknown, but the
effects of Lava Jato as well as other ongoing corruption-related investigations have resulted in an adverse impact on the image
and reputation of those companies that have been implicated as well as on the general market perception of the Brazilian economy,
political environment and the Brazilian capital markets. We have no control over, and cannot predict, whether such investigations
or allegations will lead to further political and economic instability or whether new allegations against government officials
will arise in the future.



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Amidst
this background of recent political uncertainty, in August 2016, the Brazilian Senate approved the removal from office of Brazil’s
then-President, Dilma Rousseff, following a legal and administrative impeachment process for infringement of budgetary laws. Michel
Temer, the former Vice-President, who assumed the presidency of Brazil following Rousseff’s ouster, is also under investigation
on corruption allegations and was arrested on March 21, 2019. In addition, the former President, Luiz Inacio Lula da Silva, began
serving a 12-year prison sentence on corruption and money laundering charges in April 2018. On October 28, 2018, Jair Bolsonaro,
a former member of the military and three-decade congressman, was elected the president of Brazil and took office on January 1,
2019.



During
his presidential campaign, Mr. Bolsonaro was reported to favor the privatization of state-owned companies, economic liberalization,
and social security and tax reforms. However, there is no guarantee that Mr. Bolsonaro will be successful in executing his campaign
promises or passing certain favored reforms fully or at all, particularly when confronting a fractured Congress. In addition, his
current minister of the economy, Paulo Guedes, proposed during the presidential campaign the revocation of income tax exemption
on the payment of dividends, which, if enacted, would increase the tax expenses associated with any dividend or distribution by
Brazilian companies, which could impact our capacity to receive, from our subsidiaries, future cash dividends or distributions
net of taxes. Moreover, Mr. Bolsonaro was generally a polarizing figure during his campaign for presidency, and we cannot predict
the ways in which a divided electorate may continue to impact his presidency nor the government’s ability to implement policies
and reforms, all of which could have a negative impact on our business and the price of our ADSs.



It
is expected from current Brazilian federal government to propose the general terms of fiscal reform to stimulate the economy and
reduce the forecasted budget deficit for 2019 and following years, but it is uncertain whether the Brazilian government will be
able to gather the required support in the Brazilian Congress to pass additional specific reforms. In February 2019, the Brazilian
federal government presented to the Congress a bill proposing a large and comprehensive change of Brazil’s public social
security system. If some or all of these public expenses are maintained and the required reforms are not passed, Brazil will continue
to run a budget deficit for 2019 and the years going forward. We cannot predict the effects of this budget deficit on the Brazilian
economy. We cannot predict which policies the Brazilian federal government may adopt or change or the effect that any such policies
might have on our business and on the Brazilian economy. Any such new policies or changes to current policies may have a material
adverse impact on our business, results of operations, financial condition and prospects.



Moreover
the market value of securities issued by Brazilian companies is also affected at different levels by economic and market conditions
in other countries, including other Latin American countries and emerging countries. Although economic conditions in these countries
may differ significantly from economic conditions in Brazil, the reaction of investors to events in these other countries may have
an adverse effect on the market value of securities of issuers based in Brazil. Crises in other emerging markets may reduce investor
interest in securities of issuers based in Brazil.



Fluctuations in
interest rates may have an adverse effect on our business and the market prices of our common shares and the ADSs.



The Central Bank,
through the Monetary Policy Committee (Comitê de Política Monetária), or the “COPOM,” establishes
the Special Clearance and Escrow System rate (Sistema Especial de Liquidação e Custodia), or the “SELIC
rate,” which is the basic interest rate for the Brazilian financial system by reference to the level of economic growth of
the Brazilian economy, the level of inflation and other economic indicators. The SELIC rate is also an important policy instrument
used by the Brazilian government to achieve inflation targets it established on June 21, 1999 (Decree No. 3,088).



As of December 31,
2011, the SELIC rate was 11%. As of December 31, 2012, the Central Bank had significantly reduced the SELIC rate to 7.25%. As of
December 31, 2013, the Central Bank had increased the SELIC rate to 10%. As of December 31, 2014, the Central Bank had further
increased the SELIC rate to 11.75%. As of December 31, 2015, the SELIC rate was 14.25%. As of December 31, 2016, the SELIC rate
was 13.75%, as of December 31, 2017, the SELIC rate was 7.0% and as of December 31, 2018, the SELIC rate was 6.5%.
As of the date of this annual report, the SELIC rate is 6.5%. Debts
of companies in the real estate industry, including ours, are subject to the fluctuation of the SELIC rate. Should the SELIC rate
increase, the costs relating to the service of our debt obligations may also increase.



As of December 31,
2018, our indebtedness was denominated in reais and subject to Brazilian floating interest rates, such as the Reference
Interest Rate (Taxa Referencial), or “TR,” and the Interbank Deposit Certificate Rate



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(Certificado de Depósito
Interbancário), or “CDI rate.” Any increase in the TR rate or the CDI rate may have an adverse impact on
our financial expenses, our results of operations and on the market price of our common shares or the ADSs. We are not a party
to any hedging instruments with respect to our indebtedness.



Restrictions on
the movement of capital out of Brazil may adversely affect your ability to receive dividends and distributions on the ADSs and
on our common shares, or the proceeds of any sale of our common shares.



Brazilian law permits
the Brazilian government to impose temporary restrictions on conversions of Brazilian currency into foreign currencies and on remittances
to foreign investors of proceeds from their investments in Brazil whenever there is a serious imbalance in Brazil’s balance
of payments or there are reasons to expect a pending serious imbalance. The Brazilian government last imposed remittance restrictions
for approximately six months in 1989 and early 1990. The Brazilian government may take similar measures in the future. Any imposition
of restrictions on conversions and remittances could hinder or prevent holders of our common shares or the ADSs from converting
into U.S. dollars or other foreign currencies and remitting abroad dividends, distributions or the proceeds from any sale in Brazil
of our common shares. Exchange controls could also prevent us from making payments on our U.S. dollar-denominated debt obligations
and hinder our ability to access the international capital markets. As a result, exchange controls restrictions could reduce the
market prices of our common shares and the ADSs.



Changes in tax laws
may increase our tax burden and, as a result, adversely affect our profitability.



The Brazilian government
regularly implements changes to tax regimes that may increase our and our customers’ tax burdens. These changes include modifications
in the rate of assessments and, on occasion, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental
purposes. Since April 2003, the Brazilian government has presented several tax reform proposals, which were mainly designed to
simplify tax assessments, to avoid internal disputes within and between the Brazilian states and municipalities, and to redistribute
tax revenues. The tax reform proposals provided for changes in the rules governing the federal Social Integration Program (Programa
de Integração Social), or “PIS,” the federal Contribution for Social Security Financing (Contribuição
para Financiamento da Seguridade Social), or “COFINS,” the state Tax on the Circulation of Merchandise and Services
(Imposto Sobre a Circulação de Mercadorias e Serviços), or “ICMS,” and other taxes. The
effects of these proposed tax reform measures and any other changes that result from enactment of additional tax reforms have not
been, and cannot be, quantified. However, some of these measures, if enacted, may result in increases in our overall tax burden,
which could negatively affect our overall financial performance.



Risks Relating to Our Common Shares
and the ADSs



International economic
and market conditions, especially in the United States, may adversely affect the market price of the ADSs.



The market for securities
issued by Brazilian companies is influenced, to a varying degree, by international economic and market conditions generally. As
our ADSs are traded Over the Counter, or the “OTC”, adverse market conditions and economic and/or political crises,
especially in the United States, such as the subprime mortgage lending crisis in 2007 and 2008 and the financial and credit crises
in 2008, have at times resulted in significant negative impacts on the market price of our ADSs. Despite the fact that our clients,
whether financed by us or by Brazilian banks through resources obtained in the local market, were not directly exposed to the mortgage
lending crisis in the United States, there were still uncertainties as to whether such crisis may indirectly affect homebuilders
worldwide. The uncertainties generated by the subprime crisis may affect the market prices of our ADSs in future and could also
make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms or at
all.



Developments and
the perception of risks in other countries, especially emerging market countries, may adversely affect the market prices of our
common shares and the ADSs.



The market for securities
issued by Brazilian companies is influenced, to varying degrees, by economic and market conditions in other emerging market countries,
especially other Latin American countries. Although economic conditions are different in each country, the reaction of investors
to developments in one country may cause the capital markets in other countries to fluctuate. Developments or adverse economic
conditions in other emerging market countries have at times resulted in significant outflows of funds from, and declines in the
amount of foreign currency invested in, Brazil. For example, in 2001, after a prolonged recession, followed by political instability,
Argentina announced that it would no longer continue to service its public debt. The economic crisis in Argentina negatively affected
investors’ perceptions of Brazilian securities for several years. Economic or political crises in Latin America or other emerging markets
may significantly affect perceptions of the risk inherent in investing in the region, including Brazil.



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The Brazilian economy
is also affected by international economic and general market conditions, especially economic and market conditions in the United
States. Share prices on the B3, for example, have historically been sensitive to fluctuations in U.S. interest rates as well as
movements of the major U.S. stock indexes, particularly in the current worldwide economic downturn. Developments in other countries
and securities markets could adversely affect the market prices of our common shares and the ADSs and could also make it more difficult
for us to access the capital markets and finance our operations in the future on acceptable terms or at all.



The relative volatility
and the lack of liquidity of the Brazilian securities market may adversely affect you.



The Brazilian securities
market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States.
This may limit your ability to sell our common shares and the common shares underlying your ADSs at the price and time at which
you wish to do so. The B3, the only Brazilian stock exchange, had a market capitalization of US$ 821 billion as of December 31,
2018 and an average daily trading volume of US$ 2.8 billion for 2018.



There is also a large
concentration in the Brazilian securities market. The ten largest companies in terms of market capitalization represented 60% of
the aggregate market capitalization of the B3 as of December 31, 2018. Gafisa’s average daily trading volume on the B3 in
2018 was US$ 4.31 million.



Shares eligible
for future sale may adversely affect the market value of our common shares and the ADSs.



Certain of our shareholders
have the ability, subject to applicable Brazilian laws and regulations and applicable securities laws in the relevant jurisdictions,
to sell our shares and the ADSs. We cannot predict what effect future sales of our shares or ADSs may have on the market price
of our shares or the ADSs. Future sales of substantial amounts of such shares or the ADSs, or the perception that such sales could
occur, could adversely affect the market prices of our shares or the ADSs.



The economic value
of your investment in our company may be diluted.



We may need additional
funds in the future, in order to expand more rapidly, develop new markets, respond to competitive pressures or make acquisitions.
Any necessary additional financing may not be available on terms favorable to us. If adequate funds are not available on acceptable
terms, we may be unable to meet our business or strategic objectives or compete effectively. If additional funds are raised by
our issuing new equity securities existing shareholders may be diluted. See “Item 4. Information on the Company—A.
History and Development of the Company.”



We may be subject
to takeover by other companies or investors.



Since we don’t
have a controlling shareholder, we may be subject to takeover by other companies or investors. Pursuant
to article 46 of the Company’s Bylaws, any shareholder that holds a participation equal to or greater than 50% of the Company’s
share capital is required to make a tender offer for the remaining shares, for consideration equal to at least the fair
value as determined by an appaisal report and subject to the regulation provided for in Law No. 6,404/76 of the Brazilian corporate
law and applicable CVM regulations on takeovers. In addition, in accordance with Brazilian corporate law, a shareholder that
holds a participation equal to or greater than 10% of the Company’s share capital may convene a shareholder meeting
to dismiss the management of the Company, and to the extent the other shareholders at such meeting do not vote against a proposal
to dismiss or approve such proposal, our management would be dismissed, which would disrupt the day to day operations of the Company
and would have an adverse impact on our business and result of operations.



Holders of our common
shares or the ADSs may not receive any dividends or interest on shareholders’ equity.



According to our
bylaws, we must generally pay our shareholders at least 25% of our annual net profit as dividends or interest on
shareholders’ equity, as calculated and adjusted under Brazilian corporate law method. This adjusted net profit may be
used to absorb losses or for the payment of statutory participation on profits to debenture holders, employees or members of
our management, which would ultimately reduce the amount available to be paid as dividends or interest on shareholders’
equity. Additionally, Brazilian corporate law allows a publicly traded company like us to suspend the mandatory distribution
of dividends in any particular year if our board of directors informs our shareholders that such distributions would be
inadvisable in view of our financial condition or cash availability.



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For 2003,
2004 and 2005, we did not distribute dividends. We distributed dividends in each of 2007, 2008, 2009 and 2010 with respect to the
prior respective fiscal year. Based on the negative results of the fiscal year 2012, on April 19, 2013, our shareholders did not
approve any distribution of dividends. On December 20, 2013, with the completion of the sale of the Alphaville interest, as fully
detailed in item “4. Information on the Company—A. History and Development of the Company”, our board of directors
approved the payment of interest on equity in the amount of R$130.2 million, representing R$0.3111 per share. Such payment was
effective February 12, 2014. On April 25, 2014, our shareholders approved a distribution of dividends in the amount of R$32.9 million,
representing R$0.0825 per share. Based on the negative results of the fiscal year 2014, on April 16, 2015, our shareholders did
not approve any distribution of dividends. On April 25, 2016, our shareholders approved a distribution of dividends in the amount
of R$17.7 million, representing R$0.0481 per share. Based on the negative results of the fiscal year 2016, at our annual shareholders’
meeting held on April 28, 2017, our shareholders did not approve any distribution of dividends.
Based on the negative results of the fiscal year 2017, our shareholders did not approve any distribution of dividends at our annual
shareholders’ meeting held on April 27, 2018. Based on the negative results of the fiscal year 2018, our shareholders did
not approve any distribution of dividends at our annual shareholders’ meeting held on April 24, 2019.



For further information,
see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.”



Holders of ADSs
may find it difficult to exercise voting rights at our shareholders’ meetings.



Holders of ADSs may
exercise voting rights with respect to our common shares represented by ADSs only in accordance with the terms of the deposit agreement
governing the ADSs. Holders of ADSs will face practical limitations in exercising their voting rights because of the additional
steps involved in our communications with ADS holders. For example, we are required to publish a notice of our shareholders’
meetings in specified newspapers in Brazil. Holders of our common shares will be able to exercise their voting rights by attending
a shareholders’ meeting in person or voting by proxy. By contrast, holders of ADSs will receive notice of a shareholders’
meeting from the ADR depositary following our notice to the depositary requesting the depositary to do so. To exercise their voting
rights, holders of ADSs must instruct the ADR depositary on a timely basis. This voting process necessarily will take longer for
holders of ADSs than for holders of our common shares. Common shares represented by ADSs for which no timely voting instructions
are received by the ADR depositary from the holders of ADSs shall not be voted.



Holders of ADSs also
may not receive the voting materials in time to instruct the depositary to vote the common shares underlying their ADSs. In addition,
the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of ADSs or for the
manner of carrying out those voting instructions. Accordingly, holders of ADSs may not be able to exercise voting rights, and they
will have little, if any, recourse if the common shares underlying their ADSs are not voted as requested.



No single shareholder
or group of shareholders holds more than 50% of our capital stock, which may increase the opportunity for alliances between shareholders
as well as conflicts between them.



No single shareholder
or group of shareholders holds more than 50% of our capital stock. There is no guidance in Brazilian corporate law for publicly-held
companies without an identified controlling shareholder. Due to the absence of a controlling shareholder, we may be subject to
future alliances or agreements between our shareholders, which may result in the exercise of a controlling power over our company
by them. In the event a controlling group is formed and decides to exercise its controlling power over our company, we may be subject
to unexpected changes in our corporate governance and strategies, including the replacement of key executive officers. Additionally,
we may be more vulnerable to a hostile takeover bid. The absence of a controlling group may also jeopardize our decision-making
process as the minimum quorum required by law for certain decisions by shareholders may not be reached and, as a result, we cannot
guarantee that our business plan will be affected. Any unexpected change in our management team, business policy or strategy, any
dispute between our shareholders, or any attempt to acquire control of our company may have an adverse impact on our business and
result of operations.



Holders of ADSs
will not be able to enforce the rights of shareholders under our bylaws and Brazilian corporate law and may face difficulties in
protecting their interests because we are subject to different corporate rules and regulations as a Brazilian company.



Holders of ADSs are
not direct shareholders of our company and are unable to enforce the rights of shareholders under our bylaws and Brazilian corporate
law.



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Our corporate affairs
are governed by our bylaws and Brazilian corporate law, which differ from the legal principles that would apply if we were incorporated
in a jurisdiction in the United States, such as the State of Delaware or New York, or elsewhere outside Brazil. Although insider
trading and price manipulation are crimes under Brazilian law, the Brazilian securities markets are not as highly regulated and
supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing
or for preserving shareholder interests may be less well-defined and enforced in Brazil than in the United States and certain other
countries, which may put holders of the ADSs at a potential disadvantage. Corporate disclosures also may be less complete or informative
than for a public company in the United States or in certain other countries.



Holders of ADSs
may face difficulties in serving process on or enforcing judgments against us and other persons.



We are a corporation
organized under the laws of Brazil, and all of our directors and executive officers and our independent public accountants reside
or are based in Brazil. Most of the assets of our company and of these other persons are located in Brazil. As a result, it may
not be possible for holders of ADSs to effect service of process upon us or these other persons within the United States or other
jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions
outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may be enforced
in Brazil only if certain conditions are met, holders may face greater difficulties in protecting their interests in the case of
actions by us or our directors or executive officers than would shareholders of a U.S. corporation.



Changes in Brazilian
tax laws may have an adverse impact on the taxes applicable to a disposition of the ADSs.



According to Law No.
10,833 of December 29, 2003, the disposition of assets located in Brazil by a non-resident to either a Brazilian resident or a
non-resident is subject to taxation in Brazil, regardless of whether the disposition occurs outside or within Brazil. Thus, gains
arising from a disposition of our common shares by a non-resident of Brazil to another non-resident of Brazil are subject to income
tax.



Although the matter
is not entirely clear, we believe it is reasonable to take the position that ADSs do not constitute assets located in Brazil for
the purposes of Law No. 10,833/03. Accordingly, the disposition of our ADSs by a non-resident to either a Brazilian resident or
a non-resident should not be subject to taxation in Brazil. We cannot assure you, however, that the Brazilian tax authorities or
the Brazilian courts will agree with this interpretation. In the event that a disposition of our ADSs is considered a disposition
of assets located in Brazil, gains on a disposition of ADSs by a non-resident of Brazil may be subject to income tax in Brazil.
See “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations—Gains.”



Any gain or loss recognized
by a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations”)
would generally be treated as U.S. source gain or loss for all foreign tax credit purposes. Consequently, U.S. Holders will not
be able to credit any Brazilian income tax imposed on such gains against their U.S. federal income tax liability unless they have
other creditable taxable income from foreign sources in the appropriate foreign tax credit basket. U.S. Holders should consult
their tax advisers as to whether the Brazilian tax on gain would be creditable against such holder’s U.S. federal income
tax on foreign-source income from other sources.



There can be no
assurance that we will not be a passive foreign investment company, or “PFIC,” for any taxable year, which could result
in adverse U.S. federal income tax consequences to U.S. holders of our common shares or ADSs.



In general, a non-U.S.
corporation is a PFIC for any taxable year if: (1) 75% or more of its gross income consists of passive income (the “income
test”) or (2) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the
production of, passive income (including cash and cash equivalents). Generally, “passive income” includes interest,
dividends, rents, royalties and certain gains. For purposes of the above calculations, a non-U.S. corporation that directly or
indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of
the assets of the other corporation and received directly its proportionate share of the income of the other corporation. The Company
believes that it was not a “passive foreign investment company,” or “PFIC,” for U.S. federal income tax
purposes for its 2018 taxable year. However, because the Company’s PFIC status is an annual determination that can be made
only after the end of each taxable year and will depend on the composition of its income and assets for each such year, there can
be no assurance that the Company will not be a PFIC for the current or any other taxable year. The Company may become a PFIC for
any future taxable year if its financial income exceeds its gross loss or constitutes 75% or more of its gross profit for such
year.



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If the Company were
a PFIC for any taxable year during which a U.S. holder owned its common shares or ADSs, certain adverse U.S. federal income tax
consequences could apply to such U.S. holder. See “Item 10. Additional Information—E. Taxation——Certain
U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”



Judgments of Brazilian
courts with respect to our common shares will be payable only in reais.



If proceedings are
brought in the courts of Brazil seeking to enforce our obligations in respect of the common shares, we will not be required to
discharge our obligations in a currency other than reais. Under Brazilian exchange control limitations, an obligation in
Brazil to pay amounts denominated in a currency other than reais may be satisfied in Brazilian currency only at the exchange
rate, as determined by the Central Bank, in effect on the date of payment. The exchange rate may not afford non-Brazilian investors
with full compensation for any claim arising out of or related to our obligations under our common shares or the ADSs.



Holders of ADSs
may be unable to exercise preemptive rights with respect to our common shares underlying the ADSs.



Holders of ADSs will
be unable to exercise the preemptive rights relating to our common shares underlying ADSs unless a registration statement under
the U.S. Securities Act of 1933, as amended, or the “Securities Act,” is effective with respect to those rights or
an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration
statement with respect to the shares relating to these preemptive rights or to take any other action to make preemptive rights
available to holders of ADSs. We may decide, in our discretion, not to file any such registration statement. If we do not file
a registration statement or if we, after consultation with the ADR depositary, decide not to make preemptive rights available to
holders of ADSs, those holders may receive only the net proceeds from the sale of their preemptive rights by the depositary, or
if they are not sold, their preemptive rights will be allowed to lapse.



An exchange of ADSs
for common shares risks loss of certain foreign currency remittance and Brazilian tax advantages.



The ADSs benefit from
the certificate of foreign capital registration, which permits Citibank N.A., as depositary, to convert dividends and other distributions
with respect to our common shares into foreign currency, and to remit the proceeds abroad. Holders of ADSs who exchange their ADSs
for common shares will then be entitled to rely on the depositary’s certificate of foreign capital registration for five
business days from the date of exchange. Thereafter, they will not be able to remit the proceeds abroad unless they obtain their
own certificate of foreign capital registration under the terms of Law No. 4,131/62, or unless they qualify under Resolution CMN
4,373, which superseded Resolution CMN No. 2,689, which entitles certain investors to buy and sell shares on Brazilian stock exchanges
or organized over-the-counter market and benefit from the certificate of foreign capital registration managed by their authorized
representatives in Brazil. See “Item 9. The Offering and Listing—C. Markets—Investment in Our Common Shares by
Non-Residents of Brazil.”



If holders of ADSs
do not qualify under Resolution CMN 4,373, they will generally be subject to less favorable tax treatment on distributions with
respect to our common shares. There can be no assurance that the depositary’s certificate of registration or any certificate
of foreign capital registration obtained by holders of ADSs will not be affected by future legislative or regulatory changes, or
that additional Brazilian law restrictions applicable to their investment in the ADSs may not be imposed in the future.



A portion of the
compensation of our officers and members of the senior management is paid in form of stock options, which could tie their interest
to the market price of our shares and ADSs.



We have established
stock option plans for our officers and members of our senior management. Potential benefits under the stock option plans are tied
to the appreciation of the market price of our shares and ADSs.



As a result, our compensation
policy may influence our officers and members of the senior management and their interest to the market price of our shares and
ADSs, which may conflict with the interests of our shareholders. Our officers and members of the senior management may be influenced
to focus on short-term rather than long-term results because a significant portion of their compensation is tied to our results
and the market price of our shares and ADSs. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership—Stock
Option Plans” in this annual report.



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ITEM 4. INFORMATION ON THE COMPANY



A. History and Development of the
Company



General



Gafisa S.A. is a corporation
organized under the laws of Brazil. We were incorporated on November 12, 1996 for an indefinite term. Our registered and principal
executive offices are located at Av. Pres. Juscelino Kubitschek, No. 1830, Block 2, 3rd Floor, 04543-900, São Paulo, SP,
Brazil, and our general telephone and fax numbers are + 55 (11) 3025-9000 and + 55 (11) 3025-9242, respectively.



We are a leading diversified
national homebuilder serving all demographic segments of the Brazilian market. Established over 60 years ago, we have completed
and sold more than 1,100 developments and constructed over 12 million square meters of housing under the Gafisa brand, which we
believe is more than any other homebuilder in Brazil. Recognized as one of the foremost professionally-managed homebuilders, we
are also one of the best-known brands in the real estate development market, enjoying a reputation among potential homebuyers,
brokers, lenders, landowners, and competitors for quality, consistency and professionalism, offering a variety of residential options
to the mid to higher income segments. In addition, we provide construction services to third parties on certain developments where
we retain an equity interest, and we also hold an equity interest in Alphaville, which focuses on the identification, development,
and sale of high income residential properties.



Our core business
is the development of high-quality residential units in attractive locations. For the year ended December 31, 2018, 100% of the
value of our launches was derived from high, mid high- and mid-level residential developments.



We currently operate
in São Paulo, having closed our operations in the city of Rio de Janeiro in October 2018. Although we still have a small
portion of our inventory in Rio de Janeiro, freelance brokers are primarily responsible for marketing these units. In line with
this decision, for the year ended December 31, 2018, 100% of the value of our launches was derived from our operations in the state
of São Paulo.



In the fourth quarter
of 2011, we conducted an extensive review of our operations and the operations of our subsidiaries, and our combined business strategy.
As a result of this review, the following changes were made: temporary reductions of the activities of the Tenda segment, increase
in investments in the Alphaville segment and focus the Gafisa segment on the markets of Sao Paulo and Rio de Janeiro.



2013 marked the completion
of Gafisa’s strategic repositioning, which commenced in early 2012. Our goal at the time was clear: we needed to reduce the
level of debt and restrict the Company’s exposure to unprofitable businesses and markets. This process evolved positively
throughout the period on several fronts—including improvement in margins and cash generation, and culminated with the sale
of a 70% interest in Alphaville, which unlocked significant value and contributed to a reduction in the Company’s leverage,
adjusting its capital structure. At the end of 2013 we finalized the development of our five-year business plan for the period
from 2014 to 2018. During the planning process, we set guidelines for the development of our business for the upcoming years, including
the expected size of Gafisa and Tenda operations, appropriate leverage, profitability guidelines, and more importantly, our commitment
to capital discipline and shareholder value generation, which are reflected in the guidance released to the market at the end of
2013. Gafisa S.A. completed the sale of a majority interest in Alphaville Urbanismo S.A. (“Alphaville”), the leading
residential community development company in Brazil, to Private Equity AE Investimentos e Participações (“Fundo
AE”), which has as shareholders Pátria Investimentos and Blackstone Real Estate Advisor, which was announced on June
7, 2013. The transaction values Alphaville at an equity value of R$2.0 billion. The cash sale to Pátria and Blackstone resulted
in Fundo AE owning 70% of Alphaville, with Gafisa retaining the remaining 30%. All precedent conditions were met including governmental
approval, to the completion of the transaction. The transaction was concluded on December 9, 2013, with a sale of a 50% interest
by Gafisa and a 20% interest by Construtora Tenda S.A. (“Tenda”), with Gafisa retaining the remaining 30% of Alphaville
capital stock. Following this transaction and since December 2013, Alphaville is no longer consolidated in the financial statements
of the Company.



The Company’s
results of operations reflect the results of operations of Alphaville for the period January 1 to November 30, 2013 which are presented
in the line item “Results from discontinued operations”.



During 2015, we did
not issue a launch guidance for the Tenda segment or the Gafisa segment as a result of the continuing weakening economic conditions
and political instability in Brazil. High interest rates, high rates of inflation and an increase in levels of unemployment, among
other factors, had an adverse impact on the real estate market, including the Gafisa segment, resulting in a sharp decrease in
the overall volume of real estate launches in Brazil.



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Consequently, we adopted
a conservative approach to launches, seeking to balance the level of launches of new products in the market by prioritizing ventures
with more liquidity, with the aim to reach stable sales and profitability levels. In contrast, and despite the continuing weakening
economic conditions in Brazil, we were able to expand the Tenda segment of our business, which focuses on the low-income market.



During 2015, as part
of the spin-off studies, we (i) separated several joint departments of Gafisa and Tenda, including, among others, the services,
personnel and management department and the legal department, (ii) converted Tenda’s issuer registration with the CVM from
category B to category A, (iii) entered into negotiations with several banks and insurance companies to open lines of credit for
Tenda that are independent of Gafisa, and (iv) reviewed our contracts with our third party counterparties and evaluated the potential
impact of a spin-off on those contracts. On April 29, 2015, we announced to the market that the spin-off studies were ongoing and
would take longer to be concluded than had been initially expected.



During 2016, we did
not issue a launch guidance for the Tenda segment or the Gafisa segment as a result of the continuing weakening economic conditions
and political instability in Brazil.



On August 16, 2016,
we announced to the market that that the spin-off studies were ongoing and that we were evaluating other potential capital structure
options and separation alternatives for the Gafisa and Tenda business units, including a potential offer of securities and/or a
sale of equity interests, in addition to the spin-off itself.



In December 2016,
following the conclusion of our analysis of certain strategic options, our management decided to sell 50% of Tenda’s total
capital stock, and transfer the remaining 50% of Tenda’s total capital stock to our shareholders in connection with a reduction
in our total capital stock. Accordingly, on December 14, 2016, we entered into the SPA with Jaguar pursuant to which we would sell
Tenda shares representing up to 30% of the total capital stock of Tenda, at a price equal to R$8.13 per share.



During 2017, we did
not issue a launch guidance for Gafisa as a result of the continuing weakening economic conditions and political instability in
Brazil. Accordingly, we adopted a conservative approach to launches, focusing on the sale of inventory.



The spin-off of the
Tenda business unit was consummated on May 4, 2017, following: (i) a reduction of the capital stock of Tenda (without the cancellation
of shares), pursuant to which Gafisa, as sole shareholder at that time, received R$100 million (adjusted by the SELIC); (ii) a
reduction of the capital stock of Gafisa, resulting in the distribution to Gafisa shareholders of shares corresponding to 50% of
the capital stock of Tenda; (iii) the conclusion of the preemptive rights exercise pursuant to which Gafisa shareholders acquired
up to 50% of the total share capital of Tenda, at the price per share set forth in the SPA with Jaguar and for a total amount of
R$219.5 million, with no shares being acquired by Jaguar; and (iv) the satisfaction of other conditions precedent for the consummation
of the spin-off. In addition, on May 4, 2017, the Tenda shares were listed on the B3 and began to publicly trade.



During 2018, we did
not issue a launch guidance for Gafisa as a result of the economic conditions and political instability in Brazil.



On September 25, 2018,
at an extraordinary shareholders’ meeting held at the request of GWI Asset Management S.A. , the shareholders resolved to
(i) remove by majority vote all of the members of the Board of Directors and (ii) elect new Board members by means of a multiple-vote
process. Accordingly, at a Board of Directors’ meeting on September 28, 2018, the following resolutions were passed as part
of the turnaround process and the optimization of the Company’s structure: (i) the withdrawals of chief executive officer,
chief financial and investor relations officer and chief operating officer and the election of new statutory officers; (ii) the
adoption of measures to approve the Company’s headquarters relocation; (iii) the closure of our branch located in the city
of Rio de Janeiro and (iv) the approval of the Company’s share buyback program.



An auction of 14,600,000
shares held by the Company’s shareholder, GWI Asset Management S.A took place on February 14, 2019, corresponding to an interest
of 33.67% in the Company’s ownership structure. As a result of this auction, Planner Corretora de Valores S.A., through investment
funds managed by it, acquired 8,000,000 common shares corresponding to 18.45% of the total common shares issued by the Company.



On October 21, 2019,
we informed our shareholders and the market that we entered into a Purchase and Sale, Stock Redemption, Corporate Restructuring
Agreement with Alphaville Urbanismo S.A., Private Equity AE Investimentos e Participações S.A. and affiliates of
PEAE, setting forth the terms and conditions for the sale of our shares in Alphaville. As of the date of this annual report, we
hold 21.20% of Alphaville’s shares, a decrease from our previous 30% stake, as a result of a capital increase in Alphaville
by affiliates of PEAE. The sale price totals R$100



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million, payable through
credit offsets and the delivery of certain assets. The consummation of the transaction is subject to customary conditions precedent,
including a corporate restructuring of certain assets of Alphaville, the obtainment of third party consents and corporate approvals.
This transaction is in line with the Company’s strategy to optimize and improve the Company’s portfolio and capital
allocation, aiming at creating value for our shareholders.



Our common shares
are listed on the B3 under the symbol “GFSA3” and the ADSs are traded OTC in the United States under the symbol “GFASY”.



Our agent for service
of process in the United States is National Corporate Research, Ltd. located at 10 East 40th Street, 10th floor, New York, NY 10016.



Historical Background and Recent Developments



Gomes de Almeida Fernandes
Ltda., or “GAF,” was established in 1954 in the city of Rio de Janeiro with operations in the real estate markets in
the cities of Rio de Janeiro and São Paulo. In December 1997, GP Investimentos S.A. and its affiliates, or “GP,”
entered into a partnership with the shareholders of GAF to create Gafisa S.A. In 2004, as a result of a corporate restructuring,
GP assumed a controlling position in our company. In 2005, an affiliate of Equity International Management, LLC, or “Equity
International,” acquired approximately 32% of our company through a capital contribution. In February 2006, we concluded
our initial public offering in Brazil, resulting in a public float of approximately 47% of our total share capital at the conclusion
of the offering.



In September 2006,
we created Gafisa Vendas Intermediação Imobiliária Ltda., or “Gafisa Vendas,” to function as our
internal sales division in the state of São Paulo and in February 2007, we created a branch of Gafisa Vendas in Rio de Janeiro,
or “Gafisa Vendas Rio,” to function as our internal sales division in the metropolitan region of Rio de Janeiro.



In October 2006, we
entered into an agreement with Alphaville Participações S.A. to acquire 100% of Alphaville, one of the largest residential
community development companies in Brazil in terms of units and square meters, focused on the identification, development and sale
of high quality residential communities in the metropolitan regions throughout Brazil targeted at upper and upper-middle income
families. On January 8, 2007, we successfully completed the acquisition of 60% of Alphaville’s shares for R$198.4 million,
of which R$20 million was paid in cash and the remaining R$178.4 million was paid in exchange for 6.4 million common shares of
Gafisa. On May 27, 2010, the shareholders of Gafisa approved the acquisition of 20% of Alphaville’s shares for the total
amount of R$126.5 million, through the merger of Shertis Empreendimentos e Participações S.A. or “Shertis”,
which main asset were 20% of Alphaville’s shares. As a consequence of such merger, Gafisa issued 9,797,792 common shares,
paid to the former shareholders of Shertis.



On March 17, 2007,
we concluded our initial public offering of common shares in the United States, resulting in a public float of 78.6% of our total
share capital at the conclusion of the offering. Upon completion of the offering, entities related to Equity International and
GP controlled 14.2% and 7.3% of our total capital stock, respectively. In June 2007, Brazil Development Equity Investments, LLC,
a company affiliated with GP, sold its remaining interest in our company (7.1% of our capital stock at the time).



On March 15, 2007,
we created a new wholly-owned subsidiary, Fit Residencial Empreendimentos Imobiliários Ltda., or “FIT,” for
the development, construction and management of lower and lower-middle income residential projects. On October 21, 2008, Gafisa
and Tenda concluded a business combination in which FIT was merged into Tenda. The purpose of the merger was to consolidate the
activities of FIT and Tenda in the lower-income segment in Brazil focused on developing real estate units with an average price
of less than R$200.0 thousand. As a result of the business combination, Gafisa became the owner of 60.0% of the total and voting
capital stock of Tenda. On December 30, 2009, the shareholders of Gafisa and Tenda approved a corporate restructuring to consolidate
Gafisa’s non-controlling share ownership in Tenda. The restructuring was accomplished by exchanging all of the remaining
Tenda shares not held by Gafisa into Gafisa shares. As a result of the restructuring, Tenda became a wholly-owned subsidiary of
Gafisa. On October 26, 2007, Gafisa acquired 70% of Cipesa Empreendimentos Imobiliários S.A., a leading homebuilder in the
State of Alagoas at the time.



On October 1, 2010,
Equity International sold its remaining interest in our company.



On June 8, 2012, according
to the material fact then disclosed, the third phase of the Investment Agreement and Other Covenants entered into on October 2,
2006 (“Investment Agreement”), established the rules and conditions for Gafisa related to the acquisition of the remaining
20% interest in the capital stock of Alphaville not held by the Company. While the valuation of the capital stock has been agreed
by both parties, the number of shares that shall be



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issued by the Company
to settle this transaction is being decided in arbitration proceedings initiated by the minority shareholders of Alphaville, according
to the material fact we released on July 3, 2012. There is an embedded derivative component to the Investment Agreement, relating
to the Company’s obligation to purchase the Alphaville shares held by the non-controlling interest. As the fair value of
this embedded derivative for all reporting periods has no significant value, since the future settlement of the derivative will
be based on the fair value of Alphaville’s capital stock, no derivative asset or liability has been recorded. The future
settlement to be made in cash or shares represented an amount of R$359.0 million as at December 31, 2012 and 2011. If 70,251,551
common shares of Gafisa are issued to the other shareholders of Alphaville, these shareholders will receive 13.96% of Gafisa’s
total capital stock. On June 7, 2013, according to the material fact then disclosed, Gafisa entered into an agreement to sell a
70% interest in Alphaville to Blackstone and Patria and also agreed to complete the purchase of the outstanding 20% interest in
Alphaville, finalizing the arbitration process.



On July 3, 2013, Gafisa
completed the purchase of the outstanding 20% interest in Alphaville, belonging to Alphapar, resulting in the Company holding 100%
of Alphaville’s capital stock. This transaction resulted in a temporary increase in the Company’s leverage to 126%
(Net Debt/Equity) and it was financed partially through Company’s cash in addition to funding of R$250 million in June. The
total disbursement was made in July in the amount of R$366.6 million.



On December 9, 2013,
Gafisa announced the completion of the agreement to sell a 70% interest in Alphaville to private equity firms Blackstone and Pátria.
Gafisa retained a 30% interest. The sale valued Alphaville at R$2.0 billion. The proceeds from the transaction totaled R$1.54 billion,
of which R$1.25 billion was received through the sale of shares, and R$290 million was received as a dividend distributed by Alphaville.



On February 2, 2014,
Gafisa’s board of directors authorized management to initiate studies for a potential spin-off of Gafisa and Tenda business
units into two independent publicly traded companies. Our management initiated the studies in the first quarter of 2014.



During 2014, we also
revised our 2014 launch guidance for the Gafisa segment as a result of weakening economic conditions in Brazil. We did not issue
a launch guidance for the Gafisa segment or the Tenda segment during 2015, 2016 and 2017 due to the continuing weakening economic
conditions and political instability in Brazil.



During 2015 and 2016,
we implemented several initiatives in connection with the potential spin-off. During 2016, our management decided to sell 50% of
Tenda’s total capital stock, and transfer the remaining 50% of Tenda’s total capital stock to our shareholders in connection
with a reduction in our total capital stock, and implement the spin-off. The spin-off of the Tenda business unit was consummated
on May 4, 2017. See “—A. History and Development of the Company—General” for further information.



On March 23, 2017,
the Company conducted a reverse split of common shares issued by the Company, at the ratio of 13.483023074 to 1, and proportional
adjustment to the limit of authorized capital. As of the date of this annual report, the share capital is comprised of 28,040,162
common, registered and non-par value shares.



On December 20, 2017,
the Company’s shareholders approved at an extraordinary shareholders’ meeting a capital increase of up to R$300.0 million,
with the option to approve a partial capital increase of up to R$200.0 million to be subscribed for through the issuance of a minimum
of 13,333,333 new common shares and a maximum of 20,000,000 new common shares in the Company, all in registered, book-entry form,
and with no par value, at a price per share equal to R$15.00, of which R$0.01 per share would be allocated to capital, and R$14.99
per share would be allocated to capital reserves. This capital increase is part of the Company’s strategy to reinforce its
liquidity, strengthen its capital structure and solidify the Company’s strategic and operational positioning for a new cycle
of the real estate market. Following the preemptive rights exercise period, which expired on January 19, 2018, and the subsequent
subscription periods that expired on February 2, 2018 and February 21, 2018, respectively, we issued and sold 16,717,752 new common
shares of the Company for a total amount of R$250.8 million, all in registered, book-entry form, and with no par value, at a price
per share equal to R$15.00, of which R$0.01 per share was allocated to capital, and R$14.99 per share was allocated to capital
reserves. Accordingly, on February 28, 2018, our board of directors approved a capital and capital reserve increase in the amount
of R$250.8 million.



At
the end of 2017 and in the beginning of 2018, GWI Group, a private property investment company and asset management fund founded
by South Korean national Mu Hak You, began to acquire a large number of shares in the Company. On January 31, 2018, following several
purchases of Company shares, the GWI Group had a 30.45% interest in the Company’s share capital.



27


Table of Contents


On
September 21, 2018, GWI Group acquired an additional number of shares, increasing its interest to 37.32% in the Company’s
share capital. GWI informed us that this share acquisition was made for investment purposes and in order to restructure
part of the Company’s Board. On September 25, 2018, GWI convened
an Extraordinary Shareholders’ Meeting for the purpose of dismissing members of the Board of Directors and electing new members
through a multiple-vote process. GWI approved the dismissal of the entire Board of Directors and elected directors for five of
the seven vacant seats. See “Item 6. Directors, Senior Management and Employees—C. Board Practices”,
for further information about our Board of Directors. Within three days of the dismissal and election of the new Board of Directors,
the Company’s executive board was removed from office. On September 28, 2018, our Board of Directors approved the establishment
of the Company’s share buyback program with the objective of generating value for the Company’s shareholders. Shares
purchased by the Company as part of the buyback program will be held in treasury, and may subsequently be canceled, sold and/or
used in connection with the exercise of stock options granted by the Company. The maximum number of shares the Company may
acquire under this program is 3,516,970 common shares, pursuant to Article 8 of CVM Instruction No. 567/15. This buyback program
ends on October 1, 2019. Under our current shares repurchase program, any acquisition by us of our own shares must be made on a
stock exchange and cannot be made by means of a private transaction. See
“Item 10. Additional Information—B. Memorandum and Bylaws—Purchases
by us of our own Shares”, for further information. Such events were discussed at length in the media, which led to variations
in the market price of our shares.



On
November 26, 2018, our Board of Directors approved the voluntary delisting of our ADSs from the New York Stock Exchange (the “NYSE”)
and a proposal to maintain our ADR facility as a Level 1 ADR program to enable investors to retain their ADSs. On December 7, 2018,
we filed a Form 25 with the SEC to effect the delisting of the ADSs, and sent a copy to the NYSE on the same day. The last day
of trading on NYSE for our ADSs was December 14, 2018, and our ADSs were delisted from the NYSE on December 17, 2018. Our ADSs
remain eligible for trading in the over-the-counter markets in the United States, and our common shares will continue to be listed
and admitted to trading in the Novo Mercado segment of the B3. In addition to the information we are required to report under applicable
Brazilian regulations, we intend to continue publishing English translations of our annual report, interim results and communications
on our investor relations website at (www.ri.gafisa.com.br), in accordance with Rule 12g3-2(b) under the Exchange Act. In the Extraordinary
shareholders meeting held in April 2019, the measures taken for the voluntary delisting of Gafisa’s shares from the New York
Stock Exchange (NYSE) and the change of the American Depositary Shares program from a Level 3 to a Level 1 program were not ratified.



On
December 19, 2018, the Board of Directors approved the cancellation of 1,030,325 of the Company’s common shares, without
reduction in our capital stock.



On
January 22, 2019, the Board of Directors approved the cancellation of 370,000 of the Company’s common shares, without reduction
in our capital stock. The Company also disclosed to the market a Material Fact stating that the GWI Group had acquired Company
shares representing more than 50% in the Company’s share capital. Pursuant to article 46 of the Company’s Bylaws, any
shareholder that holds a participation equal to or greater than 50% of the Company’s share capital is required to make a
Tender Offer for the remaining shares. Accordingly, shortly thereafter, GWI Group, without making a Tender Offer, sold a small
portion of its shares in order to maintain a participation of less than 50% in the Company’s share capital. Following queries
for clarification by the Company, CVM and B3 about these transactions involving the Company’s share capital, GWI Group confirmed
that the GWI acquisition of more than 50% of the Company’s share capital was not intentional and, therefore, did not trigger
the Tender Offer requirement provided for in the Company Bylaws.



By
February 14, 2019, GWI Group had sold, through auction in the capital markets, a 33.67% interest it held in the Company’s
share capital. As a result, GWI Group ceased to control the Company and reduced its interest in the Company’s share capital
to 7.70%. Furthermore, Planner Corretora de Valores S.A. in the same date, through investment funds managed by it, purchased shares
corresponding to 18.45% of the total share capital of the Company.



The GWI Group traded
in our shares in early 2019, giving rise to several requests for information by CVM and B3 with respect to compliance with the
Tender Offer requirement provided for in the Company’s Bylaws. The Company responded to such requests on March 21, 2019 and,
as of the date of this annual report, has no knowledge of any further action to be taken by CVM regarding this issue. The Company
understands that, as the GWI Group is no longer a relevant shareholder and their representatives are no longer part of the Company’s
management, the Company should not be subject to any further sanctions and will keep its shareholders and the market informed of
any developments in that regard.



During
February, March and April 2019, the members of the Company’s Board of Directors elected in late 2018 resigned, with the exception
of Pedro Carvalho de Mello, and new members were elected to replace them.



28


Table of Contents


As of the date
of this annual report, following the Annual General Meeting held on April 15, 2019, Gafisa’s Board of Directors is composed
of the following members: (i) Leo Julian Simpson (nominated as chairman of the Board of Directors on April 15, 2019), (ii) Antonio
Carlos Romanoski, (iii) Demian Fiocca, (iv) Eduardo Larangeira Jácome, (v) Nelson Sequeiros Rodriguez Tanure, (vi) Roberto
Luz Portella and (vii) Thomas Cornelius Azevedo Reichenheim, all nominated on April 15, 2019.



On
April 15, 2019, at the Annual General Meeting, the shareholders resolved to suspend the shareholder rights of GWI Asset Management
S.A. and the other members of the GWI Group due to GWI Group’s non-compliance with the Company’s Bylaws as they relate
to the Tender Offer request. In addition, it was resolved to increase the limit of authorized capital of the Company from 71,031,876
ordinary shares to 120,000,000 ordinary shares. This increase in the Company’s authorized capital enables us to issue new
shares in a sufficient amount to accommodate the financial restructuring of the Company.



On
April 15, 2019, following the General Meeting, in order to raise funds for investments, the newly appointed Board of Directors
approved a capital increase of 26,273,962 new common shares. These newly issued common shares were offered privately to the Company’s
shareholders at the B3, and were issued at the reference price of R$6.02 per common share (which was determined following an audit
conducted by a specialized firm). The Board of Directors also appointed Roberto Luz Portella as Chief Executive Officer, Chief
Financial Officer and Investor Relations Officer and Eduardo Larangeira Jácome as Operational Executive Officer. Following
the preemptive rights exercise period, and the subsequent subscription periods, we issued and sold 12,170,035 and 14,103,927
new common shares of the Company for a total amount of R$62.3 million and R$70.0 million, respectively, all in registered, book-entry
form, and with no par value, at a price per share equal to R$5.12 and R$4.96, respectively. Accordingly, on June 24, 2019, our
board of directors approved a capital increase in the amount of R$132.3 million.



On
August 15, 2019, the Board of Directors approved a capital increase of 48,968,124 new common shares. These newly issued common
shares were offered privately to the Company’s shareholders at the B3, and were issued at the reference price of R$6.57 per
common share (which was determined following an audit conducted by a specialized firm). Following the preemptive rights exercise
period and subsequent subscriptions periods, we issued and sold 45.554.148 and 3,413,976 new common shares of the Company for a
total amount of R$254.2 million and R$18.5 million, respectively, all in registered, book-entry form, and with no par value, at
a price per share equal to R$5.58 and R$5.42, respectively. Accordingly, on October 23, 2019, our board of directors approved a
capital increase in the amount of R$272.7 million. As of the date of this annual report, the share capital of the Company
totaled R$2,926.3 million, represented by 120,000,000 common shares, all in registered, book-entry form, and with no par value.



On
August 30, 2019 the Board of Directors appointed André Luis Ackermann as Chief Financial Officer, and Eduardo Larangeira
Jácome tendered his resignation as Management Officer, effective as of September 30, 2019. Eduardo Larangeira Jácome
will remain as a member of the Restructuring Committee until December 31, 2019 and a member of the Company’s Board of Directors.



In
addition, on September 20, 2019, Roberto Luz Portella resigned from his position as Chief Executive Officer and Inverstor Relations
Officer. Following his resignation, on September 23, 2019, the Board of Directors appointed André Luis Ackermann as Investor
Relations Officer.



On October 21, 2019,
we informed our shareholders and the market that we entered into a Purchase and Sale, Stock Redemption, Corporate Restructuring
Agreement with Alphaville Urbanismo S.A., Private Equity AE Investimentos e Participações S.A. and affiliates of
PEAE, setting forth the terms and conditions for the sale of our shares in Alphaville. As of the date of this annual report, we
hold 21.20% of Alphaville’s shares, a decrease from our previous 30% stake, as a result of a capital increase in Alphaville
by affiliates of PEAE. The sale price totals R$100 million, payable through credit offsets and the delivery of certain assets.
The consummation of the transaction is subject to customary conditions precedent, including a corporate restructuring of certain
assets of Alphaville, the obtainment of third party consents and corporate approvals. This transaction is in line with the Company’s
strategy to optimize and improve the Company’s portfolio and capital allocation, aiming at creating value for our shareholders.



Capital Expenditures



In 2018, under the
Gafisa brand, we invested R$12.5 million in machinery and equipment, information technology equipment, software, project planning
and information technology projects. Our main investments during the period were related to sales stands, which amounted to R$9.7
million.



29


Table of Contents


In 2017, under the
Gafisa brand, we invested R$20.5 million in machinery and equipment, information technology equipment, software, project planning
and information technology projects. Our main investments during the period were related to sales stands and software acquisitions,
which amounted to R$7.3 million and R$6.4 million, respectively.



In 2016, under the
Gafisa brand, we invested R$35.8 million in machinery and equipment, information technology equipment, software, project planning
and information technology projects. Our main investments during the period were related to sales stands and software acquisitions,
which amounted to R$10.8 million and R$7.8 million, respectively.



Our capital expenditures
are all made in Brazil and are usually funded by financings through local debt capital markets. We currently do not have any significant
capital expenditures in progress.



B. Business Overview



General Overview



We believe we are
one of Brazil’s leading homebuilders. For over more than 60 years, Gafisa has been recognized as one of the foremost professionally-managed
homebuilders, having completed and sold more than 1,100 developments and constructed over 12 million square meters of housing,
which we believe is more than any other residential development company in Brazil. We believe our brand “Gafisa” is
a well-known brand in the Brazilian real estate development market, enjoying a reputation among potential homebuyers, brokers,
lenders, landowners and competitors for quality, consistency and professionalism.



Our core business
is the development of high-quality residential units in attractive locations. For the year ended December 31, 2018, 49% of the
value of our launches was derived from high and mid high-level residential developments. In addition, we also provide construction
services to third parties on certain developments where we retain an equity interest. We are currently operating mainly in São
Paulo and its metropolitan area which represents approximately 10.3% of the national population and approximately 17.7% of the
gross domestic product as of December 31, 2016 (latest available information).



Our Markets



We have developed
real estate projects in 30 municipalities throughout Brazil, including Barueri, Belém, Campinas, Cuiabá, Curitiba,
Goiânia, Gramado, Guarujá, Guarulhos, Itu, Jundiaí, Macaé, Maceió, Manaus, Niterói, Nova
Iguaçu, Osasco, Porto Alegre, Porto Velho, Rio de Janeiro, Salvador, Santo André, Santos, São Bernardo do
Campo, São Caetano do Sul, São Gonçalo, São Jose dos Campos, São Luís, São Paulo
and Volta Redonda.



Our Real Estate Activities



Our real estate business
includes the following activities:



| | · | developments for sale of:
| | - | -------------------------



| | · | residential units;
| | - | ------------------



| | · | commercial buildings;
| | - | ---------------------



| | · | construction services to third parties on certain developments in the Gafisa segment where we retain
an equity interest; and
| | - | ----------------------------------------------------------------------------------------------------------------------------



| | · | sale of units through our brokerage subsidiaries, Gafisa Vendas and Gafisa Vendas Rio, jointly
referred to as “Gafisa Vendas.”
| | - | ------------------------------------------------------------------------------------------------------------------------------



The table below sets
forth our potential sales value, generated from new developments for each of our real estate activities and as a percentage of
total real estate amount generated during the periods presented:



|                      |  | For the year ended December 31,
|--------------------- |  | -------------------------------
|                      |  | 2018                           
|                      |  | (in thousands of reais)        
|                      |  |                                
|Residential buildings |  |                                
|Commercial            |  |                                
|Potential sales(1)    |  |                                




| | (1) | The spin-off of the Tenda business unit was concluded on May 4, 2017. As of December 31, 2016, the amount of R$1,342,490 is
related to Tenda, which is disclosed as a discontinued operation.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30


Table of Contents


The table below sets forth our sales value
from new developments generated for each of our real estate activities and as a percentage of total real estate amount generated
during the periods presented:



|                      |  | For the year ended December 31,
|--------------------- |  | -------------------------------
|                      |  | 2018                           
|                      |  | (in thousands of reais)        
|                      |  |                                
|Residential buildings |  |                                
|Commercial            |  |                                
|Sales(1)              |  |                                




| | (1) | The spin-off of the Tenda business unit was concluded on May 4, 2017. As of December 31, 2016, the amount of R$557,970 is related
to Tenda, which is disclosed as a discontinued operation.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Developments
for Sale



The table below provides
information on our developments for sale activities during the periods presented:



|                                           |  | As of and for the year ended December 31,       
|------------------------------------------ |  | ------------------------------------------------
|                                           |  | 2018                                            
|                                           |  | (in thousands of reais, unless otherwise stated)
|São Paulo                                  |  |                                                 
|Potential sales value of units launched(1) |  |                                                 
|Developments launched(2)                   |  |                                                 
|Usable area (m2)(3)                        |  |                                                 
|Units launched(4)                          |  |                                                 
|Average sales price (R$/m2)(3) (5)         |  |                                                 
|Rio de Janeiro                             |  |                                                 
|Potential sales value of units launched(1) |  |                                                 
|Developments launched(2)                   |  |                                                 
|Usable area (m2)(3)                        |  |                                                 
|Units launched(4)                          |  |                                                 
|Average sales price (R$/m2)(3)(5)          |  |                                                 
|Other Markets                              |  |                                                 
|Potential sales value of units launched(1) |  |                                                 
|Developments launched(2)                   |  |                                                 
|Usable area (m2)(3)                        |  |                                                 
|Units launched(4)                          |  |                                                 
|Average sales price (R$/m2)(3)(5)          |  |                                                 
|Total Gafisa                               |  |                                                 
|Potential sales value of units launched(1) |  |                                                 
|Developments launched(2)                   |  |                                                 
|Usable area (m2)(3)                        |  |                                                 
|Units launched(4)                          |  |                                                 
|Average sales price (R$/m2)(3)(5)          |  |                                                 
|Tenda (6)                                  |  |                                                 
|Potential sales value of units launched(1) |  |                                                 
|Developments launched(2)                   |  |                                                 
|Usable area (m2)(3)                        |  |                                                 
|Units launched(4)                          |  |                                                 
|Average sales price (R$/m2)(3)(5)          |  |                                                 




| | (1) | Potential sales value is calculated by multiplying the number of units in a development by the
expected sales price of the unit.
| | --- | --------------------------------------------------------------------------------------------------------------------------------





| | (2) | Does not consider acquisitions of additional ownership interests in projects or cancelled projects.
| | --- | ---------------------------------------------------------------------------------------------------





| | (3) | One square meter is equal to approximately 10.76 square feet. The unit’s usable area in exchange
for land pursuant to barter transactions is not included.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------





| | (4) | The units delivered in exchange for land pursuant to barter transactions are not included.
| | --- | ------------------------------------------------------------------------------------------





| | (5) | Average sales price per square meter was R$8,661, R$6,679, R$8,439 in 2018, 2017 and 2016, respectively,
for Gafisa’s ventures only.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------





| | (6) | This information is presented for comparison purposes,
as we have disclosed Tenda as a discontinued operation as of December 31, 2016 and the spin-off of the Tenda business unit was
concluded on May 4, 2017.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31


Table of Contents


Our developments for
sale are divided into two broad categories: (1) residential buildings and (2) commercial buildings.



Overview of Residential
Buildings



In the residential
buildings category, we develop three main types of products: (1) luxury buildings targeted at higher-income customers and buildings
targeted at middle-income customers; and (2) entry level buildings targeted at middle-low income customers. Quality residential
buildings for middle- and upper-income customers are our core products and we have developed them since our inception. A significant
portion of our residential developments is located in São Paulo and Rio de Janeiro where we have held a leading position
over the past five years based upon area of total construction. In 2006, we began our national expansion to pursue opportunities
in residential buildings outside these cities. However in 2012, as a result of the difficulties to manage these projects and to
achieve reasonable profits, we shifted our focus back to São Paulo and Rio de Janeiro. In October 2018 we closed our operations
in the city of Rio de Janeiro to focus on our operations in São Paulo, as we believe the São Paulo metropolitan area
is the most economically important region in Brazil with the largest population.



Luxury and Middle-Income
Buildings



Luxury buildings are
a high margin niche. Units usually have over 150 square meters of private area, at least four bedrooms and more than three parking
spaces. Typically, this product is fitted with modern, top-quality materials designed by brand-name manufacturers. The development
usually includes swimming pools, gyms, visitor parking, and other amenities. Average price per square meter generally is higher
than approximately R$15,000. Luxury building developments are targeted to families with monthly household incomes in excess of
approximately R$40,000.



Buildings targeted
at middle-income customers have accounted for the majority of our sales since our inception. Units usually have between 60 and
150 square meters of private area, between one and three bedrooms and up to three parking spaces. Buildings are usually developed
in large tracts of land as part of multi-building developments and, to a lesser extent, in smaller lots in attractive neighborhoods.
Average price per square meter ranges from approximately R$9,000 to R$15,000. Middle-income building developments are tailored
to customers with monthly household incomes between approximately R$15,000 and R$40,000.



The table below sets
forth our luxury and middle-income building developments launched between January 1, 2016 and December 31, 2018:



|Project Description           |  | Year Launched |      | Gafisa Participation (%) |  | Usable Area (m2) (1) (2) |     | Completion Year |  | Number of Units (2) |        | Units Sold (%) (As of December 31, 2018)
|----------------------------- |  | ------------- | ---- | ------------------------ |  | ------------------------ | --- | --------------- |  | ------------------- | ------ | ----------------------------------------
|Upside Pinheiros              |  |               | 2018 |                          |  |                          | 100 | %               |  |                     | 11,261 |                                         
|Upside Paraíso                |  |               | 2018 |                          |  |                          | 100 | %               |  |                     | 10,881 |                                         
|Vision Pinheiros              |  |               | 2018 |                          |  |                          | 100 | %               |  |                     | 6,474  |                                         
|J330 Jardins                  |  |               | 2017 |                          |  |                          | 100 | %               |  |                     | 3,896  |                                         
|Parque Ecoville               |  |               | 2017 |                          |  |                          | 100 | %               |  |                     | 10,534 |                                         
|Marques 2900                  |  |               | 2016 |                          |  |                          | 50  | %               |  |                     | 5,742  |                                         
|Square Ipiranga               |  |               | 2016 |                          |  |                          | 100 | %               |  |                     | 25,529 |                                         
|044 Vila Rica                 |  |               | 2016 |                          |  |                          | 50  | %               |  |                     | 5,077  |                                         
|MN15 Ibirapuera               |  |               | 2016 |                          |  |                          | 100 | %               |  |                     | 5,327  |                                         
|Gafisa Like Aclimação         |  |               | 2016 |                          |  |                          | 100 | %               |  |                     | 9,299  |                                         
|Gafisa Like Alto da Boa Vista |  |               | 2016 |                          |  |                          | 100 | %               |  |                     | 14,509 |                                         
|                              |  |               |      |                          |  |                          |     |                 |  |                     |        |                                         




| | (1) | One square meter is equal to approximately 10.76 square feet.
| | --- | -------------------------------------------------------------





| | (2) | Values for 100% of the building development, except on projects with partial interest.
| | --- | --------------------------------------------------------------------------------------



32


Table of Contents


Entry Level Developments



Entry level housing
consists of building and house units. Units usually have between 40 to 60 square meters of private area, one to three bedrooms,
and are typically located outside the vehicle restriction area of São Paulo and near public transportation points. The average
price per square meter ranges from R$6,000 to R$9,000. Entry level housing developments are tailored to customers with monthly
household incomes between approximately R$7,000 and R$10,000.



The table below sets
forth our entry level developments launched between January 1, 2016 and December 31, 2018:



|Project Description        |  | Year Launched |      | Gafisa Participation (%) |  | Usable Area (m2)
    (1) (2) |     | Completion Year |  | Number of Units (2) |        | Units Sold (%) (As of December 31, 2018)
|-------------------------- |  | ------------- | ---- | ------------------------ |  | ---------------------------- | --- | --------------- |  | ------------------- | ------ | ----------------------------------------
|Belvedere Lorian Boulevard |  |               | 2018 |                          |  |                              | 100 | %               |  |                     | 24,975 |                                         
|Moov Belém                 |  |               | 2018 |                          |  |                              | 100 | %               |  |                     | 14,512 |                                         
|Scena Tatuapé              |  |               | 2018 |                          |  |                              | 100 | %               |  |                     | 16,028 |                                         
|Moov Estação Brás          |  |               | 2017 |                          |  |                              | 100 | %               |  |                     | 12,866 |                                         
|Moov Espaco Cerâmica       |  |               | 2017 |                          |  |                              | 100 | %               |  |                     | 24,396 |                                         
|Moov Parque Maia           |  |               | 2017 |                          |  |                              | 100 | %               |  |                     | 31,248 |                                         
|Barra Vista Fase 2         |  |               | 2016 |                          |  |                              | 50  | %               |  |                     | 5,468  |                                         
|Square Choice Santo Amaro  |  |               | 2016 |                          |  |                              | 100 | %               |  |                     | 13,704 |                                         
|Moov Estação Vl. Prudente  |  |               | 2016 |                          |  |                              | 100 | %               |  |                     | 10,307 |                                         
|Moov Freguesia             |  |               | 2016 |                          |  |                              | 100 | %               |  |                     | 14,157 |                                         




| | (1) | One square meter is equal to approximately 10.76 square feet.
| | --- | -------------------------------------------------------------





| | (2) | Values for 100% of the building development, except on projects with partial interest.
| | --- | --------------------------------------------------------------------------------------



Completed developments
with percentage of units sold less than 90%



The table below sets
forth our completed developments as of December 31, 2018, with percentage of units sold less than 90%:





|                                     | As
of December 31, 2018
|------------------------------------ | -----------------------
|Project Description                  | Units Sold (%)         
|Varandas Grand Park F2 (1)           | 89.87%                 
|Gafisa Square Osasco (2)             | 87.94%                 
|Varandas Grand Park F3 (3)           | 87.69%                 
|Barra Viva 2 - Fase 3 (4)            | 86.02%                 
|Varandas Grand Park F4 (5)           | 85.26%                 
|Grand Park – Parque das Árvores  (6) | 82.72%                 
|Today Modern Residence (7)           | 80.70%                 
|Condominio O Bosque (8)              | 79.67%                 
|Sao Way (9)                          | 79.13%                 
|Scena Alto da Lapa (10)              | 79.11%                 
|Laguna Mall (11)                     | 78.34%                 
|067 Hermann Júnior (12)              | 77.40%                 
|Smart Santa Cecília (13)             | 76.25%                 
|Mood Lapa (14)                       | 75.80%                 
|Varandas Grand Park F6 (15)          | 74.35%                 
|Bosque Marajoara (16)                | 74.13%                 
|Varandas Grand Park F5 (17)          | 73.74%                 
|Go Maraville (18)                    | 73.27%                 
|Alphamall (19)                       | 70.61%                 
|Barra Vista 2 (20)                   | 68.13%                 
|Americas Avenue (21)                 | 65.93%                 
|Target Offices & Mall (22)           | 63.55%                 
|Sao Gate (23)                        | 46.68%                 








33


Table of Contents





| | (1) | Varandas Grand Park F2. This development was 100% complete at December 31, 2018, at which time
89.87% of the units had been sold. According to the Company’s business plan, this development’s
selling forecast indicates the remaining units will be sold within the next 24-36 months.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Gafisa Square Osasco. This development was 100% completed at December 31, 2018 at which time 87.94%
of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates
the remaining units will be sold within a short time period.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Varandas Grand Park F3. This development was 100% completed at December 31, 2018 at which time
87.69% of the units had been sold. According to the Company’s business plan, this development’s
selling forecast indicates the remaining units will be sold within the next 24-36 months.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Barra Viva 2 – Fase 3. This development was 100% completed at December 31, 2018 at which
time 86.02% of the units had been sold. According to the Company’s business plan, this
development’s selling forecast indicates the remaining units will be sold within the next 18-24 months.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Varandas Grand Park F4. This development was 100% completed at December 31, 2018 at which time
85.26% of the units had been sold. According to the Company’s business plan, this development’s
selling forecast indicates the remaining units will be sold within a short time period.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Grand Park – Parque das Árvores. This development was 100% completed at December 31,
2018 at which time 82.72% of the units had been sold. According to the Company’s business
plan, this development’s selling forecast indicates the remaining units will be sold within the next 24-36 months.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Today Modern Residence. This development was 100% completed at December 31, 2018 at which time
80.70% of the units had been sold. According to the Company’s business plan, this development’s
selling forecast indicates the remaining units will be sold within the next 24-36 months.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Condominio O Bosque. This development was 100% completed at December 31, 2018 at which time 79.67%
of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates
the remaining units will be sold within a short time period.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | Sao Way. This development was 100% completed at December 31, 2018 at which time 79.13%
of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates
the remaining units will be sold within the next 36-48 months.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (10) | Scena Alto da Lapa. This development was 100% completed at December 31, 2017 at which time 79.11%
of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates
the remaining units will be sold within the next 12-18 months.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (11) | Laguna Mall. This development was 100% completed at December 31, 2018 at which time 78.34%
of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates
the remaining units will be sold within the next 24-36 months.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (12) | 067 Hermann Júnior. This development was 100% completed at December 31, 2018 at which time
77.40% of the units had been sold. According to the Company’s business plan, this development’s
selling forecast indicates the remaining units will be sold within a short time period.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (13) | Smart Santa Cecília. This development was 100% completed at December 31, 2018 at which time
76.25% of the units had been sold. According to the Company’s business plan, this development’s
selling forecast indicates the remaining units will be sold within the next 24–36 months.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (14) | Mood Lapa. This development was 100% completed at December 31, 2018 at which time 75.80%
of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates
the remaining units will be sold within the next 24-36 months.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (15) | Varandas Grand Park F6. This development was 100% completed at December 31, 2018 at which time
74.35% of the units had been sold. According to the Company’s business plan, this development’s
selling forecast indicates the remaining units will be sold within a short time period.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (16) | Bosque Marajoara. This development was 100% completed at December 31, 2017 at which time 74.13%
of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates
the remaining units will be sold within the next 12–18 months.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (17) | Varandas Grand Park F5. This development was 100% completed at December 31, 2017 at which time
73.74% of the units had been sold. According to the Company’s business plan, this development’s
selling forecast indicates the remaining units will be sold within the next 18-24 months.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (18) | Go Maraville. This development was 100% completed at December 31, 2017 at which time 73.27%
of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates
the remaining units will be sold within the next 24-36 months.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (19) | Alphamall. This development was 100% completed at December 31, 2017 at which time 70.61%
of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates
the remaining units will be sold within the next 24-36 months.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (20) | Barra Vista 2. This development was 100% completed at December 31, 2017 at which time 68.13%
of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates
the remaining units will be sold within the next 24-36 months.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (21) | Americas Avenue. This development was 100% completed at December 31, 2017 at which time 65.93%
of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates
the remaining units will be sold within the next 24-36 months. The relatively low speed at which the units of this development
have been sold is mainly due to the challenging macroeconomic conditions in the city of Rio de Janeiro and its negative impact
on the real estate market.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (22) | Target Offices e Mall. This development was 100% completed at December 31, 2017 at which time 63.55%
of the units had been sold. According to the Company’s business plan, this development’s selling forecast indicates
the remaining units will be sold over a long time horizon. The relatively low speed at which the units of this development have
been sold is mainly due to the challenging macroeconomic conditions in the city of Rio de Janeiro and its negative impact on the
real estate market.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (23) | Sao Gate. This development was 100% completed at December 31, 2017 at which time 46.68% of the
units had been sold. According to the Company’s business plan, this development’s selling forecast indicates the remaining
units will be sold over a long time horizon.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have evaluated
all of our developments and we have recorded reduction to net realizable value and write-offs to net realizable value for the following
projects: 044 Vila Rica, Alpha Green, Alpha Land, AlphaGreen, Alphamall, Americas Avenue, Espaço Alpha, Gafisa Hi Guaca,
Global Offices, Golden Office, Icon Business & Mall, Laguna Mall, Sao Gate, Sao Way, Scena Alto da Lapa, Target Offices &
Mall, Today Modern Residences, Smart Santa Cecília, Moov Parque Maia, Moov Belém, single units of Olavo Bilac and
single units of Reserva das Ruínas.



Land Subdivisions under
Alphaville Brand



As set forth in “—A
History and Development of the Company”, we completed the sale of a controlling interest in Alphaville, on December 9, 2013.
As a result, Alphaville was no longer consolidated in the financial statements of the Company since then. In this annual report,
while financial information related to Alphaville is treated as discontinued operations, all operating information related to our
business includes full operating information for Alphaville through December 9, 2013.



As a result of the
sale of the 70% interest in Alphaville on December 9, 2013, we were not involved in the launch of any residential communities under
the Alphaville brand in 2016, 2017 and 2018.



Commercial Buildings



In 2016, 2017 and
2018 we did not launch any commercial buildings.



Construction Services



We provide construction
services to third parties on certain developments where we retain an equity interest. This practice allows us to benchmark our
construction costs, facilitates our access to new constructions materials, techniques and service providers such as architects
and sub-contractors, and provides larger economies of scale.



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Table of Contents


The table below sets
forth the real estate developments for third parties currently under construction, in which we also have an equity interest, between
January 1, 2016 and December 31, 2018:



|Project       | First
        Year of Construction | Gafisa
        Participation
        (%) | Partner               | Type
        of Project
|------------- | ---------------------------------- | ---------------------------------------- | --------------------- | -----------------------
|Marques 2900  | 2016                               | 50%                                      | Bueno Netto           | Residential            
|044 Vila Rica | 2017                               | 50%                                      | Atins Empreendimentos | Residential            



Sale of Units Through
Our Brokerage Subsidiaries



In September 2006,
we created a new subsidiary, Gafisa Vendas, to function as our internal sales division in the state of São Paulo. This subsidiary
company is responsible for efforts in connection with: (1) launches — our internal sales force focuses on promoting launches
of our developments; however, we also use outside brokers (mainly in Rio de Janeiro), thus creating what we believe to be a healthy
competition between our sales force and outside brokers; (2) inventory — we have a team focused on selling units launched
in prior years; and (3) web sales — we have a sales team dedicated to internet sales as an alternative source of revenues
with lower costs.



Our Clients



Our clients mainly
consist of development clients. Development clients are clients who purchase units in our developments. As of December 31, 2018,
our development-client database was comprised of more than 62.000 individuals. We currently have approximately 27.650 active clients.



We also provide construction
services to certain construction-services clients in connection with developments in which we retain an equity interest. As of
December 31, 2018, our main construction services client was Atins Empreendimentos, with whom we retain an equity interest in the
044 Vila Rica development.



No individual client
represents more than 5% of our revenues from residential developments or construction services.



Our Operations



The stages of our
development process are summarized in the diagrams below:







Land Acquisition



We use results from
our extensive market research to guide our land reserves strategy and process. Our marketing and development teams monitor market
fundamentals and trends. We have developed a sophisticated database to support our search for and analysis of new investment opportunities.
Key decision factors used by our management for land acquisition and new developments include location, type of product to be developed,
expected demand for the new developments, current inventory of units in the region and acquisition cost of the land.



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Table of Contents


Whenever we identify
an attractive tract of land, we first conduct a study of the project to define the most appropriate use of the space. Afterwards,
the basic design of the project enters the economic feasibility study stage, where we consider preliminary revenues and expenses
associated with the project. This study will determine project profitability. We collect and analyze information on demand, competition,
construction budget, sales policy and funding structure to ensure economic viability of the new development. We then initiate a
legal due diligence of the property to identify liens, encumbrances and restrictions, potential solutions to such issues and the
relevant costs. Before acquiring the land, we conduct a thorough due diligence process including an environmental review. Each
decision to acquire land is analyzed and approved by our investment committee. See “Item 6. Directors, Senior Management
and Employees—C. Board Practices” elsewhere in this annual report for further information on the activities of our
committees and boards.



We seek to finance
land acquisition through barter transactions, in which we grant the seller a certain number of units to be built on the land or
a percentage of the proceeds from the sale of units in such development. As a result, we reduce our cash requirements and increase
our returns. In the event we cannot do so or in order to obtain better terms or prices, we acquire land for cash, alone or in partnership
with other developers. We purchase land both for immediate development and for inventory.



As a new strategy
defined by the end of 2011, the Company is selling landbank located in cities and places where there is no intention to run operations
with new developments.



As of December 31,
2018, we had an inventory of 31 land parcels under Gafisa, in which we estimate we could develop a total of 7,429 units (residential
and commercial) units with a sales value of R$3.7 billion, of which 8.2% represents land acquired through barter transactions.
The table below sets forth the breakdown of our land holdings by location and by segment:



|               |  | Gafisa                     
|-------------- |  | ---------------------------
|               |  | Future Sales (% Gafisa) (1)
|               |  | (in millions of reais)     
|São Paulo      |  |                            
|Rio de Janeiro |  |                            
|Other states   |  |                            
|Total          |  |                            




| | (1) | Information reflects our interest.
| | --- | ----------------------------------



Project Design



In order to meet evolving
preferences of our customers, we invest considerable resources in creating an appropriate design and marketing strategy for each
new development, which includes determining the size, style and price range of units. Our staff, including engineers and marketing
and sales professionals, works with recognized independent architects on the planning and design of our developments. Their activities
include designing the interior and exterior, drafting plans for the execution of the project, and choosing the finishing construction
materials. A team responsible for preparing the business plan and budget and assessing the financial viability for each of our
projects is also involved. Simultaneously with the planning and design of our developments, we seek to obtain all the necessary
licenses and regulatory approvals from local authorities, which usually take three to twelve months in the case of our residential
buildings and three years in the case of our residential communities.



Marketing and Sales



Our marketing efforts
are coordinated by our internal staff of approximately 5 professionals. Our specialized team generally coordinates with several
outsourced brokerage companies with a combined sales force of more than 10 representatives, monitoring such sales representatives
in order to promote loyalty and ensure performance. Our marketing intelligence team is also responsible for gathering information
on the needs and preferences of potential customers to provide guidance on our land acquisition and project design activities.



Gafisa Vendas was
created as our internal sales division and it currently consists of approximately 250 independent Gafisa Vendas brokers, 29 sales
consultants and 1 sales manager.



The creation of Gafisa
Vendas was intended to establish a strategic channel for us to access our clients and to reduce our dependence on outside brokers
for marketing.



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Because the sales
force at Gafisa Vendas is trained to sell our products exclusively, we believe that it is able to focus on the sale of our
developments, articulate the unique features of our development, manage our current customers and capture new customers more
effectively. Gafisa Vendas was initially established in São Paulo in 2006 and opened a branch in Rio de Janeiro in
2007.



In 2018, 2017, 2016,
2015 and 2014 Gafisa Vendas was responsible for approximately (i) 73.7%, 68.0%, 61.1%, 60.9%, and 61.0% respectively, of our sales
in the state of São Paulo, and (ii) 64.9%, 63%, 48.8%, 60.6% and 23.4%, respectively, of our sales in the state of Rio de
Janeiro.



We will continue to
utilize independent real estate brokerage firms as we believe this provides a healthy competition between our internal sales force
and outside brokers. Independent brokers provide us with a broad reach, access to a specialized and rich database of prospective
customers, and flexibility to accommodate the needs of our diverse offering and clientele. In line with our results-oriented culture,
we compensate brokers based on their profit contribution rather than on sales. Brokers are required to attend periodic specialized
training sessions where they are updated on customer service and marketing techniques, competing developments, construction schedules,
and marketing and advertising plans. We emphasize a highly transparent sales approach, as opposed to the traditional high-pressure
techniques, in order to build customer loyalty and to develop a sense of trust between customers and us. At our showrooms, brokers
explain the project and financing plans, answer questions and encourage customers to purchase or sign on to receive a visit or
additional information.



Under our Gafisa brand,
we typically initiate our marketing efforts 60 days before the launch of a development. We typically have a showroom on or near
the construction site, which includes a model unit furnished with appliances and furniture. We leverage our reputation for quality,
consistency, on-time delivery and professionalism to increase sales velocity. We have been successful with this strategy, usually
selling approximately 30% of the units before construction starts.



We market our developments
through newspapers, radio, television, direct mail advertising and by distributing leaflets in neighboring areas, as well as through
telemarketing and websites.



Under Brazilian law,
we may establish a term within and the conditions under which we are entitled to cancel the development. According to our regular
purchase contracts, if we are not able to sell at least 60% of the units within 180 days of launching, we can cancel the development.
Under those circumstances, we usually consider changing the project or selling the land, but, in any of those cases, we have to
return the cash payment made by our customers adjusted for inflation but with no interest. Customers, however, are not entitled
to other remedies. Over the last five years, we have only cancelled one development.



Construction



Gafisa has been engaged
in the construction business for over 50 years. Our experience spans across the entire construction chain. Before engaging in each
new project, we develop sketches and research and develop projects and plans to create the most appropriate product possible. Our
standardized construction techniques and unique control system are designed to optimize productivity and minimize raw material
losses. Our monitoring tools are available on our intranet where all employees regularly review costs and key performance indicators
of each development such as actual versus budget comparisons, volume consumption for each raw material, and construction schedule.



We use strict quality
control methods. We have developed proprietary procedure manuals that describe in significant detail each task of each stage of
the construction project. These manuals are also used for the training sessions that we require all of our workers to attend. In
addition, we keep quarterly records of projects delivered.



The reviews focus
on identifying problems in order to take corrective and preventive actions in projects underway and thus avoid costly repetition.
We have adopted a quality management system that was certified for ISO 9002 by Fundação Bureau Veritas, from
Universidade de São Paulo. In 2007, we received a certification from Programa Brasileiro de Qualidade e Produtividade
do Habitat (PBQP-H), which is part of the Ministry of Cities. In addition, the Eldorado Business Tower building was certified
as a Green Building, category Platinum, by the U.S. Green Building Council, which attests that it is environmentally sustainable,
through the rational use of energy, natural lighting and pollution control and recycling. Eldorado Business Tower was the first
building in Latin America to achieve this category.



We invest in technology.
Our research and development costs amounted to R$1.0 million in 2018, 2017 and 2016. We believe
that we have pioneered the adoption of advanced construction techniques in Brazil such as dry wall and plane pre-stressed slabs,
which present numerous advantages over traditional techniques. We also optimize costs by synchronizing our projects’ progress
so as to coordinate the purchase of raw material and benefit from economies of scale.



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We have long-term
arrangements with a number of suppliers which allow us to build our developments with quality, using brand name construction materials
and equipment, and advanced technology. Moreover, our centralized procurement center enables us to achieve significant economies
of scale in the purchase of materials and retention of services.



We do not own heavy
construction equipment and we employ directly only a small fraction of the labor working on our sites. We generally act as a contractor,
supervising construction while subcontracting more labor-intensive activities. Substantially all on-site construction is performed
for a fixed price by independent subcontractors. We have policies in place in order to hire reputable, cost-oriented and reliable
service providers that are in compliance with labor laws and have performed their work diligently and on time in the past. Hiring
subcontractors instead of employing workers directly has some financial and logistical advantages. For instance, we do not need
to incur fixed costs to maintain a specialized labor force even when they are not actively working at a construction site and we
do not need to pay for frequent transfers of labor to different construction locations.



Our construction engineering
group coordinates the activities of service providers and suppliers, monitors compliance with safety and zoning codes, and monitors
completion of the project on a timely basis. We provide a five-year limited warranty covering structural defects in all our developments.



Risk Control



Our risk control procedures
require that all of our projects be approved by our investment committee, which meets on a monthly basis, or more frequently on
an as-needed basis, and consists of our chief executive officer and two members of our board of directors. Our investment committee
carefully reviews the various studies conducted by us and described above. In addition, we have a board of officers, which meets
monthly, and is in charge of overseeing and approving major decisions. See “Item 6. Directors, Senior Management and Employees—E.
Share Ownership” in this annual report.



Customer Financing



The table below sets forth the percentage
of each type of customer financing we typically provide for each type of development as of December 31, 2018:



|Sales Term                  |  | Luxury and Middle Income (average) |    | Entry-Level (average)
|--------------------------- |  | ---------------------------------- | -- | ---------------------
|Mortgage lending (delivery) |  |                                    | 75 | %                    
|Gafisa 36 months            |  |                                    | 25 | %                    
|Gafisa 60 months            |  |                                    | -  |                      
|Gafisa 120 months           |  |                                    | -  |                      



Mortgages.
In 2018, approximately 75% of our sales value was financed by bank mortgages, where the customer paid us approximately 25% to 60%
of the sales price of the property during the period of construction, and upon delivery of the property paid the balance of the
sales price through a bank mortgage. We analyze the credit history of each customer at the time of sale to see if the customer
would qualify for a bank mortgage based on banks’ standard credit rating policies. Although there is no assurance that the
customer will qualify for a mortgage at the time of delivery, our analyses have been fairly successful in predicting whether the
customer would qualify for a mortgage. The following table sets forth the credit limits established by mortgage sources available
in Brazil in 2018:



|Credit
        Lines                                                                                                         | Typical
        Interest rate | Maximum
        Home Value | Maximum
        Loan Value
|---------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | -------------------------- | --------------------------
|Mortgage portfolio (Carteira Hipotecária) or CH                                                                              | up to 11% annually + TR(1)    | No limit                   | No limit                  
|Housing Finance System (Sistema Financeiro da Habitação) or SFH                                                              | up to 10% annually + TR       | R$ 1.500.000,00            | R$ 1.500.000,00           
|Government Severance Indemnity Fund for Employees (Fundo de Garantia do Tempo de Serviços) or FGTS for Minha Casa Minha Vida | up to 9,16% annually + TR     | R$ 240.000,00              | R$ 240.000,00             




| | (1) | TR refers to the daily reference rate.
| | --- | --------------------------------------



Financing by Gafisa
during construction. We finance some of our own sales during the construction period, with a down payment of 20-30% and financing
of the balance through monthly installments up to the delivery of the unit.



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Table of Contents


Financing by Gafisa
after delivery. In addition, we offer financing plans to prospective customers using our own capital, where we finance purchases
for up to 120 months after the completion of the construction. For completed units we require a down payment of 30% and financing
of the remaining balance with up to 120 monthly installments. For units under construction we require a down payment of 10% and
provide financing for the remaining balance of 25-35% with up to 30 monthly installments until the delivery of the unit and financing
of the remaining 75-65%, respectively, with up to 120 additional monthly installments. All of our financing plans are guaranteed
by a conditional sale of the unit, with the transfer of the full property rights of the unit to the customer upon the full payment
of the outstanding installments.



We have developed
a strict credit policy in order to minimize risks. We take the following steps whenever we conduct a credit review process:



| | · | trained independent brokers interview each potential customer to collect personal and financial
information and fill out a registration form;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | · | registration forms are delivered, along with a copy of the property deed, to us and, if the bank
providing the financing requests, to an independent company specialized in real estate credit scoring;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | credit is automatically extended by us to the customer if his or her credit analysis is favorable.
However, if the credit analysis report raises concerns, we will carefully review the issues and accept or reject the customer’s
application depending on the degree of risk. To the extent financing is provided by a bank, such financial institution will follow
their own credit review procedures; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | after approving the application, our staff accepts the down payment which is given as a deposit
on the purchase of the unit.
| | - | ----------------------------------------------------------------------------------------------------------------------------



Sales contracts.
Our sales contracts generally provide for adjustment of the sales price according to the INCC during construction and at an annual
interest rate of 12% plus IGP-M over the receivables balance after a stated date in our sales contracts. We have historically experienced
a low rate of customer default on our sales. On December 31, 2018, our clients’ default level, related to amounts overdue
for over 30 days, was 14.3% of our accounts receivable for Gafisa.



In order to maintain
low rates of customer default, we have adopted a conservative and robust credit and receivables management policy, pursuant to
which: (1) we conduct database research on the socio-economic background of our prospective customers; (2) our agreements discourage
default and cancellation of the purchase by imposing immediate penalty fees, interest and liquidated damages which are adjusted
for inflation, and we retain approximately 40-45% (Gafisa) and 20% (Tenda) of the total amount paid to us plus expenses incurred
by us, which in general represents all or a substantial portion of the amount that the defaulted clients have already paid us;
and (3) we offer several options to our customers if they experience financial difficulties, such as offering them a greater number
of installment payments or exchanging the unit bought for a less expensive one. When a default occurs, we endeavor to renegotiate
the outstanding loan with our customers before taking any legal action.



We will only transfer
title of the unit to a buyer after the release of the certificate of acceptance of occupancy by local authority and the full payment
of all outstanding installments. We have increased the percentage of mortgages that our customers obtain from commercial banks
from approximately 33% in 2006 to 71% in 2018. This increase reflects the growing interest
of commercial banks in financing the Brazilian housing industry. See “Item 5. Operating and Financial Review and Prospects—A.
Operating Results—Launches and Contracted Sales—Contracted Sales” for a discussion of the sales value of contracts
cancelled by our customers and penalties paid in connection with such cancellations.



The table below sets
forth client default levels:



|                       |  | As of and for the year ended December 31,
|---------------------- |  | -----------------------------------------
|Customer default level |  | 2018                                     
|Gafisa                 |  |                                          
|                       |  |                                          

The increase in our
default levels is mainly due to the weakening economic conditions and political instability in Brazil since 2014.



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Cancelation
of sales contracts.



Until
December 2018, sales contracts involving real estate development activities were irrevocable under Brazilian law. The buyer did
not have the unilateral ability to terminate a contract once it was executed, nor did the buyer have the ability to require a refund
of amounts previously paid unless Gafisa agreed. To the extent the customer was not in compliance with its obligations under a
contract, Gafisa could, at its sole discretion, either force compliance through Brazilian courts, or agree to a “default”
by the customer. In this case, if Gafisa agreed at its sole discretion to refund part of the amounts paid to the defaulting party,
the penalty set forth in the contract would be normally applied.



In
recent years, however, the Brazilian real estate market has seen an unprecedented level of noncompliance by customers, many of
which went to court to ask for the unilateral judicial termination of sales contracts. This was triggered by a number of factors,
including a national economic crisis, high levels of unemployment and a crisis in the real estate market, leading to a distorted
fluctuation in real estate prices.



In
view of the excessive number of judicial proceedings filed to redeem consumer rights, Law No. 4,591 of December 16, 1964 was amended
by Law No. 13,786 on December 12, 2018, to regulate the unilateral termination of real estate contracts and clarified the parameters
of the commercial relationship between customer and contractor.



Pursuant
to Law No. 13,786, upon termination of a real estate sale contract due to the default of a buyer’s obligation, the buyer
is entitled to a partial restitution of the amounts already paid to the developer. The penalty due by the buyer in these cases
must not exceed:



(i)
25% of the amounts paid, if the development is not being constructed legally segregated from the developer’s assets, as per
Law No. 10,931 of August 2, 2004 (“Detached Assets”);
or



(ii)
50% of the amounts paid, if the development is subject to Detached Assets.



In case the
buyer finds a new buyer for the returned unit, the penalty fees can be avoided, provided the requirements defined by law are satisfied.



The
real estate developer must refund the referred amounts in a single installment no later than (i) 30 days from the issuance of the
occupancy permit by the relevant Municipality, if subject to Detached Assets;
(ii) 180 days from the termination of the relevant agreement, if not subject to Detached Assets;
or (iii) 30 days from the resale of the returned unit, if prior to the other terms.



In
addition, Brazilian law also grants the developer the right
to force the unit to be auctioned in case the buyer’s obligations
provided therein are not complied with. When the unit is purchased in auction by a third party,
part of the proceeds from the auction are used to reimburse the
buyer for the amounts already paid to the developer, deducting the amounts stipulated by the relevant legislation. When
no third party is willing to acquire the unit in the auction, the ownership
of the unit returns to the developer, which shall reimburse the buyer portion of the amounts already paid, also in accordance with
the law.



The table below provides
the number and sales value of contracts canceled by customers for the periods presented:



|                                        |  | As of December 31, 2018 |       | As of December 31, 2017                 |  | As of December 31, 2016
|--------------------------------------- |  | ----------------------- | ----- | --------------------------------------- |  | -----------------------
|Year Segment                            |  | Number of contracts     |       | Sales
    value (in thousands of reais) |  | Number of contracts    
|Gafisa                                  |  |                         |       |                                         |  |                        
|Contracted sales                        |  |                         | 2,332 |                                         |  |                        
|Volume/Sales value of cancelations      |  |                         | (520  | )                                       |  |                        
|Percentage                              |  |                         | 22.3  | %                                       |  |                        
|Volume/Sales value, net of cancelations |  |                         | 1,813 |                                         |  |                        
|Tenda                                   |  |                         |       |                                         |  |                        
|Contracted sales                        |  |                         | —     |                                         |  |                        
|Volume/Sales value of cancelations      |  |                         | —     |                                         |  |                        
|Percentage                              |  |                         | —     |                                         |  |                        
|Volume/Sales value net of cancelations  |  |                         | —     |                                         |  |                        
|Total sales value net of cancelation    |  |                         | 1,813 |                                         |  |                        

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Receivables securitization



We release capital
for new projects by seeking not to maintain receivables after our projects are completed. The securitization (mortgage-backed securities)
market in Brazil is expanding. This expansion is helped significantly by recent development in Brazilian foreclosure laws.



With the growing availability
of mortgages from commercial banks and the increasing liquidity of CRIs, we expect to further reduce our role as a financing provider
to our customers. Our goal is to optimize our working capital by transferring the financing activities to securitization companies
and banks.



Main Raw Materials and Suppliers



We purchase a wide
variety of raw materials for our operations. Even though these raw materials have represented on average, over the last three years,
approximately 41% of our total costs of development, aside from land, the only raw materials that represent more than approximately
5% of our total costs are steel and concrete. Prices of some raw materials have increased over the last three years at a rate higher
than inflation. The index that measures the fluctuation of construction costs, the INCC, increased 14.9% during the three year
period ended December 31, 2018, resulting in an increase in the construction costs of Gafisa over that period. During the three
year period ended December 31, 2018 the IGP-M increased 15.2%. We have been working on the development of new construction techniques
and the utilization of alternative materials in order to reduce costs and improve our construction process with advanced technology.



We contract with major
suppliers for the materials used in the construction of the buildings. We receive general pricing proposals from various suppliers
of raw materials and select the proposal with the best terms and conditions for each development. In addition to pricing, we select
our suppliers by the quality of their materials. We set forth specific minimum quality requirements for each construction project,
and the chosen supplier must meet this quality requirement. The materials for our developments are readily available from multiple
sources and, accordingly, we do not rely on any one supplier for our raw materials.



Our five largest suppliers
in terms of volume are Gerdau Aços Longos S.A., Votorantim Cimentos Brasil Ltda., Elevadores Atlas Shindler S.A., Portobello
S.A. and IBRAP Industria Brasileira de Aluminio e Plastico S.A. In general terms, we purchase products for our construction based
on the scheduled requirements, and we are given approximately 60 days to pay. The products we purchase generally come with a five-year
warranty. We do not have any exclusive arrangements with our suppliers. We work closely with suppliers, enabling them to schedule
their production in order to meet our demand or notify us in advance in the event they anticipate delays. We have good relationships
with our suppliers and have experienced no significant construction delays due to shortages of materials in recent years. We do
not maintain inventories of construction materials.



We achieve significant
economies of scale in our purchases because we:



| | · | use standard construction techniques,
| | - | -------------------------------------



| | · | engage in a large number of projects simultaneously, and
| | - | --------------------------------------------------------



| | · | have long-term relationships with our suppliers. We periodically evaluate our suppliers. In the
event of problems, we generally replace the supplier or work closely with them to solve the problems.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Customer Service



In our industry, customer
satisfaction is based in large part on our ability to respond promptly and courteously to buyers before, during and after the sale
of our properties, including providing an owner’s guide.



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These services are
provided with the objective of educating customers on the progress of the construction and improving customers’
experience with the purchase of our units. Other customer service efforts include:



| | · | a dedicated outsourced call center with consultants and specialists trained to answer our customers’
inquiries;
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | the development of the “Gafisa Viver Bem” web portal, through which our customers can,
for example, follow the project’s progress, alter their registration information, simulate unit designs and check their outstanding
balances; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the development of the “Gafisa House Up Store,” through which buyers of certain units
are able to customize their units in accordance with plans and finishing touches offered by Gafisa. Such options vary by development.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As part of our customer
service program in our residential developments, we conduct pre-delivery inspections to promptly address any outstanding construction
issues. We also conduct monitored inspections of our developments to allow buyers to gather more information from our technical
personnel. In addition, we send a monthly status report on the construction of the unit. We also provide a five-year limited warranty
covering structural defects, which is required by Brazilian law.



Competition



The real estate market
in Brazil is highly fragmented and competitive with low barriers to entry. The main competitive factors include price, financing,
design, quality, reputation, reliability, meeting delivery expectations, partnerships with developers and the availability and
location of land. Certain of our competitors have greater financial resources than we do, which could provide them an advantage
over us in the acquisition of land using cash. In addition, some of our competitors have better brand recognition in certain regions,
which could give them a competitive advantage in increasing the velocity of their sales. Because of our geographic diversification,
we believe that we have access to different markets within Brazil that have different demand drivers.



Because of the high
fragmentation of the markets in which we operate, no single developer or construction company is likely to obtain a significant
market share. With the exception of São Paulo and Rio de Janeiro, where we face competition from major publicly-traded competitors,
in other regions we generally face competition from small and medium-sized local competitors that are not as well-capitalized.
We expect additional entrants, including foreign companies in partnership with Brazilian entities, into the real estate industry
in Brazil, particularly the São Paulo and Rio de Janeiro markets.



The table below sets
forth the most recent data available on our market share in the São Paulo market:





|São Paulo (1) — Gafisa’s Market Share
|-------------------------------------
|                                     
|Year                                 
|                                     
|Local market                         
|Gafisa(2)                            
|Gafisa’s market share                








Source: EMBRAESP and SECOVI.



| | (1) | Metropolitan region.
| | --- | --------------------



| | (2) | Gafisa interest. In 2018, 2017 and 2016, we did not launch any development in Rio de Janeiro.
| | --- | ---------------------------------------------------------------------------------------------



Seasonality



Although the Brazilian
real estate market is not generally seasonal, there are a few months of the year when the market slows down (January, February
and July) each year. These months coincide with school vacations and result in the postponement of investment decisions. We are
impacted similarly as the rest of the market during such periods.



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Subsidiaries



We carry out our real
estate developments directly or through our subsidiaries or our jointly-controlled entities in partnership with third parties.
Many of Gafisa’s subsidiaries and joint-ventures are SPEs, many of which have been incorporated by us as joint ventures together
with other real estate and construction companies in Brazil.



As of December 31,
2018, Gafisa had 97 direct and indirect subsidiaries, 28 jointly-controlled entities under operations and 5 entities in which it
had minority stakes. The majority of such subsidiaries, jointly-controlled entities and entities in which Gafisa has a minority
stake are incorporated as special purpose entities, are headquartered in Brazil and operate exclusively in the real estate sector.
Gafisa also holds a 30% interest in the capital stock of Alphaville.



Of our 130 SPEs or
invested companies, 96 are wholly-owned by us, we hold an interest of 50% or less in 25, and the remaining 9 are majority-owned
by us.



Intellectual Property



Trademarks



Our trademarks are
filed or registered in Brazil with the Brazilian Institute of Industrial Property (Instituto Nacional de Propriedade Industrial),
or the “INPI,” which is the competent body for, among others, trademarks’ and patents’ registries in Brazil.
Additionally, the trademark “Gafisa” is also registered
before the competent agency for registering trademarks in the United States.



Currently, the registration
process of a trademark takes approximately 24 months from the date of filing of the application until the definitive registration.
From the date of filing of the application to the date of the definitive registration, the applicant has an expectation of right
for the use of the trademark in connection with the products and services for which the trademark was applied.



Each trademark registration
is effective for a 10-year period and is renewable for equal and successive periods. The renewal of a trademark registration is
granted upon request accompanied by payment of renewal fees during the final year of the trademark’s registration period
or within the 6-month waiting period after its expiration. In case of non-payment, the registration is definitively archived
by INPI, requiring the filing of a new application.



A trademark registration
may be cancelled in the case of (1) the expiration of its renewable
10-year validity term; (2) the trademark owner’s or holder’s waiver, in whole or in part, of the rights granted
by registration; (3) the forfeiture, or the applicant’s or the holder’s failure to use a registered trademark in connection
with related goods or services for a period longer than five years; or (4) the failure to appoint a Brazilian resident with the
power to represent the applicant or holder in administrative or judicial proceedings, in cases where the applicant or the holder
resides abroad.



As of the date of
this annual report, we had approximately 52 pending trademark applications and 131 trademarks registered in Brazil with the INPI.



Our most significant
trademark is “Gafisa,” which is duly registered with the INPI in the relevant market segment.



Domain Name



As of the date of
this annual report, we, together with our subsidiaries, were the owners of approximately 225 domain names including our and our
subsidiaries’ principal websites. The term of each domain name registration is usually one year and is renewable for equal
and successive periods. An annual fee payment is necessary for the maintenance of the domain name registrations. Other than non-payment
of the annual fee, domain name registration may be cancelled by: (1) express waiver of the owner; (2) irregularities in the data
form as requested by the respective agency; (3) non-compliance with applicable regulations; (4) judicial order; or (5) in the case
of foreign companies, non-compliance with the obligation to initiate the company’s activities in Brazil. Our domain names
will, unless renewed, expire between May 2019 and April 2023. We will seek to renew our domain names expiring in 2019, after evaluating
their continuing applicability.



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Patents



We have no patents
registered in our name.



Software Licenses



Most of the software
we use in our daily business refers to common computer programs, such as Windows, SAP and AutoCAD. Additionally, we own all required
licenses of use in connection with such software. The use of computer software without the acquisition of proper licenses is considered
a felony subject to both criminal and civil liabilities, including the payment of fines and restrictions of future use of the applicable
software.



Licenses



Under Brazilian laws,
we are required to obtain a variety of licenses for each of our new developments. As of the date of this annual report, we have
obtained all necessary licenses and permits to operate our business.



Insurance



We maintain insurance
policies with leading Brazilian insurance companies, such as Allianz Seguros S.A., Chubb do Brasil Companhia de Seguro, AXA Seguros
S.A., Porto Seguro Cia de Seguros Gerais, Swiss RE, Fator Seguradora, Ace Seguradora, Berkley Seguros, Tokio Marine Seguradora
S.A, J Malucelli Seguradora S.A., Zurich Brasil Seguros and Pottencial Seguradora with coverage for, among others, (1) potential
risks arising from the commencement of construction, including property damages, business interruption, engineering risks, fire,
falls, collapse, lightning, and gas explosion; (2) construction errors; (3) performance bonds; and (4) losses arising from damages
or defense costs associated with litigation resulting from misconduct of directors and officer. Such insurance policies contain
customary specifications, limits and deductibles. Additionally, we do not maintain any insurance policy for our properties after
construction is completed.



According to Brazilian
Federal Law, it is mandatory that homebuilders have insurance policies in force with coverage for, among others, damages and losses
related to civil liabilities and performance bonds. Failure or default in contracting any compulsory insurance required by applicable
legislation is subject to a penalty amounting to the higher amount between (1) twice the premium price of the insurance that should
have been contracted; and (2) ten percent of the insured property value. Additionally, no operating authorization or license (or
the renewal of any existing license) shall be granted to companies subject to compulsory insurance in default of the aforementioned
obligations.



Our management believes
that the insurance coverage for our properties is adequate and that our insurance policies are customary for our industry in Brazil
and adequate for applicable regulations.



Regulatory Framework



Brazilian Government
and Real Estate Sector Regulations.



The real estate sector
is directly regulated by the Brazilian government and is indirectly impacted by the government’s regulations on the availability
of credit. Regulations include development policies, zoning restrictions and environmental laws which can determine the availability
of different products offered in the market. For example, city master plans and zoning laws restrict the types of real estate developments
that can be constructed in a given area.



As a general rule,
the NBCC requires that the transfer of title of real estate properties, as well as the assignment, transfer, change or waiver of
rights on real estate properties, be carried out by means of a public deed, except in certain cases, such as when the Real Estate
Finance System (Sistema Financeiro Imobiliario), or SFI, or the SFH, are involved. The intent of this rule is to increase
the security of real estate property transfers.



According to applicable
law, transfer of real estate title is only deemed effective upon the registration of the transfer with the relevant Real Estate
Registry Office. The procedure for the execution of public deeds and also the respective registration with the Real Estate Registry
Office (Registro Imobiliário) is regulated by the Brazilian Law of Public Registers (Lei de Registros Públicos),
in particular Law No. 6,015 of December 13, 1973.



Real estate development



Real estate development
activities are regulated by Law No. 4,591 of December 16, 1964, as amended, or Law No. 4,591. The main duties of a developer are
to: (1) obtain all required construction approvals and authorizations



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from the proper authorities;
(2) register the development with the Real Estate Registry Office (without registration, the developed units cannot be sold); (3)
indicate in the preliminary documents the deadline for the developer to withdraw from the development; (4) indicate in all advertisements
and sales contracts the registration number of the development with the Real Estate Registry Office; (5) oversee the construction
of the project established by the contract which must be in accordance with the approval granted by the authorities; (6) deliver
to the final owner the completed units, in accordance with the contractual specifications, and transfer to the final owner the
title of the unit by signing the final sale deed; (7) assume sole responsibility for the delivery of the developed units to the
respective purchasers; (8) assume sole responsibility in the event the construction of the unit is not in accordance with the advertisements
and sale contracts; and (9) provide construction blueprints and specifications along with the joint ownership agreement to the
proper Real Estate Registry Office. The final owner is obligated, in turn, to pay the price related to the cost of the land and
the construction.



The construction of
the real estate units may be contracted and paid for by the developer or by the final owners of the units. Brazilian law provides
for two pricing methods in real estate development: (1) construction under contract and (2) construction under a system of management.
In construction under contract, the contracting parties will either set a fixed price, stipulated before the construction begins,
or agree on an adjustable price pegged to an index determined by the contracting parties. In construction under a system of management,
an estimated price is agreed upon by the contracting parties, but no fixed final price is provided at the beginning of the construction
process. The actual amount that purchasers of the units pay depends on the monthly costs of the developer or contractor.



In
addition, in order to increase the legal and economic confidence in the real estate development sector, Law No. 4,591 was recently
amended by Law No. 13,786, enacted on December 12, 2018, providing for and regulating the possibility of unilateral dissolution
or termination of purchase and sale agreements involving real estate development activities.



Urban land subdivisions



Urban land subdivisions
consist of subdivisions of urban land parcels into building lots and the construction of new roads and other infrastructure, and
are regulated by Law No. 6,766 of December 19, 1979 - the Brazilian Law of Urban Land Subdivision (Lei de Parcelamento do Solo),
as amended, or Law No. 6,766. Law No. 6,766 governs urban land subdivisions and establishes, among other things, the planning and
technical requirements for this form of land parceling and the obligations of the developers, and also provides for fines and sanctions
in the event of violation of its provisions.



Under Law No. 6,766,
land subdivisions are intended for the creation of lots in urban areas or urban expansion zones, as defined by the planning director
or approved by municipal law, and must comply with Law No. 6,766.



For the construction
of land subdivisions, the developer must proceed through the following steps: (1) prior to developing the land subdivision plan,
it must request the municipality in which the development will be located to issue directives on use policies specifically to the
land, such as the delineation of lots, road and street systems and areas reserved for municipal or community properties; (2) pursuant
to the directives issued by the municipality, it must develop a plan for the proposed land subdivision and present it to the municipality
for approval, including the plans, designs, descriptions, and schedule for performance of the work, among other documents; and
(3) after approval for the land subdivision project is obtained, it must be submitted for recording in the property registry of
the appropriate Real Estate Registry Office within 180 days. The approval may be revoked and treated as expired if it is not submitted
for recording within the 180-day period.



In addition to the
approval of the project by the municipality in which the development will be located, the approval of other governmental bodies
may be necessary in cases where the land subdivision: (1) is located in an area of special interest, such as a protected cultural,
historical, landscape and archeological heritages site as defined by state or federal legislation; (2) is located in the boundary
area of a city, belongs to more than one municipality, or is in a metropolitan region or urban agglomeration as defined in state
or federal law; or (3) has an area greater than 1 million square meters. In the case of land subdivisions located in a municipality
area that is within a metropolitan area, the examination and prior consent to the approval of such project will be subject to the
metropolitan authority.



The legal requirements
for the approval of the land subdivision by a municipality include: (1) the developer must preserve a percentage of the land used
for residential communities as open spaces for public use and for municipal or community properties with the percentage determined
by each municipal zoning code; (2) each lot must have a minimum area of 125 square meters and the distance between the building
and the street must be at least five meters; (3) the developer must reserve 15 meters of land on either side of running or still
water and of strips of public domain



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land for roads and highways;
and (4) the allotment procedures must be coordinated with the official adjacent tracks, existing or projected, and harmonized with
the local topography.



Law No. 6,766 also
sets forth locations where subdivisions are not permitted, such as: (1) on wetlands and lands subject to flooding, until measures
have been taken to assure water drainage; (2) on land that has been filled with material that is a public health hazard, unless
previously cleaned up; (3) on land that has a slope equal to or greater than 30 degrees, unless the requirements of the appropriate
authorities have been met; (4) on lands where geological conditions make buildings inadvisable; and (5) in ecological preserves
or areas where pollution creates unacceptable sanitary conditions, until corrected.



In order to offer
greater security to the property market, Law No. 6,766 prohibits the sale or promise of sale of any lot that is the result of a
subdivision where the developer has not previously obtained approval by the appropriate municipality and the development has not
been recorded with the respective Real Estate Registry Office. If any such lot is sold or contracted to be sold, the developer
and any person or legal entity benefiting from such sale or promise of sale shall be jointly liable for the resulting damages to
the purchaser and the public authorities.



Law
No. 6,766 was recently amended by Law No. 13,786, enacted on December 12, 2018, which granted the buyer the right to restitution
of the amounts already paid to a developer when the agreement is terminated due to the breach of the buyer’s obligations
as provided therein, increasing and/or deducting, whichever is applicable, the amounts originally stipulated thereby. The penalty
due by the buyer must not exceed 10% of the value of the agreement adjusted for inflation, and the amounts must be reimbursed by
the developer, who can make the payments in up to 12 installments, the first one being due no later than (i) 180 days from the
date expected for the conclusion of the construction, or (ii) 12 months from the termination of the relevant agreement, if the
construction has been concluded.



Assets for Appropriation



Law No. 10,931 of
August 2, 2004, as amended, provides for certain protection of real estate assets. Accordingly, such protected assets are segregated
from other properties, rights and obligations of the developer, including other assets previously appropriated, and such appropriated
assets can only be used to guarantee debts and obligations related to the respective development. The appropriated assets are considered
bankruptcy free and will not be affected in the event of bankruptcy or insolvency of the developer. In the event of a bankruptcy
or insolvency of the developer, joint ownership of the construction may be instituted by a resolution of the purchasers of the
units or by judicial decision. The joint owners of the construction will decide whether the project will proceed or the assets
appropriated will be liquidated. Developers may also opt to submit a project to appropriation in order to benefit from a special
tax system. Under this system, land and objects built on the land, financial investments in the land, and any other assets and
rights with respect to the land are considered to be protected for the benefit of the construction of that development and the
delivery of the units to the final owners, and are thus separate from the remaining assets of the developer.



In addition, in order
to encourage the use of the appropriation system, Laws No. 11,977 of July 7, 2009 (amended by Law No. 12,249 enacted on June 11,
2010, Law No. 12,424 enacted on June 16, 2011, Law No. 12,693 enacted on July 24, 2012, Law No. 12,722 enacted on October 3, 2012,
Law No. 13,043 enacted on November 13, 2014, Law No. 13,097 enacted
on January 19, 2015, Law No. 13,274 enacted on April 26, 2016, Law No.
13,465 enacted on July 11, 2017 and Law No. 13,590 enacted on January 4, 2018) and No. 12,844 of July 13, 2013, which granted
tax benefits for the adoption of the system by reducing tax rates on appropriated assets from 7% to 4% and, in the case of the
appropriated assets under the public housing program “Minha Casa, Minha Vida,” the rates were reduced from 7%
to 1%, until December 31, 2018, by Law No. 13,097, enacted January 19, 2015.	We have not yet utilized the appropriation system
for any of our real estate developments. We prefer to use our subsidiaries and our jointly-controlled entities for each specific
real estate development. Our subsidiaries and jointly-controlled entities allow us to borrow funds by segregating the credit risk
taken on by the financial institutions.



Credit Policy Regulations



The real estate sector
is highly dependent on the availability of credit in the market, and the Brazilian government’s credit policy significantly
affects the availability of funds for real estate financing, thus influencing the supply of and demand for properties.



Housing Finance System,
or “SFH”



Law No. 4,380 of August
21, 1964, as amended, created the SFH to promote the construction and ownership of private homes, especially for low income earners.
Financing resources under the SFH’s control are provided by the Government Severance Indemnity Fund for Employees (Fundo
de Garantia do Tempo de Serviço), or “FGTS,” and from savings account
deposits.



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The FGTS, created by Law No. 5,107 of September 13, 1966 and regulated by Law No. 8,036 of May 11, 1990, imposes a mandatory
8% employee payroll deduction on all employees in Brazil. Employees maintain FGTS accounts, which are similar to pension funds,
and are allowed, among other things, to use the funds deposited in the accounts for the acquisition of real estate property under
certain circumstances, as set forth by applicable law. The CEF is the agency responsible for managing the funds deposited in the
FGTS. In order to be eligible for the financing, the beneficiary must purchase a completed unit or unit under construction priced
at up to R$950,000 (price applicable to the States of Rio de Janeiro, São Paulo, Minas Gerais and Distrito Federal) or R$800,000
(price applicable to other Brazilian States). In addition, the beneficiary shall (1) not own or be the committed purchaser of any
residential real estate financed by the SFH within Brazil; (2) not own or be the committed purchaser of, any real estate property
built or under construction in both his or her current city of residence and the city where the beneficiary conducts his or her
main activities; (3) reside for at least one year in the city where the property is located; (4) pay the FGTS; and (5) be registered
for at least three years with the FGTS regime. The unemployed also have access to the FGTS to purchase real estate property provided
that he still has funds on the FGTS account (where the 8% payroll deduction was deposited while employed).



Financings that originate
from savings account deposits in the entities comprising the Brazilian Saving and Loan System (Sistema Brasileiro de Poupança
e Empréstimo), or “SBPE,” are regulated by the Central Bank. Such financings can be obtained through the
SFH, which is strictly regulated by the Brazilian government, or through the mortgage portfolio system, where banks are free to
set the financing conditions. SFH financing offers fixed interest rates lower than the market rates, capped at around 12% per year,
and SFH financing contract terms vary, in general, between 15 and 30 years. The mortgage portfolio system financing offers market
interest rates as determined by the financial institutions, generally varying between 18.5% and 12% per year.



CMN Resolution No.
3,932/2010 provides for the allocation of the funds deposited in savings accounts in the entities comprising SBPE and states that
the following conditions must be met for SFH financing: (1) the maximum amount of the financing is 80% of the appraisal price of
the property, as a general rule; (2) the maximum appraisal price for the financed unit is R$950,000 (applicable to the States of
Rio de Janeiro, São Paulo, Minas Gerais and Distrito Federal) or R$800,000 (applicable to other Brazilian States); (3) the
maximum actual cost to the borrower, which includes charges such as interest, fees and other financial costs, except insurance
and other costs, may not exceed 12% per year; and (4) the borrower is responsible for the potential outstanding balance verified
at the end of the financing term, (such term might be extended by half of the initial term).



SFH financings need
to be secured by at least one of the following: (1) a first mortgage over the unit that is being financed; or (2) a conditional
sale over the unit that is being financed, as prescribed by Law No. 9,514 of November 20, 1997, as amended by Law No. 10,931 of
August 2, 2004, Law No. 11,076 of December 30, 2004, Law No. 11,481 of May 31, 2007, Law No. 12,703 of August 07, 2012, Law No.
12,810 of May 15, 2013, Law No. 13,043 enacted on November 13, 2014, Law No. 13,097 enacted on January 19,2015 and Law No. 13,465
enacted on July 11, 2017 (“Law no. 9,514”), (3) a first mortgage or conditional sale, as determined by Law No. 9,514,
of other property owned by the borrower or by a third party or (4) other guarantees, as established by the financing agent. SFH
funds are only released upon the formalization of one of these methods of guaranteeing the loan.



As of 2014, the federal
government implemented changes to the regulations on financing and construction in order to promote growth in the real estate market.
The implemented measures are, among others: (1) all the acts involving immovable property will be entered on the property’s
record in the land registry office, i.e., unregistered acts and actions enforceable against third parties in good faith, even if
the unregistered act or action challenges ownership to the property; (2) the buyer of a real estate property will be able to give
property as guarantee to finance another, or to purchase other assets with funds raised in savings accounts; (3) banks can issue
Real Estate Covered Bonds (Letras Imobiliárias Garantidas, or “LIGs”), pursuant to CMN Resolution No.
4,598, enacted on August 29, 2017, which is exempt from income tax to raise more funds and borrow to finance the purchase of real
estate; and (4) banks may grant payroll loans, in which the parcels will be charged to the worker’s salary in the private
sector with more facilities, resulting in lower interests.



Mortgage portfolio



While a large portion
of the funds in the deposits in saving accounts are allocated to the SFH, some of the funds are allocated to loans granted at market
rates. CMN Resolution No. 3,932/10, as amended, established that at least 65% of these deposits should be used for real estate
financing, with a minimum of 80% of the financing going to housing loans under the SFH and the remaining balance for loans granted
at market rates which are usually higher than in SFH loans, including mortgage portfolio used by banks for the concession of housing
loans.



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In early 2005 the
Brazilian government took a number of measures to better regulate the use of the funds raised in savings account deposits in order
to promote growth of the real estate sector, these measures included: (1) the cancellation of payments to the Central Bank of funds
not invested in real estate financing in January, February and March; (2) the creation of a real estate interbank deposit market
to allow financial institutions with excessive investments in real estate to trade with financial institutions that have capacity
for more real estate credits; (3) a review of the factors used in the calculation guidelines of the SFH in order to stimulate financing
for the acquisition of new real estate properties at a low cost, applicable as of January 1, 2005; and (4) authorization for the
SFH to provide financing to legal entities for the construction of development projects for their employees, provided that such
entities follow all SFH guidelines.



In 2014, the Brazilian
government adopted measures to facilitate the purchase of financed properties, as discussed in SFH above, and in 2016, the increase
in the operating limits of the SFH to units with a maximum sales prices of R$800,000 and R$950,000 (applicable only to the States
of Rio de Janeiro, São Paulo, Minas Gerais and the Distrito Federal). These changes have significantly increased
the funds available for investments in the Brazilian real estate sector.



Real Estate Finance System,
or “SFI”



The SFI was created
by Law No. 9,514 to establish assignment, acquisition and securitization criteria for real estate credits. The system seeks to
develop primary (loans) and secondary (trading of securities backed by receivables) markets for the financing of real estate properties
by creating advantageous payment conditions and special protection of creditors’ rights. The SFI supervises real estate financing
transactions carried out by savings banks, commercial banks, investment banks, real estate credit portfolio banks, housing loan
associations, savings and loan associations, mortgage companies and other entities authorized by the CMN to provide such financing.
SFI real estate credits may be freely negotiated by the parties, under the following conditions: (1) the amount loaned and the
related adjustments must be fully reimbursed; (2) interest must be paid at the rates established by the contract; (3) interest
must be capitalized; and (4) borrowers must purchase life and permanent disability insurance.



Real estate sales,
rental, or other real estate property financing in general, can be negotiated with non-financial institutions under the same conditions
permitted by authorized entities under the SFI. In these cases, non-financial entities are authorized to charge capitalized interest
rates greater than 12% per year.



The following types
of guarantees are applicable to loans approved by the SFI: (1) mortgages; (2) fiduciary assignment of credit rights resulting from
sales contracts; (3) guarantee of credit rights resulting from contracts of sale or promise of sale of property; and (4) conditional
sale of real estate property.



Law No. 9,514 also
reformed securitizations of real estate assets provisions, making them less expensive and more attractive. The securitization of
credits in the context of the SFI is made through real estate securitization companies, non-financial institutions formed as joint
stock companies whose objective is to acquire and securitize real estate credits. Funds raised by the securitizing companies can
be made through the issuance of debentures or notes, or the creation of a new type of CRI. According to applicable law, CRIs are
nominative credit securities issued exclusively by securitizing companies, backed by real estate credits, freely negotiated, and
payable in cash. CRIs tend to have, among others, the following characteristics: they are issued in book-entry form, they may have
fixed or floating interest rates and can be paid in installments, they may contain adjustment provisions, they are registered and
traded through centralized systems of custody and financial settlement of private securities and they can be secured by the assets
of the issuing company.



Minha Casa, Minha Vida
program



Provisional Measure
No. 459 enacted on March 25, 2009, converted into Law No. 11,977 enacted on July 7, 2009, amended by Law No. 12,249 enacted on
June 11, 2010, Law No. 12,424 enacted on June 16, 2011, Law No. 12,693 enacted on July 24, 2012, Law No. 13,043 enacted on November
13, 2014 and Law No. 13,097 enacted on January 19, 2015, created a public housing program called “Minha Casa, Minha Vida.”
Provisional Measure No. 514 enacted on December 1, 2010, converted into Law No. 12,424 enacted on June 16, 2011, modified the aforementioned
legislation, which calls for government investment of more than R$30 billion and is focused on building one million houses for
families with monthly incomes of up to ten times the minimum wage. Under this program, the government is authorized to finance
families purchasing houses with assessed values between R$90,000 and R$240,000. Law No. 12,868 enacted on October 15, 2013, released
resources for “Minha Casa Melhor”, in which CEF provides to each beneficiary of the program “Minha
Casa Minha Vida” subsidized credit up to R$5,000 for the purchase of furniture and appliances, with interest rate of
5% per year and repayable in 48 months.



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Municipal Legislation



Municipal planning
is regulated by articles 182 and 183 of the Federal Constitution and by Law No. 10,257 of July 10, 2001 (Estatuto da Cidade),
as amended, or Law No. 10,257. Law No. 10,257 provides, among other things, for the establishment of (1) rules for the parceling,
use and occupation of urban tracts of land in each municipality for the collective welfare and environmental balance of the community;
and (2) a master plan, which shall be reviewed every 10 years. The master plan is the guiding tool used to plan developments in
the urban areas of each municipality and is used as a reference by all public and private agents acting within the municipality.
It establishes the strategic goals and general guidelines for urban construction, the objectives and guidelines for differentiated
areas of planning and the instruments for their deployment.



We set out below certain
details of the laws governing the municipal planning of the two major cities in which we operate, São Paulo and Rio de Janeiro:



São Paulo municipality



City laws govern the
zoning, construction, parceling, use and occupation of land in the municipality of São Paulo. They set forth technical and
urban planning requirements for parceling, and provide that the division, subdivision or segregation of urban tracts of land are
subject to the prior approval of the São Paulo municipal government. Moreover, the zoning laws describe the types of permissible
uses for the land and their respective characteristics, by dividing São Paulo into areas of use with fixed locations, limits
and boundaries. They also provide for fines and sanctions for noncompliance.



Municipal Law No.
11,228 of June 25, 1992, approved the Code of Works and Construction, regulated by Decree 32,329 of September 23, 1992, which governs
administrative and executive procedures and sets forth the rules to be followed in the planning, licensing, execution, maintenance
and use of public works and construction within properties in the municipality of São Paulo, and provides for sanctions
and fines applicable in cases of non-compliance with these rules.



On July 31, 2014,
Municipal Law No. 16,050 was published, replacing Municipal Law No. 13,430 of September 13, 2002, approving the master plan and
creating the Planning System of the municipality of São Paulo and regulating the new master plan of the municipality. The
new master plan provides a series of guidelines for the development and growth of the city of São Paulo for the next 16
years, in order to (i) incentivize the use of public and non-motorized forms of transport; (ii) reduce the housing deficit; (iii)
improve the access of residential areas to commercial areas of the city; and (iv) incentivize the development of urban areas already
equipped with public transportation infrastructure, among other guidelines.



On March 22, 2016,
Municipal Law No. 16,402 was published, replacing Municipal Law No. 13,885 of August 25, 2004, regulating the new rules regarding
the parceling, use and occupation of land in the municipality of São Paulo.



Rio de Janeiro municipality



Decree 322 of March
3, 1976, as amended, of the Municipality of Rio de Janeiro, and
Decree “E” 3,800 of April 20, 1970, as amended, of the then State of Guanabara, jointly created the municipality’s
Zoning Regulation, Land Parceling Regulation and Construction Regulation. These regulations control the use of the municipality
land, including urban zoning, use of properties, development of construction sites and conditions for the use of each zone in the
municipality. The Ten-year master plan of the municipality, approved pursuant to Supplementary Law No. 111 of January 1, 2011,
establishes rules and procedures related to urban policy of the municipality, determines guidelines, provides instruments for its
execution and defines area policies and their related programs, aiming at meeting the social needs of the city.



On
January 14, 2019, Municipal Law No. 198 was published, replacing the former Code of Works and Construction of the Municipality
of Rio de Janeiro. The new Code has only 40 articles, replacing the over 500 provided for in the former code, and its principal
goal is to modernize and simplify the rules for developers. The simplification of the licensing process allows for more flexible
urbanization parameters. Among the important changes brought about by Law No. 198, we highlight the following:



(i)
Minimum Size: The new rule allows for properties with a minimum size of 25 square meters (or 82 square feet), except in the boroughs
of Barra da Tijuca, Recreio dos Bandeirantes, Vargem Grande, Vargem Pequena and Ilha do Governador. According to the old rules,
the minimum useable area of the apartments varied from 28 square



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meters
(91 square feet) in the Central and Northern regions and 60 square meters (196 square feet) in the Southern Region;



(ii)
Parking: It is no longer required for a building built within a radius of 800 meters (2,624 feet) from an underground, train, BRT
and/or VLT station to have at least one parking space for each one of its individual units. The requirement now is one parking
space for every four apartments;



(iii)
Playground: It is no longer required for a building to have a playground;



(iv)
Marquees: Marquees, which have been forbidden since 2007, are once again allowed in the city’s building designs;



(v)
Elevators: Elevators are now required only in buildings with more than five stories;



(vi)
Cultural Heritage Buildings: Cultural Heritage Buildings may have their use changed, pursuant to the compliance with the rules
enforced by the preservation regulatory bodies;



(vii)
Balconies: No limits on the construction of a balcony were established in the new code. Sealing off balconies is still allowed,
provided that the legal requirements are met;



(viii)
Mezzanines: Non-residential units may have a mezzanine that occupies 100% of its useable area pursuant to payment of a fee to City
Hall;



(ix)
Condo Villages: It is once again permitted to build condo villages in town, which may have up to 36 units. According to the old
rules, these used to be allowed only in the boroughs of Campo Grande and Tijuca. The code also determines that the upkeep of the
village street, its entrance and common services are the obligation of its occupants;



(x)
Bike Racks: It is now required of residential buildings to have a designated place for storing bicycles; and



(xi)
Retrofit: The rules for the calculation of the Total Built Area, parking spaces and adaptation of the building in the retrofitting
of existing buildings have been made more flexible.



Environmental Issues



We are subject to
a variety of Brazilian federal, state and local laws and regulations concerning the protection of the environment, as well as urban
regulations and zoning restrictions, as described below. Applicable environmental laws may vary according to the development’s
location, the site’s environmental conditions and the present and former uses of the site. Compliance with these environmental
laws may result in delays, cause us to incur in substantial costs, and prohibit or severely restrict project development. Before
we purchase any real estate, we conduct investigations of all necessary and applicable environmental issues, including the possible
existence of hazardous or toxic materials, as well as any inadequately disposed waste substances. During the investigations we
also identify the existence of water wells and protected vegetation, observing the proximity of the real estate property to permanent
preservation areas. We generally condition the real estate property acquisitions on obtaining the required regulatory approvals
prior to closing.



We have adopted certain
practices to further our commitment to environmental protection and landscape development. Through our Selective Collection Project,
we have partnered in environmental education initiatives with private and governmental entities, including non-governmental organizations.
We provide training to all of our outsourced workers (before we begin work on any particular project), that focuses on the importance
of preserving the environment and how to effectively collect, store and control materials for recycling. Alphaville was given the
“ECO Award” in 2006 and 2007 (by the American Chamber of Commerce), the “Top Ambiental Award” (Top Environmental
Award) in 2007 and 2008 (by the Brazilian Association of Marketing and Sales Agents, in recognition for its environmentally responsible
practices) and the “Top Social Award” in 2008 and 2009 (by the Brazilian Association of Marketing and Sales Agents,
in recognition for its socially responsible practices). Our Eldorado Business Tower building is the first building in Latin American,
to be pre-certified by the U.S. Green Building Council as a Leed CS 2.0 Platinum building for leadership in energy and environmental
design.



Environmental licenses
and authorizations



Brazilian environmental
policy requires environmental licenses and permits for the construction and operation of real estate projects. Environmental licensing
is required for both initial construction and alteration in existing developments, and the licenses must be periodically renewed.
The Brazilian Institute of Environment and Renewable



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Natural Resources (Instituto
Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis), or the IBAMA, is responsible for granting such licenses
for projects developed in two states or in federal conservation units. In other cases, state or municipal environmental agencies
are responsible for granting such environmental licenses, depending on the extent of environmental impacts caused by certain projects.



The environmental
licensing process is comprised of three stages: preliminary license, installation license and operational license. The preliminary
license, issued during the preliminary planning phase of the project, authorizes the location and basic development, and establishes
the conditions and technical requirements to be observed in further stages of development. The installation license authorizes
the facility’s construction. The operating license authorizes the commencement and continuation of operational activities.
Operating licenses are subject to compulsory renewal depending on their validity. The licensing of activities that may significantly
impact the environment, as determined by the competent environmental agency and according to the Environmental Impact Assessment
and its related Report (“EIA/RIMA”), requires environmental offset payments, to be invested in conservation units (e.g.
national parks, biological reserves etc.), pursuant to Article 36 of Law No. 9,985/00. The value of the environmental offset is
established by the environmental agency conducting the licensing proceeding, according to the “ecosystem impact level”
of the proposed activity, pursuant to Article 31-A of Federal Decree No. 6,848/09.



The installation,
operation or alteration of projects without proper and valid environmental licensing or the non-compliance with the conditions
or technical requirements of the respective environmental licenses, may subject the violator to administrative sanctions that may
range from fines (R$500 to R$10 million), as well as the suspension of activities and, depending on the specific circumstances,
criminal liability (of individuals and/or companies), pursuant to Federal Law No. 9,605/98 and civil liability (in case environmental
damage occurs).



The construction,
maintenance and sale of our projects may be hampered or halted by delays in the issuance of applicable licenses or even by failure
to obtaining such licenses.



The construction of
real estate developments often requires land moving activities, and in many cases, the cutting down of trees. In addition to environmental
licenses and permits, Brazilian legislation requires specific environmental authorizations for the development of projects, based
on the characteristics of the project, its location and the natural features inherent to the area. The development of projects
that require the cutting of trees or removing vegetation must receive specific authorizations from environmental agencies. Companies
that apply for an authorization for vegetation removal are required to perform the reforestation of other areas as a compensatory
measure, such as reforestation or to repair the affected areas, which may imply additional expenses. Brazilian legislation also
requires special protections for certain specific types of flora and areas with special ecological purpose, imposing additional
legal requirements to removal of such vegetation.



The removal of vegetation
without proper and valid authorization, or non-compliance with the authorization requirements, may subject the transgressor to
civil liability (in case environmental damage occurs), administrative sanctions (such as fines) and, according to specific circumstances,
criminal liability (of individuals and/or companies), pursuant to Federal Law No. 9,605/98.



The licensing of projects
with relevant environmental impacts located in a conservation unit or within its buffer zone will depend on prior authorization
from the conservation unit’s managing office.



In addition, the development
of projects that require water abstraction from bodies of water or groundwater, as well as the discharge of effluents into water
bodies, are subject to specific water use grants, to be issued by the relevant authorities. Water use grants are subject to certain
conditions and technical requirements, including maximum capacity requirements and effluent treatment standards, and are subject
to automatic renewal.



Moreover, some of
our projects require the transfer of wildlife to other areas, which is subject to specific authorizations issued by the state environmental
agencies. To catch, handle and transfer wildlife without the proper authorization may result in administrative sanctions of up
to R$5,000.00 per animal, pursuant to Federal Decree 6,514/08.



Waste disposal



Brazilian legislation
relies on several standards and procedures for waste management. All waste must be properly stored, treated, transported and disposed
of, in order to avoid the occurrence of environmental damages – and as a result, environmental liability.



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The Brazilian “National
Waste Management Policy” (Federal Law No. 12,305/10) and CONAMA Resolution 307/2002 specifically regulate the handling of
solid waste generated by the construction sector. As part of their licensing procedure, companies are required to present and have
a solid waste management plan approved by competent environmental agency and must comply with the conditions and obligations set
forth in such plan. Failure to comply with such obligations may lead to civil (obligation to repair/indemnify in case of pollution),
administrative (e.g. fines, suspension of activities etc.) and, according to specific circumstances, criminal liability.



Regarding civil liability,
because Brazilian legislation imposes strict, joint and several liability for environmental damages, companies may be held liable
for any environmental damages that may arise as a result of its activities, including waste generated thereof, which must be properly
stored, treated, transported and disposed of. Likewise, the hiring of third parties for management of waste generated from our
activities does not exempt us from civil environmental liability.



Contaminated areas



We develop and construct
projects in several states within Brazil. Each state has its Environmental Secretary and/or Environmental Agency. The São
Paulo State Secretary of Environment (Secretaria de Estado do Meio Ambiente de São Paulo), or the “SMA,”
and the State Environmental Agency of São Paulo (Companhia Ambiental do Estado de São Paulo), or “CETESB,”
are the principal environmental regulatory entities of the State of São Paulo, and they have adopted procedures with regard
to the management of contaminated areas, including the creation of environmental standards to preserve the quality of land and
underground water, as well as procedures to be complied with if contamination is confirmed. The standards established by CETESB
are used as reference by most Brazilian states that have no specific regulation on contaminated land management.



In addition, the Rio
de Janeiro State Secretary of Environment (Secretaria de Estado do Meio Ambiente e Desenvolvimento Urbano do Rio de Janeiro)
and the Rio de Janeiro State Environmental Agency, or “INEA,” also maintain their own quality standards, in combination
with those established by the National Environmental Council (Conselho Nacional do Meio Ambiente), or “CONAMA.”
Other states have similar requirements.



If contaminated areas
are identified in the development of our projects, we must provide proper disclosure to environmental authorities and registration
before real estate property records. Given the strict liability regime, we may be required to proceed with the remedial actions
deemed necessary by environmental agencies in order to comply with technical standards set forth for each kind of project, even
if we have not caused the contamination, and may result in delays for the project development’s completion. Prior approval
from environmental agencies before engaging in remedial actions may be necessary. All emergency actions to prevent and mitigate
risks to the environment and public health, if required, must be adopted promptly and at our expense.



Non-compliance with
the guidelines established by the environmental and health entities may result in criminal, as well as administrative penalties.
Moreover, the owners and holders of properties may be required to pay for costs relating to the clean-up of any contaminated soil
or groundwater located in their properties, even if they did not cause the contamination.



If there are contaminated
areas in the properties where our projects will be developed, this must be disclosed to our clients.



Environmental liability



Article 225 of the
Brazilian Federal Constitution, provides that “activities that are harmful to the environment shall subject violators, whether
individuals or companies, to criminal and administrative sanctions, regardless of the obligation to repair the damage caused.”
Therefore, the Brazilian Federal Constitution provided for environmental liability in three distinct fields: civil, administrative
and criminal. As an example, payment of an administrative fine does not offer exemption from the duty to make reparations or indemnify
for damages that might be caused by harmful conduct, nor does it offer exemption from possible criminal charges prompted by the
event.



Civil environmental
liability in Brazil is considered by case law as propter rem, that is, liability attaches to the real estate property. Therefore,
whoever buys or holds environmentally damaged land will succeed in the liability for the clean-up or recovery and for reparation
of potential damage to third parties. Although this liability can be contractually allocated between the parties, it cannot be
opposed either administratively or before third parties, meaning the concept of a bona fide prospective purchaser does not
exist in civil environmental liability in Brazil.



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In addition, Federal
Law No. 6,938/81 establishes strict liability for the recovery of environmental damages or, if not possible, compensation or indemnity
for such damages, with joint and several liability established among all those directly or indirectly contributing to environmental
degradation, regardless of the degree of participation in the damage. Each of those involved may be held liable for the full amount
of the damages. Moreover, pursuant to Article 4 of Federal Law 9,605/1998, Brazilian environmental legislation determines that
the corporate veil may be pierced whenever the veil is considered to be an obstacle to recovery for environmental damages. As a
result, the controlling legal entity can be found liable despite a limited liability legal status.



At the administrative
level, environmental liability may be assigned through administrative sanctions imposed by the competent environmental entities,
pursuant to Law No. 9,605/98 which “rules on the criminal and administrative sanctions deriving from conduct and activities
that are harmful to the environment” and pursuant to Federal Decree No. 6,514/08. These sanctions may include, among
others: (1) fines of up to R$50 million, tailored to the economic capacity and track record of the offender, in addition to the
severity of the facts and past performance, with the possibility of these fines being imposed at double or triple rates for repeated
offenses; (2) suspension or interdiction of the activities of the respective enterprise; and (3) withdrawal of tax incentives and
benefits. Administrative liability falls on the person engaged in the conduct described as an administrative offense.



Criminal liability
is personal, arising directly from the unlawful conduct of the agent, with the crimes necessarily being specifically addressed
in the law. Brazilian law allows criminal liability to be assigned to individual persons as well as corporate entities. When liability
is assigned to the latter, the individual persons taking the decision that resulted in the criminal conduct (such as directors,
officers, administrators, board members, members of technical entities, auditors, managers, agents or representatives) may also
be penalized to the extent of their culpability.



| | C. | Organizational Structure
| | -- | ------------------------



The following chart
shows our organizational structure for our principal subsidiaries, all of them incorporated in Brazil:







(*) We held 30% of this
entity at December, 2018, 2017 and 2016.



For more information
on our remaining subsidiaries and jointly-controlled entities, see “—B. Business Overview—Subsidiaries.”



| | D. | Property and Equipment
| | -- | ----------------------



We lease our headquarters
located at Av. Pres. Juscelino Kubitschek, No. 1830, Block 2, 3rd Floor, 04543-900 – São Paulo, SP – Brazil.
Currently, we lease approximately 950 square meters in this office. We believe these facilities are adequate for the full development
of our operations.



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As of December 31,
2018, our property and equipment recorded on our balance sheet mainly consisted of sales stands, facilities, model apartments,
computer equipment, vehicles and leasehold improvements, among others, the balance of which was R$20.1 million.



ITEM 4A. UNRESOLVED STAFF COMMENTS



None.



ITEM 5. OPERATING AND FINANCIAL REVIEW
AND PROSPECTS



| | A. | Operating Results
| | -- | -----------------



The financial statements
for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 were prepared in accordance with the accounting practices adopted
in Brazil, which comprise the rules of the Brazilian Securities Commission (CVM), and the standards, interpretations and guidelines
of the Accounting Standards Pronouncements Committee (CPC), and are in compliance with the International Financial Reporting Standards
(IFRS) adopted in Brazil, including the guidance contained in Circular Letter CVM/SNC/SEP 02/2018, of December 12, 2018, which
establishes the accounting procedures for recognition, measurement and disclosure of certain types of transactions arising from
contracts for purchase and sale of real estate unit not yet completed in real estate development entities. The Brazilian GAAP applied
by us is not in compliance with IFRS as issued by IASB.



In December 2016,
following the conclusion of our analysis of certain strategic options, our management decided to sell 50% of Tenda’s total
capital stock, and transfer the remaining 50% of Tenda’s total capital stock to our shareholders in connection with a reduction
in our total capital stock. Accordingly, on December 14, 2016, we entered into an SPA with Jaguar pursuant to which we agreed to
sell Tenda shares representing up to 30% of the total capital stock of Tenda, at a price equal to R$8.13 per share.



The spin-off of the
Tenda business unit was consummated on May 4, 2017, following: (i) a reduction of the capital stock of Tenda (without the cancellation
of shares), pursuant to which Gafisa, as sole shareholder at that time, received R$100 million (adjusted by the SELIC); (ii) a
reduction of the capital stock of Gafisa, resulting in the distribution to Gafisa shareholders of shares corresponding to 50% of
the capital stock of Tenda; (iii) the conclusion of the preemptive rights exercise pursuant to which Gafisa shareholders acquired
up to 50% of the total share capital of Tenda, at the price per share set forth in the SPA with Jaguar and for a total amount of
R$219.5 million, with no shares being acquired by Jaguar; and (iv) the satisfaction of other conditions precedent for the consummation
of the spin-off. In addition, on May 4, 2017, the Tenda shares were listed on the B3 and began to publicly trade.



As a result of this
transaction, the results of operations of Tenda have been presented as discontinued operations under Brazilian GAAP in the Company’s
2017, 2016, and 2015 consolidated statements of operations, and the Company recorded an impairment loss in the amount of R$610.1
million for the year ended December 31, 2016, related to the measurement of disposal group held for sale at the lower of its carrying
value and the fair value less cost to sell, taking into account the price of R$8.13 per share described above. Additionally, for
the period ended May 4, 2017, under Brazilian GAAP, the fair value of discontinued operations was adjusted in the amount of R$215.4
million, considering the weighted average price per share at R$12.12 and the amount of R$107.7 million related to the obligation
to sell Tenda shares at a price equal to R$8.13 per share, which was reflected in the profit or loss of discontinued operations,
in order to reflect the difference between the fair value of the group of assets held for sale and the effective selling price.



See “Item 4.
Information on the Company—A. History and Development of the Company—Historical Background and Recent Developments.”
Our chief executive officer, who is responsible for allocating resources among these businesses and monitoring their progress,
uses economic present value data, which is derived from a combination of historical operating results and forecasted operating
results, to assess segment information primarily on the basis of different business segments.



Overview



We generate our revenues
mainly from the development and sale of real estate developments. We recognize revenues from the sale of real estate developments
over the course of their construction periods, based on a financial measure of completion and not at the time that the sales agreements
are executed. To a lesser extent, we also generate revenues from real estate services such as construction, technical and real
estate management we render to third parties. We structure some of our projects through either our subsidiaries or jointly-controlled
entities organized as special purpose vehicles.



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Brazilian Economic Environment



Our business and results
of operations are significantly affected by changes in the Brazilian economic environment, including changes in employment levels,
population growth, consumer confidence, stability of income levels and availability of financing for land home site acquisitions.



At the end of 2010
and in the beginning of 2011, the Central Bank began implementing more restrictive monetary policies as a precaution against unsustainable
economic growth. In the second half of 2011, with growing uncertainty in economic conditions, due in part to ongoing volatility
in global financial markets, particularly in Europe, the Central Bank began to implement an easing process. As of December 31,
2011, the Central Bank had set the basic interest rate at 11% and the real depreciated by 12.6% relative to the U.S. dollar
in 2011. As of December 31, 2011, the real/U.S. dollar exchange rate was R$1.87 per US$1.00. During this period, inflation
according to the INPC was 6.50%.



By the second half
of 2011, the Brazilian economy faced growing uncertainty and economic conditions began to deteriorate, due in part to ongoing volatility
in global financial markets, particularly in Europe. In order to avoid a contraction in economic growth, the Central Bank began
to implement easing measures combining macroeconomic policies and interest rate decreases in order to stimulate demand.



As of December 31,
2014, the Central Bank set the SELIC rate at 11.75% and the real depreciated 12.7% relative to the U.S. dollar in 2014.
As of December 31, 2014, the real/U.S. dollar exchange rate was R$2.6550 per US$1.00. During this period, inflation according
to the IPCA was 6.4%.



As of December 31,
2015, the Central Bank set the SELIC rate at 14.25% and the real depreciated 47.0% relative to the U.S. dollar in 2015.
As of December 31, 2015, the real/U.S. dollar exchange rate was R$3.9048 per US$1.00. During this period, inflation according
to the IPCA was 10.7%.



As of December 31,
2016, the Central Bank set the SELIC rate at 13.75% and the real appreciated 16.5% relative to the U.S. dollar in 2016.
As of December 31, 2016, the real/U.S. dollar exchange rate was R$3.2591 per US$1.00. During this period, inflation according
to the IPCA was 6.3%.



As of December 31,
2017, the Central Bank set the SELIC rate at 7.0% and the real depreciated 1.5% relative to the U.S. dollar in 2016. As
of December 31, 2017, the real/U.S. dollar exchange rate was R$3.308 per US$1.00. During this period, inflation according
to the IPCA was 2.9%.



As of December 31,
2018, the Central Bank set the SELIC rate at 6.5% and the real depreciated 17.1% relative to the U.S. dollar in 2018. As
of December 31, 2018, the real/U.S. dollar exchange rate was R$3.875 per US$1.00. During this period, inflation according
to the IPCA was 3.75%.



The table below shows
the actual growth of the Brazilian GDP, inflation, interest rates and dollar exchange rates for the periods indicated:



|                                               |  | Year ended December 31,     
|---------------------------------------------- |  | ----------------------------
|                                               |  | 2018                        
|                                               |  | (%, unless otherwise stated)
|Real growth in GDP                             |  |                             
|Inflation rate (INPC)(1)                       |  |                             
|Inflation rate (IGP—M)(2)                      |  |                             
|National Construction Cost Index (INCC)(3)     |  |                             
|TJLP rate(4)                                   |  |                             
|CDI rate(5)                                    |  |                             
|Appreciation (devaluation) of the real vs. US$ |  |                             
|Exchange rate (closing) — US$1.00              |  | R$                          
|Exchange rate (average)(6) — US$1.00           |  | R$                          




| | (1) | INPC: consumer price index measured by the IBGE.
| | --- | ------------------------------------------------



| | (2) | General Market Price Index (Índice Geral de Preços-Mercado) measured by the
FGV.
| | --- | --------------------------------------------------------------------------------



| | (3) | National Index of Construction Cost (Índice Nacional de Custo da Construção)
measured by the FGV.
| | --- | -------------------------------------------------------------------------------------------------



| | (4) | Represents the interest rate used by BNDES for long-term financing (end of period).
| | --- | -----------------------------------------------------------------------------------



| | (5) | Represents an average of interbank overnight rates in Brazil (accumulated for period-end month,
annualized).
| | --- | ------------------------------------------------------------------------------------------------------------



| | (6) | Average exchange rate for the last day of each month in the period indicated.
| | --- | -----------------------------------------------------------------------------



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Brazilian Real Estate Sector



The Brazilian real
estate sector is characterized by cyclical performance influenced by various macroeconomic factors. For example, demand for housing,
the availability of financing and growth in population and incomes are, among others, factors that influence the performance of
the real estate market.



In addition, since
2006, the Brazilian government has enacted incentives in the real estate sector, including the following:



| | · | Provisional Measure No. 321 enacted on September 12, 2006, later converted into Law No. 11,434
enacted on December 28, 2006 and amended by Law No. 12,599 enacted on March 23, 2012, gave banks the option to charge fixed interest
rates on mortgages;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Law No. 10,820 enacted on December 17, 2003, amended by Law No. 10,953 enacted on September 27,
2004, regulated by Decree No. 5,892 enacted on September 12, 2006, as amended by Decree No. 4,840 enacted on September 17, 2003,
as amended by Law No. 13,097 enacted on January 19, 2015, allowed payroll deductible mortgage loans to employees of both public
and private entities;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Decree No. 6,006 enacted on December 28, 2006, replaced by Decree No. 7,660 enacted on December
23, 2011, implemented a 50% tax cut on Tax on Manufactured Products (Imposto sobre Produtos Industrializados), or IPI, levied
on the acquisition of important construction products, including certain types of tubes, ceilings, walls, doors, toilets and other
materials. In 2009, other decrees eliminated the IPI levied on the acquisition of similar products, but were implemented for a
limited term only and were set to expire in March 2010, but were extended until December 31, 2012;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Provisional Measure No. 656 enacted on October 7, 2014, converted into Law No. 13,097 enacted on
January 19, 2015 (“Law No. 13,097”), which establishes mechanisms for protecting purchasers and recipients of in
rem rights which enter into legal transactions based on the information contained in the real estate records. In addition,
deals with payroll loans, establishing the concentration of acts in the real estate property registration and creates the LIG.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Normative Instructions No. 30 and No. 31 enacted on December 30, 2015, which establish new interests
rates and loan limit subsidies for the 2nd and 3rd brackets of the “National Individual Loan Program” segment of the
FGTS.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | CMN Resolution No. 4,598/2017, which regulates the issuance of LIGs by financial institutions,
establishing its general characteristics, procedures and applicable requirements, including with regards to underlying assets backing
such securities, as well as other guidelines applicable to the LIG trustee and to LIG holders’ meetings.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Law No. 13,777 enacted on November 20,
2018, established a new form of condominium - a “multi-property” condominium. Multi-property allows the co-owners of
a property to each use it for a pre-determined period of time as its single owner. Each “time fraction” is indivisible
and bound to the right of use of the property for periods of no less than 7 days, which can be fixed and determined or change from
year to year.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Law No. 13,786 enacted on December 12,
2018, which regulates the dissolution or termination of purchase and sale agreements involving real estate development activities,
in order to foster legal and economic confidence in the real estate development sector.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Municipal Law No. 198 enacted on January
14, 2019, which replaced the former Code of Works and Construction of the municipality of Rio de Janeiro. The new Code has only
40 articles, replacing the over 500 provided for in the former code, and its principal goal is to modernize and simplify the rules
for developers. The simplification of the licensing process allows for more flexible urbanization parameters.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Critical Accounting Policies and Estimates



The preparation of
financial statements in accordance with Brazilian GAAP requires management to make judgments, estimates and adopts assumptions
that affect the reported amounts of revenue, expenses, assets and liabilities, as well as the disclosure of contingent liabilities,
at the balance sheet date. Assets and liabilities subject to estimates and assumptions include the useful life of property plant
and equipment, impairment of assets, deferred tax assets, provision for uncertainty tax positions, labor and civil risks, and the
measurement of the estimated cost of ventures and financial instruments. Estimates are used for, among other things, impairment
of non-financial assets, transactions with share-based payment, provisions for tax, labor and civil risks, fair value of financial
instruments, estimated costs of ventures, realization of deferred income tax and other similar provisions. Although we believe
that our judgments and estimates are based on reasonable assumptions, as they are subject to several risks and uncertainties and
are made in light of information available to us, our actual results may differ from these judgments and estimates.



In this sense, we
set forth below summarized information related to our critical accounting policies. See Note 2.2 to our consolidated financial
statements, included elsewhere in this annual report for further information on these and other accounting policies we adopt.



Impairment of non-financial
assets



We annually review
the carrying amount of assets, with the objective of evaluating events or changes in the economic, operational or technological
circumstances that may indicate a decrease or loss in the recoverable amount of such assets. Should such evidence exist, and the
carrying amount exceeds the recoverable amount, a provision for impairment loss is recognized in the statement of operations by
adjusting the carrying amount to the recoverable amount. A test for impairment of intangible assets with indefinite useful lives
and goodwill is performed at least annually or when circumstances indicate a decrease in the carrying amount. As of December 31,
2014, the Company recorded a provision for impairment for land and goodwill related to the acquisition of Cipesa Empreendimentos
Imobiliários S.A. As of December 31, 2016, the Company recorded an impairment loss related to Tenda’s discontinued
operations in the amount of R$610.1 million. As of December 31, 2017 and 2018, the Company recorded an impairment loss related
to the goodwill on the remeasurement of the investment in AUSA in the amounts of R$127.4 million and R$112.8 million, respectively
The recoverable amount of an asset or of a certain cash-generating unit is defined as the greater of its value in use and its fair
value less costs to sell. When estimating the value in use of an asset, the estimated future cash flows are discounted to present
value using a pre-tax discount rate that reflects the weighted average cost of capital for the industry in which the cash-generating
unit operates. Cash flows are derived from the budget for the following five years, and do not include restructuring activities
for which the Company has not yet committed or future significant investments that will improve the asset basis of the cash-generating
unit being tested. The recoverable amount is sensitive to the discount rate used under the discounted cash flow method, as well
as the estimated future cash inflows and the growth rate used. The fair value less costs to sell is determined, whenever possible,
based on a binding sale agreement in an arm’s length transaction between knowledgeable and willing parties, adjusted for
expenses attributable to the sale of the asset, or, in the absence of a binding sale agreement, based on the market price in an
active market, or on a recent transaction with similar assets.



The main assumptions
used in the estimate of value in use for the AUSA investment are the following: Revenue – revenues were projected between
2019 and 2038 considering the growth in sales and client base of the different cash-generating units. Operating costs and expenses
– costs and expenses were projected in line with the Company’s historical performance, as well as the historical growth
of revenues. Additionally, the pre-tax discount rate used was 15.30% in nominal terms, and perpetuity was calculated by considering
a growth of 3.8% per annum, equivalent to the long-term inflation estimate projected by the Brazilian Central Bank. The key assumptions
were based on the Company’s historical performance and on reasonable macroeconomic assumptions, and supported by the financial
market projections, documented and approved by the Company’s management.



Properties for sale



Our properties for
sale are stated at construction cost, which cannot exceed its net realizable value. In the case of real estate developments in
progress, the portion in inventory corresponds to the cost incurred for units that have not yet been sold.



The cost of properties
for sale includes expenditures incurred in the acquisition of the land and in construction (including foundation, structure, finishing
and the respective costs of construction materials), costs of own and outsourced labor, and financial costs directly related to
the ventures.



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Land is recorded at
acquisition cost. See “Item 4. Information on the Company—B. Business Overview—Our Real Estate Activities—Land
Acquisition”. Land can be acquired for cash, in installments, through barter for units that are completed or in construction
of other ventures, or through barter for receivables from future sales of ventures. The cost of land related to bartered units
comprises the estimated sale price in cash, this fair value being recorded as contra-entry to the advances from customers-barter.



The interest on loans
and financing directly related to ventures financed by the National Housing System (SFH) and other credit facilities which funds
are used to finance the construction and acquisition of land are capitalized over the development and construction stage, and recognized
in the statement of operations in the proportion to the units sold.



We have the policy
of annually conducting tests on our landbank, comparing its carrying amount and its recoverable amount, and on the units in construction
and completed units, comparing the unit construction cost with the sale value of units in inventory. The assumptions that usually
underlie the calculation of the recoverable value of assets are based on expected cash flows, and economic viability studies of
real estate ventures that show the recoverability of assets or its market value, all discounted to present value.



The classification
of land into current or non-current assets is carried out by the Management based on the schedule of the real estate venture launches.
Management periodically reviews the estimates of real estate venture launches.



In accordance with
our internal policy, each individual project launched has been internally evaluated taking into consideration the following: (1)
assumptions for market, sales forecast, economics and operating conditions; (2) cash flow analysis using the discounted cash flow
method; (3) approval by an investment committee; and (4) inclusion in the business plan regarding the timetable and backlog for
development releases. This process is part of our corporate governance practices. We update the assumptions on an annual basis
and consider the continuing viability for each project for impairment test purposes.



Transactions with share-based
payment



We measure the cost
of transactions with employees to be settled with shares based on the fair value of equity instruments on the grant date. The estimate
of the fair value of share-based payments requires the determination of the most adequate pricing model to granted equity instruments,
which depends on the grant terms and conditions. It also requires the determination of the most adequate data for the pricing model,
including the expected option life, volatility and dividend income, and the corresponding assumptions.



Provisions for legal
claims



We recognize a provision
for tax, labor and civil claims. The assessment of the probability of a loss includes the evaluation of the available evidence,
the hierarchy of Laws, existing case law, the latest court decisions and their significance in the judicial system, as well as
the opinion of external legal counsel. The provisions are reviewed and adjusted to take into account the changes in circumstances,
such as the applicable expiration term, findings of tax inspections, or additional exposures found based on new court issues or
decisions. The settlement of transactions involving these estimates may result in amounts different from those estimated in view
of the inaccuracies inherent in the process of estimating them. The Company reviews its estimates and assumptions on a monthly
basis.



Taxes on income



Current income tax
and social contribution



Current income tax
is the expected tax payable or receivable to be offset in relation to taxable profit or loss for the year. To calculate the current
income tax and social contribution on net profits, we adopt the regime set forth by Law No. 12,973 enacted on May 13, 2014 and
in force as of January 1, 2015. The new regime is based on the Brazilian accounting standards introduced by Laws No. 16,638/2007
and No. 11,941/2009, from the tax basis of such taxes, thus revoking the Brazilian Transitory Tax Regime, or “RTT.”



Taxes on income in
Brazil comprise income tax (25%) and social contribution on net profits (9%), for entities on the standard profit regime, for which
the composite statutory rate is 34%. Deferred taxes for these entities are recognized as at the balance sheet date for all temporary
tax differences between the tax bases of assets and liabilities, and their carrying amounts.



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As permitted by tax
legislation, certain subsidiaries opted for the presumed profit regime, a method under which taxable profit is calculated as a
percentage of gross sales. For these companies, income tax is calculated on presumed profits of 8% of gross revenues and social
contribution on presumed profits of 12% on gross revenues, to which income tax and social contribution rates of 25% and 9%, respectively,
are applied.



As permitted by tax
legislation, the development of certain ventures are subject to the “afetação” regime, whereby
the land and its features where a real estate will be developed, as well as other binding assets and rights, are separated from
the assets of the developer and comprise the “patrimônio de afetação” (Detached Assets)
of the corresponding development and which real estate units will be delivered to the buyers. In addition, certain subsidiaries
elected the irrevocable option for the Special Taxation Regime (RET), adopting the “patrimônio de afetação”,
according to which the income tax, social contribution on net profits, PIS and COFINS are calculated at 4% on monthly gross revenues.



On May 13, 2014, Provisional
Measure No. 627 was converted into Law No. 12,973/14, revoking the RTT and bringing significant changes to Brazilian tax legislation.
The new rules came into effect on January 1, 2015, with an option to adhere to the new rules from January 1, 2014. During 2014,
we analyzed the potential impact of the new rules on our consolidated financial statements and internal control structure. Based
on our analysis, we concluded that the new rules would not have a material impact on how we account for taxes in 2014 and we therefore
opted not to adopt them from January 1, 2014. We have adhered to the new rules since January 1, 2015.



Deferred income
tax and social contribution



Deferred tax is recognized
in relation to tax losses and temporary differences between the carrying amount of assets and liabilities for accounting purposes
and the corresponding amounts used for tax purposes. It is recognized to the extent that it is probable that future taxable income
will be available to be used to offset deferred tax assets, based on profit projections made using internal assumptions and considering
future economic scenarios that estimate their full or partial use. The recognized amounts are periodically reviewed and the impacts
of realization or settlement are reflected in compliance with tax legislation provisions. Tax credits on accumulated tax losses
do not have an expiration date, however, they can only be offset against up to 30% of the taxable profit for each year. Companies
that opt for the presumed profit tax regime do not record tax losses and do not have temporary differences, and for this reason,
deferred taxes are not recognized.



To the extent that
the realization of deferred tax assets is not considered to be probable, this amount is not recorded. We record deferred tax on
a net basis, determined by legal entity and same jurisdiction. For entities with cumulative tax losses for the last three years,
the Company and its subsidiaries recognized deferred tax assets and liabilities based on the following assumptions:



| | · | 100% of deferred tax liabilities on temporary differences;
| | - | ----------------------------------------------------------



| | · | Deferred tax assets on temporary differences that have realization terms similar to deferred tax
liabilities, and relate to the same legal entity, are recorded up to the limit of the deferred tax liabilities; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In situations where recent losses indicate that future taxable income is uncertain, deferred tax
assets are not recognized on deductible temporary differences in excess of deferred tax liabilities recorded on taxable temporary
difference liabilities nor is an asset recognized for the carry forward of unused tax losses.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Measurement of deferred
tax asset



Our projections assume
that a significant portion of our business will be conducted in our principal holding companies, and this enables the recovery
of a substantial portion of our accumulated tax losses.



However, several external
factors, beyond our control, may affect such tax calculations, in addition to possible requirements to segregate ventures in their
own development entities (SPEs, for example) to a greater extent than we intend. There is also the possibility that taxation rulings
relating to new ventures or even ventures that have already been developed within the principal holding companies, may require
the exclusion of such businesses and for such businesses to file their own tax returns separate from that of the Company.



A reduction in the
concentration of projects in holding companies with tax losses carried forward may, therefore, compromise the expected recovery
of losses carried forward, which is the reason we partially recognized a deferred income tax asset.



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Fair value of financial
instruments



When the fair value
of the financial assets and liabilities presented in the balance sheet cannot be obtained in the active market, it is determined
using valuation techniques, including the discounted cash flow method. The data for such methods is based on those available in
the market, when possible; however, when such data is not available in the market, a certain level of judgment is required to establish
the fair value. This judgment includes considerations on the data used, such as liquidity risk, credit risk, and volatility. Changes
in the assumptions about these factors may affect the presented fair value of financial instruments.



Estimated cost of construction



Total estimated costs,
mainly comprising the incurred and future costs for completing the construction works, were reviewed in the preparation of these
financial statements, and changes to estimates are possible. The percentage of completion, which is the method for revenue recognition,
is measured in view of the incurred cost in relation to the total estimated cost of the respective project.



Development and sale
of real estate



Real estate development
and sales



The Company applied
CPC 47 – Revenue from Contracts with Customers from January 1, 2018, including the guidance contained in Circular Letter
CVM/SNC/SEP 02/2018, of December 12, 2018, which establishes the accounting procedures for recognition, measurement and disclosure
of certain types of transactions arising from contracts for purchase and sale of real estate unit not yet completed in real estate
development entities.



According to CPC 47,
the recognition of revenue from contracts with customers became subject to a new regulation, based on transfer of control over
promised goods or service, which can be at a point in time or over time, according to the satisfaction or not of the “contractual
performance obligations”. Revenue is measured in an amount that reflects the consideration the entity expects to be entitled
to and is based on a five-step model as follows: (1) identification of contract; (2) identification of performance obligations;
(3) determination of transaction price; (4) allocation of transaction price to performance obligations; (5) revenue recognition.



The Company records
the accounting effects of contracts only when: (i) the parties to the contract have approved the contract; (ii) the Company can
identify each party’s rights and the established payment terms; (iii) the contract has commercial substance; and (iv) the
Company has determined that the collection of consideration to which the Company is entitled is probable.



Revenues, as well
as costs and expenses directly relating to real estate development units sold and not yet finished, are allocated to the statement
of operations over the construction period and the following procedures are adopted:



(a)  For
the sales of completed units, revenues are recorded when the sale is completed and the transfer of control, regardless of the receipt
from the customer of the contracted amount;



(b)  For
the sales of units under construction, the following applies:



| | · | The incurred cost, including the cost of land, and other directly related expenditure, that correspond
to the units sold is fully recognized in the consolidated statement of operations;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Sales revenues are recognized in profit or loss, using the percentage-of-completion method for
each venture, this percentage being measured in view of the incurred cost in relation to the total estimated cost of the respective
ventures
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Revenue recognized in excess of actual payments received from customers is recorded as either a
current or non-current asset in “Trade accounts receivable”. Any payment received in connection with the sales of units
that exceeds the amount of revenue recognized is recorded as “Payables for purchase of land and advances from customers”;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Interest and inflation-indexation charges on accounts receivable as from the time the units are
delivered, as well as the adjustment to present value of accounts receivable, are recognized in profit or loss on a pro rata basis
using the effective interest method;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | The financial charges on accounts payable for acquisition of land and those directly associated
with the financing of construction are recorded in properties for sale and recorded in the incurred cost of finished units until
their completion, and follow the same recognition criteria as for the recognition of the cost of real estate units sold while under
construction;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Taxes levied and deferred on the difference between real estate development revenues and the cumulative
revenue subject to tax are calculated and recognized when this difference in revenue is recognized; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Advertising and publicity expenses are recorded in the consolidated statement of profit or loss
as incurred.
| | - | ------------------------------------------------------------------------------------------------------------



Construction services



Revenues from real
estate services are recognized as services are rendered and consist primarily of amounts received in connection with construction
management activities for third parties, and technical advisory services, mainly related to developments where we retain an equity
interest.



Barter transactions



Barter transactions
have the objective of receiving land from third parties and are settled with the delivery of real estate units or transfer of portions
of the revenue from the sale of real estate units of ventures. The value of the land acquired is determined based on the fair value,
as a component of inventory of properties for sale, with a corresponding entry to advances from customers’ liabilities. Revenues
and costs incurred from barter transactions are included in profit or loss over the course of construction period of ventures,
as described in item (b) above.



Allowance for expected
credit losses



We annually review
the assumptions used in establishing an allowance for expected credit losses, in view of the revision of historical data of its
current operation and improvement of measurement estimates.



We record an allowance
for expected credit losses for all sales contracts of real estate units, and the amounts are accrued as a contra-entry to the recognition
of the respective development revenue, based on data history of its current operations and estimates. Such analysis is individually
made for each sales contract, in line with CPC 48 – Financial Instruments, item 5.5.17 (c).



Disposal group held
for sale and profit or loss from discontinued operations



The Company classifies
a disposal group as held for sale if its carrying value is recovered by the sale transaction. The asset or group of assets held
for sale are available for immediate sale at current market conditions, subject only to applicable customary terms for the sale
of such assets held for sale, resulting in a high sale probability.



For a sale to be highly
probable, management must be committed to the sale of the asset, and must initiate an active search to identify a buyer and complete
the sale. In addition, the asset held for sale shall also be effectively marketed for sale at a price that is reasonable in relation
to its current fair value and, the sale must be completed within one year of the classification date, unless events beyond the
control of the Company result in an extension of such period.



The asset held for
sale is measured at the lower of its carrying value and the fair value less cost to sell. In case the carrying value is higher
than the fair value, an impairment loss is recognized in statement of profit or loss for the year. Any reversal or gain will only
be recorded within the limit of the recognized loss. As of December 31, 2016, the Company recorded an impairment loss related to
Tenda’s discontinued operations in the amount of R$610.1 million. For the period ended May 4, 2017, the Company carried out
the remeasurement of the fair value of the disposal group held for sale, related to Tenda, considering the weighted average value
per share for exercising preemptive rights traded over the period between March 17, 2017 and March 31, 2017, as measurement basis,
leading to the price of R$12.12 per share, and, accordingly, valuing Tenda at R$754.5 million (R$539.0 million in 2016).



The assets and liabilities
of the group of discontinued assets are shown in single line items in our assets and liabilities. The profit or loss of discontinued
operations is presented as a single amount in the statement of profit or loss, contemplating the total post-tax profit or loss
of such operations less any impairment-related loss.



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Launches and Contracted Sales



Launches



The table below presents
detailed information on our launches for the periods presented, including developments launched by our jointly-controlled entities
in partnership with third parties:



|                                |  | As of and for the year ended December 31,
|------------------------------- |  | -----------------------------------------
|                                |  | 2018                                     
|Launches (in millions of reais) |  |                                          
|Number of projects launched     |  |                                          
|Number of units launched(1)     |  |                                          
|Launched usable area (m2)(2)    |  |                                          
|Percentage of Gafisa investment |  |                                          




| | (1) | The units delivered in exchange for land pursuant to barter arrangements are not included.
| | --- | ------------------------------------------------------------------------------------------



| | (2) | One square meter is equal to approximately 10.76 square feet.
| | --- | -------------------------------------------------------------



| | (3) | The information as of and for the year ended December 31, 2017 and December 31, 2016 does not include
developments launched under the Tenda brand, the results of operations of which have been presented as discontinued operations
in our consolidated statements of operations as of December 31, 2016, and its spin-off was concluded in May 2017.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In 2018, we launched
under the Gafisa brand 6 residential developments with a total potential sales value of R$728.7 million and 100% of these developments
were located in the state of São Paulo.



In 2017, we launched
under the Gafisa brand 5 residential developments with a total potential sales value of R$553.9 million and 80% of these developments
were in the state of São Paulo and 20%, 1 project, is located at Curitiba.



In 2016, we launched
under the Gafisa brand 10 residential developments with a total potential sales value of R$920.8 million and 100% of these developments
were located in the state of São Paulo.



During 2017, under
the Gafisa brand, approximately 10.3% of our launches in terms of potential sales value was generated from launches outside the
states of São Paulo and Rio de Janeiro.



During 2016, under
the Gafisa and Tenda brands, approximately 36.7% of our launches in terms of potential sales value was generated from launches
outside the states of São Paulo and Rio de Janeiro. The affordable entry-level business accounted for approximately 59.3%
of our total potential sales value for the year ended December 31, 2016, of which 61.8% was generated from launches outside the
states of São Paulo and Rio de Janeiro.



Gafisa segment



In 2018, Gafisa launches
totaled R$728.7 million, a 31.5% increase compared with 2017.



Contracted sales for
2018 totaled R$813.2 million, up 12.9% from 2017. Sales of units launched over the year accounted for 49,4%, while sales of inventories
accounted for the remaining 50.6%. In 2017, Gafisa launches totaled R$553.9 million, a 39.8% decrease compared with 2016.



Contracted sales for
2017 totaled R$720.2 million, down 11.1% from 2016. Sales of units launched over the year accounted for 38.5%, while sales of inventories
accounted for the remaining 61.5%.



In 2016, Gafisa launches
totaled R$920.8 million, an 8% decrease compared with 2015.



Contracted sales for
2016 totaled R$810.5 million, down 11.4% from 2015. Sales of units launched over the year accounted for 54.5%, while sales of inventories
accounted for the remaining 45.5%.



In 2018, Gafisa delivered
12 ventures/stages and 2,354 units, accounting for R$910.3 million in Potential Sales Volume.



The market value of
Gafisa segment inventories reached R$1.23 billion at the end of 2018, compared to R$1.5 billion at the end of 2017 and R$1.76 billion
at the end of 2016.



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Contracted sales



The following table
shows the composition of our contracted sales by the type of development, according to units sold during the same year that they
were launched and the units sold in the years after they were launched, as well as their respective percentages in relation to
total sales for the periods presented:



|                                          |  | As of and for the year ended December 31,      
|----------------------------------------- |  | -----------------------------------------------
|                                          |  | 2018                                           
|Type of development                       |  | (in millions of reais, unless otherwise stated)
|Luxury middle-income buildings            |  |                                                
|Entry-level developments                  |  |                                                
|Commercial                                |  |                                                
|Total contracted sales(1)                 |  |                                                
|Sale of units launched in the year        |  |                                                
|Percentage of total contracted sales      |  |                                                
|Sale of units launched during prior years |  |                                                
|Percentage of total contracted sales      |  |                                                




| | (1) | Amount net of sales cancellation.
| | --- | ---------------------------------



| | (2) | The information as of and for the year ended December 31, 2017 and December 31, 2016 does not include
developments launched under the Tenda brand, which was spun off on May 4, 2017 and the results of operations of which have been
presented as discontinued operations in our consolidated statements of operations as of December 31, 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table
shows our and our main subsidiaries’ contracted sales for the periods presented:



|                       |  | As of and for the year ended December 31,      
|---------------------- |  | -----------------------------------------------
|                       |  | 2018                                           
|Contracted sales(1)    |  | (in millions of reais, unless otherwise stated)
|Gafisa                 |  |                                                
|Tenda                  |  |                                                
|Total contracted sales |  |                                                




| | (1) | Amount net of sales cancellation.
| | --- | ---------------------------------



In 2018, we sold 49%
of the launched units, which combined with the sales of units launched during prior periods, resulted in total contracted sales
of R$813.2 million under the Gafisa brand, an increase of approximately 13% compared to 2017.



In 2017, we sold 50.0%
of the launched units, which combined with the sales of units launched during prior periods, resulted in total contracted sales
of R$720.2 million under the Gafisa brand, a decrease of approximately 11% compared to 2016.



In 2016, we sold 44%
of the launched units, which combined with the sales of units launched during prior periods, resulted in total contracted sales
of R$810.5 million under the Gafisa brand, a decrease of approximately 11% compared to 2015.



In 2016, we sold 41.6%
of the units launched during that year through our Tenda brand, which together with the sales of units launched during prior periods,
resulted in total contracted sales of R$1,141.9 million. In 2015, we sold 50.0% of the units launched during that year through
our Tenda brand, which together with the sales of units launched during prior periods, resulted in total contracted sales of R$1,016.1
million.



We provide a limited
amount of post-construction client financing. Our default rate was 14.3%, 14.1% and 12.4% as of December 31, 2018, 2017 and 2016
respectively.



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The table below shows
the penalties charged to customers that have defaulted and had their contracts cancelled for the periods presented:



|       |  | As of and for the year ended December 31,
|------ |  | -----------------------------------------
|       |  | 2018                                     
|       |  | (in millions of reais)                   
|Gafisa |  |                                          
|Tenda  |  |                                          



The following table
sets forth our contracted sales expected to be recognized, as well as the amount corresponding to the expected cost of units sold,
and the expected margin, all of them to be recognized in future periods, for the periods presented:



|                                              |  | As of and for the year ended December 31,          
|--------------------------------------------- |  | ---------------------------------------------------
|                                              |  | 2018 (4)                                           
|                                              |  | (in millions of reais,
    unless otherwise stated)
|Sales to be recognized                        |  |                                                    
|Net sales to be recognized(1)                 |  |                                                    
|Cost of units sold to be recognized(2)        |  |                                                    
|Expected gross margin—yet to be recognized(3) |  |                                                    
|Expected margin percentage                    |  |                                                    




| | (1) | Excludes indirect PIS and COFINS taxes of 3.65%. This information includes ventures that are subject
to restriction due to a contractual clause, which defines the legal period of 180 days in which the Company can cancel a development.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The estimated gross profit shown does not consider the tax effects or the present value adjustment,
and the costs of lands, financial charges and guarantees, which will be carried out to the extent they are realized.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Based on management’s estimates.
| | --- | --------------------------------



(4) This
amount relates to the Gafisa segment only, since Tenda was spun off on May 4, 2017 and its results of operations have been presented
as discontinued operations in our consolidated statements of operations as of December 31, 2016.



Gross Operating Revenues



Our revenues are derived
mainly from the development and sale of real estate and, to a much lesser extent, the rendering of construction services to third
parties on certain developments in the Gafisa segment where we retain an equity interest.



Real estate development
and sales



Real estate development
revenues, including inflation adjustments and interest from credit sales, comprise revenues from the sales of units in the residential
buildings we develop, and to a lesser extent, the sales of lots and commercial buildings.



Construction services
rendered



Our revenues generated
by real estate services consist substantially of amounts received in connection with construction management activities for third
parties, technical management and real estate management, related to developments in the Gafisa segment where we retain an equity
interest. As of December 31, 2018, 3.32% of our net operating revenues were derived from constructions services rendered.



Operating Costs



Our operating costs
consist of real estate development costs and, to a lesser extent, costs of services rendered.



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Table of Contents


Real estate development
costs



Real estate development
costs consist of costs of land, construction (which includes costs for a broad variety of raw materials and labor), capitalized
interest (financial costs) from project specific financing, projects, foundations, structuring and furnishing, as well as costs
for outsourced labor. The items making up our costs, as a percentage of our total cost were as set forth for the periods presented.



|                   |  | For the year ended December 31,
|------------------ |  | -------------------------------
|                   |  | 2018                           
|                   |  |                                
|Land               |  |                                
|Construction costs |  |                                
|Financial costs    |  |                                
|Development costs  |  |                                
|Total              |  |                                




| | (1) | Percentages retroactively adjusted to reflect the Gafisa segment only, given the results of operations
of Tenda have been presented as discontinued operations under Brazilian GAAP in the Company’s 2017 and 2016 consolidated
statements of operations.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



One of our principal
real estate development costs is the cost of land. Over the last five years, land represented, on average, 29.0% of our total cost
of development. However, this is an extremely volatile component, varying according to characteristics of the land, the region
where the land is located, the type of development to be launched and market conditions. Land can be acquired for cash, through
the exchange of units once the building is constructed, through financial swaps (whereby a portion of sales is given to the owner
of land as a form of financing for the land), or through a combination of the three options.



No single raw material
alone represents a significant portion of our total costs of development, but over the last five fiscal years, raw materials represented,
on average, 35% of our total cost of development. The index that measures construction cost variation, the INCC, increased by 3.8%,
4.3% and 6.1% in 2018, 2017 and 2016, respectively. Although some of the principal raw materials, such as steel, have experienced
significant price increases well above the level of inflation over the last four years, we have reduced our raw materials costs
by developing and using new construction techniques and materials.



Over the last five
years, we have incurred most of our construction costs from the 1st to the 18th month of construction of a development, as shown
in the table below:



|Period of construction |  | Percentage of costs incurred(1)
|---------------------- |  | -------------------------------
|1st to 6th month       |  |                                
|7th to 12th month      |  |                                
|13th to 18th month     |  |                                
|19th to 24th month     |  |                                
|25th to 30th month     |  |                                




| | (1) | Including cost of land.
| | --- | -----------------------



Real estate services



Our costs of real
estate services consist of direct and indirect labor fees and outsourced services.



Operating Expenses



Our operating expenses
include selling, general and administrative expenses, depreciation and amortization expenses and revenues and revaluation of investment
in affiliates.



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Selling expenses



Selling expenses include
advertising, promotion, brokerage fees and similar expenses.



General and administrative
expenses



General and administrative
expenses principally include the following:



| | · | employee compensation and related expenses;
| | - | -------------------------------------------



| | · | fees for outsourced services, such as legal, auditing, consulting and others;
| | - | -----------------------------------------------------------------------------



| | · | management fees and expenses;
| | - | -----------------------------



| | · | stock option plan expenses;
| | - | ---------------------------



| | · | overhead corporate expenses;
| | - | ----------------------------



| | · | expenses related to legal claims and commitments; and
| | - | -----------------------------------------------------



| | · | legal expenses related to public notaries and commercial registers, among others.
| | - | ---------------------------------------------------------------------------------



Depreciation and amortization



Depreciation expenses
consist of depreciation of our property and equipment.



Financial Income and Expenses



Financial income includes
income from financial investments. Interest revenues are recognized on effective interest method. Financial expenses generally
consist of interest payable on loans, financings and debentures and are also recognized on effective interest method.



Taxes on Income



In general, taxes
on income in Brazil consist of federal income tax (25%) and social contribution on net profits (9%), for a composite statutory
tax rate of 34%. We calculate income tax and social contribution in accordance with the “taxable profit” regime. Our
subsidiaries and jointly-controlled entities, however, with annual billings lower than a specified threshold, may calculate their
respective income and social contribution taxes through either this “taxable profit” regime or through the “presumed
profit” regime, depending on our strategic tax planning. For the companies that opt for the “presumed profit”
regime, the income tax basis is calculated as 8% of gross revenues and the social contribution basis is calculated as 12% of gross
revenues, to which income tax and social contribution rates of 25% and 9%, respectively, are applied.



As permitted by tax
legislation, the development of certain ventures are subject to the “afetação” regime, whereby the land
and its features where real estate will be developed, as well as other binding assets and rights, are separated from the assets
of the developer and comprise the “patrimônio de afetação” (Detached Assets) of the corresponding
development and whose real estate units will be delivered to the buyers. In addition, certain subsidiaries made the irrevocable
option for the Special Taxation Regime (RET), adopting the “patrimônio de afetação”, according
to which the income tax, social contribution on net profits, PIS and COFINS are calculated at 4% monthly on gross revenues.



Net loss from discontinued operations



The net income (loss)
from discontinued operations represents the results of operations of Tenda for the year ended December 31, 2016, and for the period
ended May 4, 2017, as well as the results of operations for this entity for the comparative periods. This line item also contains
the impairment (loss) reversal related to the measurement of disposal group held for sale at the lower of its carrying value and
the fair value less cost to sell.



The income (loss)
of discontinued operations is presented as a single amount in statement of operations, which includes the total after-tax-income
of these operations, less any impairment-related loss.



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Results of Operations



The following discussion
of our results of operations is based on our consolidated financial statements prepared in accordance with Brazilian GAAP. References
to increases or decreases in any given period relate to the corresponding preceding period, unless otherwise indicated.



As explained in Note
8.2 to our consolidated financial statements for the year ended December 31, 2018, the results of operations of Tenda have been
presented as discontinued operations under Brazilian GAAP in the Company’s 2017 and 2016 consolidated statements of operations.



As required by CPC
31 – Non-current Assets Held for Sale and Discontinued Operations and for comparability purposes, the table below sets forth
the line items in our statements of profit or loss for the specified periods that have been adjusted to reflect Tenda as discontinued
operations:



|                                          |  | For the Year ended December 31,              
|----------------------------------------- |  | ---------------------------------------------
|                                          |  | 2015                                         
|                                          |  | Balances originally reported as of 12/31/2015
|Statement of profit or loss               |  |                                              
|Net operating revenue                     |  |                                              
|Operating costs                           |  |                                              
|Operating (expenses) income               |  |                                              
|Income from equity method investments     |  |                                              
|Financial income (expenses)               |  |                                              
|Income tax and social contribution        |  |                                              
|Non-controlling interests                 |  |                                              
|Profit or loss of discontinued operations |  |                                              
|Net income (loss) for the year            |  |                                              



Results of Operations
for the Years Ended December 31, 2018 and 2017



Net operating revenue



Net operating revenue
for the year ended December 31, 2018, recognized by the percentage of completion revenue recognition method, was R$960.9 million,
an increase of 22.2% from R$786.2 million for the year ended December 31, 2017, mainly due to (i) the increase in the recognition
of revenue from construction projects and their improved performance, and (ii) the two projects launched in 2018, Upside Pinheiros
and Moov Belém, which are almost 100% sold.



The gross revenue
generated from the sale of property and barter transactions, net of the cancellation provision (reversal) totaled R$1.05 billion
for the year ended December 31, 2018, an increase of R$213.1 million or 26% compared with the same period in 2017 of R$835.1 million.
The tax deductions from gross revenue reached R$87.3 million in 2018 from R$48.9 million in 2018, representing an increase of 78%,
which was mainly impacted by higher launch volumes.



During 2018, inflation
as measured by the INCC, the main Brazilian indicator for civil construction costs, was 3.84%. This resulted in an increase in
our construction costs and consequently, the prices of our units for some projects, notably those launched in 2017 and 2018 and
expected to be delivered in 2019. This increase was offset by (i) monthly increases in the sale prices of our inventory units,
and (ii) monthly upward adjustments of outstanding balances on our units sold, in order to reflect inflationary increases.



Operating costs



Operating costs in
2018 totaled R$846.2 million, a 6.7% decrease compared to R$906.5 million in 2017, as a result of a lower impact of impairment
adjustments in our landbank and inventory in the amount of R$63.1 million, compared to R$147.3 million in 2017.



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Gross profit



Gross profit in 2018
totaled R$114.7 million, representing an increase from gross loss of R$120.3 million in 2017. This increase was mainly due to (i)
higher volume of launches and sales, (ii) better macroeconomic conditions in Brazil, (iii) a decrease in dissolutions (cancellations
of sales), and (iv) the effects of the impairment adjustments in our landbank and inventory in the amount of R$63.1 million.



In 2018, the gross
margin generated from our activities increased to 11.9% as compared to negative 34.5% in 2017.



Selling expenses



Selling expenses in
2018 totaled R$84.4 million, representing a decrease of 3.6% as compared to R$87.6 million in 2017, mainly due to a decrease in
(i) product marketing and selling expenses, as a result of our corporate restructuring; and (ii) brokerage and sales commission
expenses, as a result of lower sales volume during the period. Selling expenses in 2018 represented 8.8% of our net operating revenue
compared to 14.4% in 2017.



General and administrative expenses,
not including depreciation and amortization expenses



General and administrative
expenses were R$57.1 million in 2018, a 38% decrease from the R$92.7 million recorded in 2017. This decrease was mainly due to
(i) the net reversal of bonus provisions for 2017 and 2018, amounting to R$14.8 million in 2018; (ii) reduced services expenses;
and (iii) lower salaries and charges expenses.



Depreciation and amortization



Depreciation and amortization
in 2018, was R$21.3 million, a decrease of R$10.7 million when compared to the R$32.0 million recorded in 2017. Additionaly, in
2017 the amount of R$25.5 million was recognized as an amortization related to the write off of the goodwill on the AUSA acquisition.



Financial income and expenses, net



Net
financial expenses totaled R$80.5 million in 2018, compared to net financial expenses of R$107.3 million in 2017. The decrease
is mainly due to a decrease in interest expenses as a result of a decrease in our levels of indebtedness during the period.



Taxes on income



Income tax and social
contribution had a positive impact of R$25.1 million in 2018 compared to R$25.9 million in 2017, reflecting a tax credit of R$26
million from the impairment of goodwill that resulted from the remeasurement of our remaining 30% interest in AUSA in 2018. Accordingly,
the provision for income tax and social contribution had a positive impact of R$21.7 million in 2018, compared to R$23.1 million
in 2017.



Net income attributable to non-controlling
interest



Net income attributable
to non-controlling interests increased from a loss of R$0.3 million in 2017 to a net loss of R$1.8 million in 2018.



Net income (loss) attributable to
owners of Gafisa



Net loss attributable
to owners of Gafisa was of R$419.5 million in 2018, compared to a net loss of R$760.2 million in 2017. This variation was mainly
due to (i) higher launches and sales, (ii) lower cancellations and (iii) reduced expenses.



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Results of Operations
for the Years Ended December 31, 2017 and 2016



Net operating revenue



Net operating revenue
for the year ended December 31, 2017, recognized by the percentage of completion revenue recognition method, was R$786.2 million,
a decrease of 14.8% from R$923.2 million for the year ended December 31, 2016, mainly due to (i) the lower volume of launches,
and (ii) the challenging macroeconomic conditions in Brazil and their adverse impact on the price of our units.



The gross revenue
generated from the sale of property and barter transactions, net of the cancellation provision (reversal) totaled R$835.1 million
for the year ended December 31, 2017, a decrease of R$156.1 million or 15.7% compared with the same period in 2016 of R$991.1 million.
The tax deductions from gross revenue reached R$48.9 million in 2017 from R$68.0 million in 2016, representing a decrease of 28.1%,
which was mainly impacted by lower launch volumes.



In addition, due to
the continuing challenging economic outlook for the real estate sector in Brazil during 2017, the Company continued to take a more
conservative and selective approach with respect to the development and launch of products, focusing mainly on the sale of inventory.



During 2017, inflation
as measured by the INCC, the main Brazilian indicator for civil construction costs, was 4.3%. This resulted in an increase in our
construction costs and consequently, the prices of our units for some projects, notably those launched in 2016 and 2017 and expected
to be delivered in 2018. This increase was offset by (i) monthly increases in the sale prices of our inventory units, and (ii)
monthly upward adjustments of outstanding balances on our units sold, in order to reflect inflationary increases.



Operating costs



Operating costs in
2017 totaled R$906.5 million, a 10.5% decrease compared to R$1,013.8 million in 2016, as a result of (i) lower launch volumes and
sales in 2017, and (ii) impairment adjustments in our landbank and inventory in the amount of R$147.3 million.



Gross profit



Gross loss in 2017
totaled R$120.3 million, representing an increase from gross loss of R$90.6 million in 2016. This increase was mainly due to (i)
lower volume of launches, (ii) the challenging macroeconomic conditions in Brazil and their adverse impact on the price of our
units, (iii) an increase in dissolutions (cancellations of sales), and (iv) the effects of the impairment adjustments in our landbank
and inventory in the amount of R$147.3 million.



In 2017, the gross
margin generated from our activities decreased to negative 15.3% as compared to negative 12.4% in 2016. This decrease was due to
the challenging macroeconomic conditions in Brazil and their adverse impact on the price of our units.



Selling expenses



Selling expenses in
2017 totaled R$87.6 million, representing a decrease of 7.8% as compared to R$94.9 million in 2016, mainly due to the lower volume
of launches and sales in 2017. Selling expenses in 2017 represented 14.4% of our net operating revenue compared to 10.4% in 2016.



General and administrative expenses,
not including depreciation and amortization expenses



General and administrative
expenses were R$92.7 million in 2017, a 13.0% decrease from the R$106.6 million recorded in 2016. This decrease was mainly due
to (i) a decrease in the profit sharing provision recorded in 2017 totaling R$5.4 million; and (ii) a R$4.0 million decrease in
our payroll and charges expenses as a result of our corporate restructuring at the end of 2016.



Depreciation and amortization



Depreciation and amortization
in 2017 was R$32.0 million, an decrease of R$1.9 million when compared to the R$33.9 million recorded in 2016. Additionaly, the
amount of R$25.5 million was recognized as an amortization related to the write off of the goodwill on the AUSA acquisition in
2017.



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Financial income and expenses, net



Net financial expenses
totaled R$107.3 million in 2017, compared to net financial expenses of R$25.7 million in 2016. The increase in financial expenses
was mainly due to (i) a decrease in income from short-term investments during the period; (ii) an increase in expenses linked to
the renegotiation of certain of our existing indebtedness during the period, and (iii) the incurrence of new indebtedness during
the period, including through the issuance of debentures.



Taxes on income



Income, social contribution
and deferred taxes for 2017 amounted to income R$23.1 million, compared to an expense of R$100.1 million in 2016. This difference
was mainly due to a tax credit of R$24.3 million from the impairment of goodwill that resulted from the remeasurement of our remaining
30% interest in AUSA since 2013.



Net income (loss) from discontinued
operations



Our net income (loss)
from discontinued operations was a net profit of R$98.2 million in 2017, compared to a net loss of R$559.7 million in 2016. The
amount recorded in 2017 was comprised of a gain of R$107.7 million related to the re-evaluation of the fair value of Tenda’s
discontinued operations, net of liabilities, mainly due to the weighted average price per share relating to the exercise by Gafisa
shareholders of their preemptive rights in connection with the Tenda spin-off. This gain was partially offset by the transaction
costs relating to the Tenda spin-off totaling R$9.5 million.



Net income attributable to non-controlling
interest



Net income attributable
to non-controlling interests increased from a net loss of R$1.9 million in 2016 to a net loss of R$0.3 million in 2017, due to
the overall positive financial results of our subsidiaries for the year ended December 31, 2017.



Net income (loss) attributable to
owners of Gafisa



Net income (loss)
attributable to owners of Gafisa was a net loss of R$760.2 million in 2017, compared to a net loss of R$1,140.7 million in 2016.
This variation was mainly due to (i) the effects generated by the impairment adjustment of R$127.4 million related to AUSA’s
goodwill, (ii) impairment adjustments in our landbank and inventory in the amount of R$147.3 million, (iii) a AUSA proportional
equity pickup losses in the amount of R$189.9 million, and (iv) the challenging macroeconomic conditions in Brazil and their adverse
impact on the price of our units.



Business Segment



See “Item 4.
Information on the Company—A. History and Development of the Company—Historical Background and Recent Developments.”



Following the consummation
of the Tenda spin-off on May 4, 2017 and the completion of the discontinuation of Tenda’s operations (see Note 8.2 to our
consolidated financial statements), the Company operates one business segment. Accordingly, our chief executive officer, who is
responsible for monitoring our business progress, uses data derived from our consolidated financial statements to make decisions.
Therefore, in line with CPC 22 – Operating Segments, the Company understands that there is no reportable business segment
to be disclosed in the years ended December 31, 2018, 2017 and 2016.



| | B. | Liquidity and Capital Resources
| | -- | -------------------------------



Our transactions are
financed mainly through the contracting of real estate financing and securitization of receivables. When necessary and in accordance
with market demands, we carry out long-term financing for the sale of our developments. In order to turn over our capital and accelerate
its return, we try to transfer to banks and sell to the market the receivables portfolio of our units.



In 2018, we did not
carry out any receivables sales with recourse.



In 2017, we carried
out the following receivables sales with recourse:



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On March 28, 2017,
Gafisa and its subsidiaries entered into a CCI transaction related to a portfolio comprising selected residential real estate receivables
from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$30.2 million in exchange for cash at the transfer
date, discounted to present value, for R$23.0 million.



In 2016, we carried
out the following receivables sales with recourse:



On March 4, 2016,
Gafisa and its subsidiaries entered into a CCI transaction related to a portfolio comprising selected residential real estate receivables
from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$36.4 million in exchange for cash at the transfer
date, discounted to present value, for R$27.3 million.



On May 20, 2016, Gafisa
and its subsidiaries entered into a CCI transaction related to a portfolio comprising selected residential real estate receivables
from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$23.0 million in exchange for cash at the transfer
date, discounted to present value, for R$17.5 million.



On August 31, 2016,
Gafisa and its subsidiaries entered into a CCI transaction related to a portfolio comprising selected residential real estate receivables
from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$21.4 million in exchange for cash at the transfer
date, discounted to present value, for R$14.9 million.



On December 22, 2016,
Gafisa and its subsidiaries entered into a CCI transaction related to a portfolio comprising selected residential real estate receivables
from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$27.0 million in exchange for cash at the transfer
date, discounted to present value, for R$19.5 million.



Construction financing
lines of credit are available and we have fulfilled substantially all of our construction financing needs for 2018, 2017 and 2016
at consolidated rates similar to the CDI rate. In order to mitigate the effects of the 2008 global credit crisis, the Brazilian
government has announced additional lines of credit to assist the construction industry and its customers, including R$6 billion
from the FGTS (a Government Severance Indemnity Fund for Employees). In 2009, we approved the issue of two series of debentures
for Gafisa and Tenda in the total amount of R$1.2 billion. In addition, local financial institutions are financing up to 80% of
construction costs, through the Brazilian Saving and Loan System (Sistema Brasileiro de Poupança e Empréstimo
— SBPE) indexed to TR (Taxa Referencial) and a fixed rate spread.



During 2018, our customers’
ability to obtain bank mortgage loans continued to improve, with interest rates in the range of 8,5% to 10%+TR, depending on family
income and credit score.



The following table
shows the balance of our receivables from clients for the development and sale of properties for the periods presented:



|                                                                                                |  | As of December 31,    
|----------------------------------------------------------------------------------------------- |  | ----------------------
|                                                                                                |  | 2018                  
|                                                                                                |  | (in millions of reais)
|Real estate development receivables:                                                            |  |                       
|Current                                                                                         |  |                       
|Long-term                                                                                       |  |                       
|Total                                                                                           |  |                       
|Receivables to be recognized on our balance sheet according to percentage of completion method: |  |                       
|Current                                                                                         |  |                       
|Long-term                                                                                       |  |                       
|Total                                                                                           |  |                       
|Total receivables from clients – portion recognized plus portion not recognized                 |  |                       




| | (1) | This amount relates to the Gafisa segment only, since Tenda’s results of operations have
been presented as discontinued operations in our consolidated financial statements as of December 31, 2016, and since the Tenda
business spin-off was completed on May 4, 2017.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | This amount was restated due to the adoption of CPC 48 – Financial Instruments (IFRS 9) and
CPC 47 – Revenue from Contracts with Customers (IFRS 15) retrospectively from January 1, 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The total balance
of receivables on the balance sheet has the following maturity profile:



|             |  | As of December 31, 2018
|------------ |  | -----------------------
|Maturity     |  | (in millions reais)    
|Overdue      |  |                        
|2019         |  |                        
|2020         |  |                        
|2021         |  |                        
|2022         |  |                        
|2023 onwards |  |                        
|Total        |  |                        



Loans made to our
clients are generally adjusted on a monthly basis as follows: (1) during construction, by the INCC in São Paulo, Rio de
Janeiro and other Brazilian cities; and (2) after delivery set forth in the contract, by the IGP-M plus 12% per annum in all markets.



We limit our exposure
to credit risk by selling to a broad customer base and by continuously analyzing the credit of our clients. As of March 31, 2019,
our clients’ default level was 15.2% of our accounts receivable for Gafisa. We annually review the assumptions used in establishing
an allowance for expected credit losses and cancelled contracts, in view of the revision of historical data of its current operation
and improvement of measurement estimates. The Company records an allowance for expected credit losses and cancelled contracts for
customers when a cash inflow risk is identified. Contracts are monitored to identify the moment when these conditions are mitigated.
This allowance is calculated based on the percentage of the construction work completion, a methodology adopted for recognizing
income for the year. The allowance for expected credit losses and cancelled contracts totaled R$101.0 million as of December 31,
2018 and is considered sufficient by our management to cover incurred losses on the realization of accounts receivable.



Cash Flows



Operating activities



In 2018, net cash
generated from operating activities totaled R$31.5 million, compared to R$206.9 million in 2017. This decrease is mainly composed
of (i) a R$95.7 million increase in receivables from clients and a R$339.6 million decrease in inventory; (ii) a R$14.5 million
decrease in related party transactions; (iii) expenses in the net amount of R$227.2 million which did not affect our cash and cash
equivalents, of which R$38.1 million relates to impairment adjustments of AUSA goodwill and impairment adjustments in our landbank
and inventory, R$15.5 million of equity losses during the period, and R$172.4 million of which relates to provisions for contingencies;
and (v) other less relevant increases and decreases in other operational categories.



In 2017, net cash
generated from operating activities totaled R$206.9 million, compared to R$269.7 million in 2016. This decrease is mainly composed
of (i) an increase of R$13.1 million in obligations for purchase of land and advances from customers; (ii) a R$260.1 million decrease
in receivables from clients and a R$346.2 million decrease in inventory; (iii) a R$27.5 million decrease in related party transactions;
(iv) expenses in the net amount of R$481.3 million which did not affect our cash and cash equivalents, of which R$263.6 million
relates to impairment adjustments of AUSA goodwill and impairment adjustments in our landbank and inventory, R$204.8 million of
which relates mainly to AUSA equity losses during the period, and R$107.8 million of which relates to provisions for contingencies;
and (v) other less relevant increases and decreases in other operational categories. This decrease was partially offset by the
R$52.0 million in cash generated by Tenda for the period ended May 4, 2017.



Investing activities



Net cash generated
in investing activities, including the acquisition of assets, equipment and new investments was a cash burn of R$3.1 million in
2018, compared to R$445.4 million in 2017.Net cash generated in investing activities, including the acquisition of assets, equipment
and new investments was R$445.4 million in 2017, compared to R$162.5 million in 2016. Our cash generated in 2017 was mainly related
to (i) cash generated from the exercise by Gafisa shareholders of their preemptive rights to acquire up to 50% of the share capital
of Tenda as part of the Tenda spin-off in the amount of R$219.5 million; (ii) cash generated from the reduction of Tenda’s
share capital in the amount of R$105.2 million; and (iii) R$104.7 million related to the redemption of investments in marketable
securities and restricted securities and the repayment of loans. Under the Tenda segment, disclosed as a disposal group held for
sale, cash generated in investing activities increased to R$48.7 million, compared to R$5.0 million in 2016 mainly



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related to the redemption
of investments in marketable securities and restricted securities and the repayment of loans in the amount of R$57.6 million.



Financing activities



Net cash used from
financing activities in 2018 totaled R$24.6 million, compared to the net cash used from financing activities in 2017 of R$528.6
million. The lower cash used in 2018 compared to 2017 was mainly attributable to (i) the R$250.8 million capital increase concluded
in February and (ii) a reduction on amortization of loans and financing. There was no net cash used from financing activities related
to the disposal group held for sale in 2018 compared to R$24.1 million in 2017.



Net cash used in financing
activities in 2017 totaled R$528.6 million, compared to the net cash used in financing activities in 2016 of R$456.8 million. The
cash used in 2017 was mainly attributable to amortization of loans and financing, net of the increase of new contracts, totaling
R$365.4 million, in line with our conservative approach to allocation of capital. Net cash generated from financing activities
related to the disposal group held for sale in 2017 totaled R$24.1 million compared to net cash used in the amount of R$135.6 million
in 2016.



Pledged mortgage receivables
and short-term investments



As of December 31,
2018, substantially all of our mortgage receivables totaling R$218.3 million are pledged. In addition, R$7.0 million of our short-term
investments and collaterals are restricted as they have been pledged.



Capital Expenditures



In 2018, we invested
R$12.5 million in machinery and equipment, information technology equipment, software, project planning and information technology
projects. Our main investments during the period were related to sales stands, which amounted to R$9.7 million.



In 2017, we invested
R$20.5 million in machinery and equipment, information technology equipment, software, project planning and information technology
projects. Our main investments during the period were related to sales stands and software acquisitions, which amounted to R$7.3
million and R$6.4 million, respectively.



In 2016, under the
Gafisa brand, we invested R$35.8 million in property and equipment, primarily information technology equipment, software, the construction
of sales stands, facilities, model apartments and related furnishings and office facilities in São Paulo. Our main investments
during the period were investments in information technology equipment and software, which totaled R$8.3 million, and the construction
of sales stands, which totaled R$10.8 million.



Our capital expenditures
are all made in Brazil and are usually funded by local debt capital markets. We currently do not have any significant capital expenditures
in progress.



Indebtedness



When we consider appropriate,
we have incurred indebtedness within SFH, which offers lower interest rates than the private market. When our customers obtain
a mortgage, we use the proceeds to redeem our SFH indebtedness. We intend to continue our strategy of maintaining low levels of
debt comprised mainly of transactions within SFH or long-term transactions.



As of December 31,
2018, we had outstanding debt in the total amount of R$889.4 million, a decrease of 19.5% as compared to December 31, 2017. As
of December 31, 2018, our indebtedness principally consisted of: (1) debentures totaling R$265.7 million, (2) working capital loans
totaling R$95.6 million and (3) other loans (mainly SFH) totaling R$528.1 million.



As of December 31,
2017, we had outstanding debt in the total amount of R$1,104.9 million, a decrease of 32.6% as compared to December 31, 2016. As
of December 31, 2017, our indebtedness principally consisted of: (1) debentures totaling R$207.7 million, (2) working capital loans
totaling R$164.1 million and (3) other loans (mainly SFH) totaling R$733.1 million.



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|                             |  | Maturity as of December 31, 2018
|---------------------------- |  | --------------------------------
|                             |  | Total                           
|                             |  | (in millions of reais)          
|Debentures (Working Capital) |  |                                 
|Other Working Capital        |  |                                 
|Housing Finance System (SFH) |  |                                 
|                             |  |                                 
|Total                        |  |                                 



On September 29, 2014
the Company entered into a loan agreement of R$194 million maturing in October 2018. This agreement was guaranteed by a pledge
of to be performed units of selected ventures and real estate receivables.



On September 28, 2016,
we issued a CCB in a total amount of R$65.0 million due in 2019. The CCB is guaranteed by a specific portion of our landbank and
real estate receivables.



On March 28, 2017
we issued a CCB in a total amount of R$47 million due in 2021. The CCB is guaranteed by real estate receivables.



On April 27, 2017
we issued a CCB in the amount of R$12 million due in 2019. The CCB is guaranteed by a specific portion of our landbank.



On November 30, 2017
we issued a CCB in the amount of R$40 million due in 2021. The CCB is guaranteed by real estate receivables.



On September, 2018,
we issued a CCB in the amount of R$40 million due in 2021. The CCB is guaranteed by real estate receivables.



The actual ratios
and minimum and maximum amounts stipulated by restrictive covenants related to these CCBs at December 31, 2018 are as follows:



|                                                                                                                                                                                                   | At December 31, 2018
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------
|Loans and Financing                                                                                                                                                                                |                     
|Net debt (1) cannot exceed 100% of equity plus non-controlling interests                                                                                                                           | 152.53%             
|Total accounts receivable (2) plus inventory required to be below zero or 2.0 times over venture debt (3)                                                                                          | 4.51 times          
|Total account receivable plus inventory of completed units required to be below zero or 2.0 times over net debt less venture debt (3)                                                              | 7.09 times          
|Total debt, less venture debt, less cash and cash equivalents and short-term investments, cannot exceed 75% of equity plus non-controlling interests                                               | 45.44%              
|Total receivable (2) plus unappropriated income plus total inventory of completed units required to be 1.5 time over the net debt plus payable for purchase of properties plus unappropriated cost | 1.81 times          
|Total accounts receivable (2) plus total inventories required to be below zero or 2.0 times over net debt                                                                                          | 3.17 times          




| | (1) | Net debt refers to total debt less cash and cash equivalents.
| | --- | -------------------------------------------------------------



| | (2) | Total accounts receivables, whenever mentioned, refers to the amount reflected in the Balance Sheet
plus the amount to be recognized according to the PoC and not yet shown in the Balance Sheet.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Venture debt and general guarantee debt refer to SFH debts, defined as the sum of all disbursed
borrowing contracts which funds were provided by SFH, as well as the debt related to the seventh placement.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Debenture program



In July 2014, the
CVM approved the private placement of our ninth issuance which consisted of non-convertible debentures in a single series maturing
in July 2018, for an aggregate of R$130 million. The debentures provide for the payment of semiannual interest corresponding to
the CDI rate plus 1.90%. The issuance is guaranteed by real estate receivables and a pledge of units of selected real estate ventures.
Proceeds from the issuance will be used solely to



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finance such selected
real estate ventures. The debentures holders assigned their fiduciary rights in the real estate receivables in favor of a real
estate securitization SPE, which issued CRIs backed by such real estate receivables. In September 2017, the rate was renegotiated
to the CDI rate plus 2.80% due to exchanged guarantees.



In December 2014,
the CVM approved the private placement of our tenth issuance which consisted of non-convertible debentures in a single series maturing
in January 2020, for an aggregate of R$55 million. The private placement was concluded in January 2015. The debentures provide
for the payment of semiannual interest corresponding to the IPCA plus 8.22%. The issuance is guaranteed by a pledge of units of
selected real estate ventures. Proceeds from the issuance will be used solely to finance such selected real estate ventures.



In November 2017,
we issued two series of non-convertible debentures totaling R$120 million on a private placement basis. The first series of debentures
totaling R$90 million is secured by (i) first-priority mortgages over select real estate ventures of the Company and (ii) fiduciary
assignments of real estate receivables generated by such select real estate ventures. In November 2017, the debenture holders assigned
their fiduciary rights in the real estate receivables to a real estate securitization special purpose entity, which issued CRIs
backed by such real estate receivables. The second series of debentures totaling R$30 million, and guaranteed by a fiduciary guarantee,
has not been placed with investors as of the date of this annual report. The proceeds of the debentures will be used to fund the
development of the aforementioned real estate ventures only.



In May 2018, we issued
non-convertible debentures, with a general guarantee, as a single series in the total amount of R$76 million, with final maturity
in July 2020. The proceeds from the placement will be used in the development of select real estate ventures and their guarantees
are represented by the conditional sale of real estate receivables and the purchase of completion bond related to a specific venture.
The face value of the private placement will accrue interest equal to the cumulative variation of Interbank Deposit (DI) plus 3.75%
per annum.



In July 2018, we issued
non-convertible debentures, with a general guarantee, as a single series in the total amount of R$90 million, with a final maturity
in June 2022. The proceeds from the placement will be used in the development of select real estate ventures and their guarantees
are represented by the conditional sale of real estate receivables. The face value of the private placement will accrue interest
equal to the cumulative variation of Interbank Deposit (DI) plus 3% per annum.



We have various covenants
relating to our debentures issuances described above. These mainly consist of (i) cross default provisions, whereby outstanding
indebtedness will become immediately due and payable in the event that the Company or its subsidiaries do not comply with their
obligations under any other credit facility for a value in excess of the amounts set forth therein; (ii) restrictions on transfer
of control and merger and acquisition transactions; (iii) limitations on our ability to incur debt; (iv) limitations or creating
liens on assets; (v) limitations on the distribution of dividends if we are under default and (vi) the following ratios and limits
to be calculated on a quarterly basis. The table below sets forth these ratios and limits as amended.



The actual ratios
and minimum and maximum amounts stipulated by these restrictive covenants at December 31, 2018 are as follows:



|                                                                                                                                                          | At December 31, 2018
|--------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------
|Total accounts receivable(2) plus inventory required to be below zero or 2.0 times over net debt(4) less venture debt(3)                                  | 10.63 times         
|Total debt less venture debt(3), less cash and cash equivalents and short-term investments(1), cannot exceed 75% of equity plus non-controlling interests | 45.44%              




| | (1) | Cash and cash equivalents and short-term investments refer to cash and cash equivalents and marketable
securities.
| | --- | ------------------------------------------------------------------------------------------------------------------



| | (2) | Total accounts receivables, whenever mentioned, refers to the amount reflected in the Balance Sheet
plus the amount to be recognized according to the PoC and not yet shown in the Balance Sheet.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Venture debt and general guarantee debt refer to SFH debts, defined as the sum of all disbursed
borrowing contracts which funds were provided by SFH, as well as the debt related to the seventh placement.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Net debt refers to total debt less cash and cash equivalents
| | --- | ------------------------------------------------------------



We expect to comply
with the covenants in the agreements governing our outstanding indebtedness which may limit our long-term growth prospects by hindering
our ability to incur future indebtedness or grow through



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acquisitions. See “Item
3. Key Information—D. Risk Factors—Our level of indebtedness could have an adverse effect on our financial health,
diminish our ability to raise additional capital to fund our operations and limit our ability to react to changes in the economy
or the real estate industry.”



As of December 31,
2018, the Company and its subsidiaries were in compliance with the contractual covenants provided for in our debentures and our
credit instruments, except for non-compliance with a certain restrictive covenant in one of the Company’s CCB’s and
three SFH loans related to their guarantees. This non-compliance occurred mainly as a result of an impairment adjustment of R$112.8
million related to AUSA’s goodwill. In addition, we recorded an impairment adjustment of R$65.1 million in our inventory
units, when similar units were being sold below their book value due to the effects of the challenging macroeconomic conditions
in the real estate sector and in Brazil as a whole. The aforementioned debt agreements were classified as short term debt in the
Company’s financial statements. As of the date of this annual report, we have settled the CCB transaction and we are in the
process of negotiating the re-establishment of the guarantees per the SFH loans. We have not received an acceleration notice in
connection with such non-compliance. The Company analyzed all of its other debt agreements and did not identify any impact on its
restrictive covenants in such other debt agreements resulting from this non-compliance



Financing through the
Housing Finance System (SFH)



Most of our financing
is incurred directly or through our subsidiaries or jointly-controlled entities from the principal banks that operate within SFH.
As of December 31, 2018, the interest rates on these loans generally varied between 8.3% and 14.2% per annum, plus TR, and the
loans generally mature through April 2019 and July 2021. This financing is secured by mortgages on property and by security interests
on the receivables from clients. As of December 31, 2018, we had 18 loan agreements in effect, with a balance of R$528.1 million.
At the same date we also had R$53.8 million in aggregate principal amount of financing agreements with SFH, the funds of which
will be released through the date of completion as construction of the corresponding development’s progress.



Securitization deals
and Fund — FIDC



On March 31, 2009,
we entered into a securitized receivables transaction, whereby we assigned a portfolio of select residential and commercial real
estate receivables to “Gafisa FIDC” which issued senior and subordinated quotas. This first issuance of senior quotas
was made through an offering restricted to qualified investors. Subordinated quotas were subscribed exclusively by Gafisa S.A.
Gafisa FIDC acquired the present value of the portfolio based on an agreed discount rate. We provide Gafisa FIDC with administrative
and accounting services including the reconciliation and analysis of receivables and collections and can be replaced by another
collection agent in the event of non-fulfillment with contractual parameters. The senior and subordinated quotas are remunerated
based on the IGP-M index plus interest of 12% per year. Because the subordinated quotas have a disproportional percentage of the
expected losses, Gafisa FIDC was considered a variable interest entity and was fully consolidated in our financial statements as
of December 31, 2012, 2011 and 2010. On May 28, 2013, the Company entered into an agreement to sell the subordinated quotas to
seniors investors in exchange for R$5 million in cash and R$3 million of real estate receivables. The Company remained obligated
to fully register the real estate pledge to investors.



On June 27, 2011,
the Company and its subsidiaries entered into a CCI transaction relating to a portfolio comprising select residential real estate
receivables from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$203.9 million (R$185.2 million
– Gafisa’s interest) in exchange for cash, at the transfer date, discounted to present value, for R$171.7 million (R$155.9
million – Gafisa’s interest), recorded under “Obligations assumed on assignment of receivables”.



On September 29, 2011,
the Company and its subsidiaries entered into a Private Instrument for Assignment of Real Estate Receivables and Other Covenants
which consist of an assignment of a portfolio comprising select residential real estate receivables from Gafisa and its subsidiaries.
The amount of real estate receivables assignment paid by the Assignee amounts to R$238.4 million (R$221.4 million - Gafisa’s
interest). The assignment amount will be settled by the Assignee by offsetting the Housing Financial System (SFH) debt balance
of the own bank. On July 6, 2012, the remaining balance was settled by issuance of Bank Deposit Certificate (CDB) guaranteed in
favor of the Company.



On December 22, 2011,
Gafisa and its subsidiaries entered into a CCI transaction relating to a portfolio comprising select residential real estate receivables
from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$72.4 million in exchange for cash at the transfer
date, discounted to present value, by R$60.1 million, classified as “Obligations with assignment of receivables.”



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On May 9, 2012, Gafisa
and its subsidiaries entered into a CCI transaction relating to a portfolio comprising select residential real estate receivables
from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$64.9 million in exchange for cash at the transfer
date, discounted to present value, by R$45.2 million.



On July 6, 2012, Gafisa
and its subsidiaries entered into a CCI transaction relating to a portfolio comprising select residential real estate receivables
from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$18.2 million in exchange for cash at the transfer
date, discounted to present value, for R$11.5 million.



On December 27, 2012,
Gafisa and its subsidiaries enter into a CCI transaction relating to a portfolio comprising select residential real estate receivables
from Gafisa and its subsidiaries. The assigned portfolio of receivables amounts to R$72.0 million in exchange for cash at the transfer
date, discounted to present value, by R$61.6 million.



On November 29, 2013,
a selected portfolio of sales receivables from Gafisa and its subsidiaries was transferred to investors. The assigned portfolio
amounts to R$24.2 million in exchange of cash at the transfer date, discounted to present value, by R$19.6 million.



On November 25, 2014,
a selected portfolio of sales receivables from Gafisa and its subsidiaries was transferred to investors. The assigned portfolio
amounts to R$15.2 million in exchange of cash at the transfer date, discounted to present value, by R$12.4 million.



On December 3, 2015,
a selected portfolio of sales receivables from Gafisa and its subsidiaries was transferred to investors. The assigned portfolio
amounts to R$32.2 million in exchange of cash at the transfer date, discounted to present value, by R$24.5 million.



On March 4, 2016,
a selected portfolio of sales receivables from Gafisa and its subsidiaries was transferred to investors. The assigned portfolio
amounts to R$36.4 million in exchange for cash at the transfer date, discounted to present value, for R$27.3 million.



On May 09, 2016, a
selected portfolio of sales receivables from Gafisa and its subsidiaries was transferred to investors. The assigned portfolio amounts
to R$23.0 million in exchange for cash at the transfer date, discounted to present value, for R$17.5 million.



On August 16, 2016,
a selected portfolio of sales receivables from Gafisa and its subsidiaries was transferred to investors. The assigned portfolio
amounts to R$21.4 million in exchange for cash at the transfer date, discounted to present value, for R$14.9 million.



On December 21, 2016,
a selected portfolio of sales receivables from Gafisa and its subsidiaries was transferred to investors. The assigned portfolio
amounts to R$27.0 million in exchange for cash at the transfer date, discounted to present value, for R$19.5 million.



On March 28, 2017,
a selected portfolio of sales receivables from Gafisa and its subsidiaries was transferred to investors. The assigned portfolio
amounts to R$30.2 million in exchange for cash at the transfer date, discounted to present value, for R$23.0 million.



In 2018, we did not
perform any transfer of sales receivables from Gafisa and its subsidiaries to investors.



Pursuant to Article
125 of the Brazilian Civil Code, the CCI-Investor carries general guarantees represented by statutory liens on real estate units,
effective as soon as the conditional restrictions included in the registration are lifted, as reflected in the real estate deed
on (i) the assignment of receivables from the assignors to SPEs, as provided for in Article 167, item II, (21) of Law No. 6,015,
of December 31, 1973; and (ii) the issue of CCI-Investor by SPEs, as provided for in Article 18, paragraph 5 of Law No. 10,931/04.



We will be compensated
for, among other things, the reconciliation of the receipt of receivables, guarantee the CCIs, and the collection of past due receivables.
The transaction structure provides for the substitution of us as collection agent in the event of non-fulfillment of the responsibilities
described in the collection service contract.



Working Capital



We believe that our
current working capital is sufficient for our present requirements and that our sources of funds from financing activities are
sufficient to meet the financing of our activities and cover our need for funds for at least the next twelve months. Additionally,
as a result of the Tenda spin-off which was consummated on May 4, 2017, we received cash totaling R$219.5 million in connection
with the exercise by the Gafisa shareholders of their preemptive



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rights to acquire up
to 50% of the share capital of Tenda, as well as cash totaling R$105.2 million in connection with the Tenda share capital reduction,
both of which have contributed to solidifying the liquidity and capital structure of the Company. As a result of the gradual recovery
of the Brazilian economy and as part of the Company’s strategy to reinforce its liquidity, strengthen its capital structure
and solidify the Company’s strategic and operational positioning for a new cycle of the real estate market, we issued and
sold 16,717,752 new common shares of the Company for a total amount of R$250.8 million, all in registered, book-entry form, and
with no par value, at a price per share equal to R$15.00, of which R$0.01 per share was allocated to capital, and R$14.99 per share
was allocated to capital reserves. . On June 24, 2019 and October 23, 2019, our board of directors approved a capital increase
in the amounts of R$132.3 million and R$272.7 million, respectively.



U.S. GAAP Reconciliation



We prepare our consolidated
financial statements in accordance with Brazilian GAAP, which differs in significant respects from U.S. GAAP. Our net income attributable
to owners of Gafisa, in accordance with Brazilian GAAP, was a net loss of R$419.5 million, a net loss of R$760.2 million and a
net loss of R$1,140.7 million in 2018, 2017 and 2016, respectively. Under U.S. GAAP, our net losses were R$452.6 million, R$621.8
million and R$514.1 million in 2018, 2017 and 2016, respectively.



Our equity, in accordance with Brazilian
GAAP, was R$493.2 million, R$715.1 million and R$1,796.5 million as of December 31, 2018, 2017 and 2016, respectively. Under U.S.
GAAP, we recorded total equity of R$240.4 million, R$495.4 million and R$1,438.0 million as of December 31, 2018, 2017 and 2016,
respectively.



The following items
generated the most significant differences between Brazilian GAAP and U.S. GAAP in determining net income and shareholders’
equity:



| | · | revenue recognition; and
| | - | ------------------------



| | · | effects of deferred taxes on the difference above.
| | - | --------------------------------------------------



For a discussion of
the principal differences between Brazilian GAAP and U.S. GAAP as they relate to our financial statements and a reconciliation
of net income and equity see Note 33 to our consolidated financial statements included elsewhere in this annual report and “Item
3.A. Key Information—Selected Financial Data.”



New Accounting Pronouncements, Interpretations
and Guidance



Pronouncements (new
or revised) and interpretation applicable to years beginning January 1, 2017



The Company adopted
all of the pronouncements (new or revised) and interpretations issued by the CPC applicable to its operations which were effective
as of December 31, 2018.



The following standards
are in effect beginning on January 1, 2018:



On May 28, 2014, the
IASB published IFRS 15, which establishes principles that will apply to the recognition of revenue under IFRS. IFRS 15 will require
entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. When adopted, IFRS 15 will supersede
most of the detailed guidance on the recognition of revenue that currently applies under IFRS. IFRS 15 will be effective for annual
periods beginning on or after January 1, 2018, and earlier application of IFRS 15 will be permitted for IFRS purposes. In December
2016, CPC has issued this pronouncement as CPC 47, effective on January 1, 2018. The standard can be applied either on the retrospective
method or the cumulative effect method, and is currently being evaluated by the Company.



For the specific case
of the real estate development sector, maintaining the POC revenue recognition method or the adoption of the method of keys, for
example, will result in the contractual analyses made by Management.



In September 2017,
the CPC consulted with the IASB – IFRS IC on the application of the percentage of completion revenue recognition method to
certain types of commercial contracts entered into in Brazil.



In a letter (CVM/SNC/SEP/No.
01/2018) dated January 10, 2018, the CVM instructed real estate development entities to continue applying Guideline OCPC 04 - Application
of the Technical Interpretation ICPC 02.



In a letter (CVM/SNC/SEP/No.
02/2018) dated December 12, 2018, the CVM established the accounting procedures for recognition, measurement and disclosure of
certain types of transactions arising from contracts for purchase and sale of real estate unit not yet completed in real estate
development entities. According to CPC 47, the recognition of revenue from contracts with customers became subject to a new regulation,
based on transfer of control



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over promised goods or service, which can
be at a point in time or over time, according to the satisfaction or not of the “contractual performance obligations”.
Revenue is measured in an amount that reflects the consideration the entity expects to be entitled to and is based on a five-step
model as follows: (1) identification of contract; (2) identification of performance obligations; (3) determination of transaction
price; (4) allocation of transaction price to performance obligations; (5) revenue recognition.



The Company records
the accounting effects of contracts only when: (i) the parties to the contract have approved the contract; (ii) the Company can
identify each party’s rights and the established payment terms; (iii) the contract has commercial substance; and (iv) the
Company has determined that the collection of consideration to which the Company is entitled is probable.



For comparability
purposes, the balances as of December 31, 2017 and 2016 were adjusted considering such changes in accounting practice. As required
by CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors, the retrospective effects of the adoption of
CPCs 47 and 48 are demonstrated as follows:





|Statement of profit or loss                |  | Originally reported balances |          | Impact from applying the CPCs 47 and 48 |  | Balances after applying the CPCs 47 and 48 as of 12/31/2017 |         | Originally reported balances |  | Impact from applying the CPCs 47 and 48 |          | Balances after applying the CPCs 47 and 48 as of 12/31/2016
|------------------------------------------ |  | ---------------------------- | -------- | --------------------------------------- |  | ----------------------------------------------------------- | ------- | ---------------------------- |  | --------------------------------------- | -------- | -----------------------------------------------------------
|Net operating revenue                      |  |                              | 608,823  |                                         |  |                                                             | 177,351 |                              |  |                                         | 786,174  |                                                            
|Operating costs                            |  |                              | (818,751 | )                                       |  |                                                             | (87,735 | )                            |  |                                         | (906,486 | )                                                          
|Operating (expenses) / income              |  |                              | (654,216 | )                                       |  |                                                             | —       |                              |  |                                         | (654,216 | )                                                          
|Financial income (expense)                 |  |                              | (107,268 | )                                       |  |                                                             | —       |                              |  |                                         | (107,268 | )                                                          
|Income tax and social contribution         |  |                              | 23,100   |                                         |  |                                                             | —       |                              |  |                                         | 23,100   |                                                            
|Profit from (loss on) continued operations |  |                              | (948,312 | )                                       |  |                                                             | 89,616  |                              |  |                                         | (858,696 | )                                                          
|Profit from discontinued operations        |  |                              | 98,175   |                                         |  |                                                             | —       |                              |  |                                         | 98,175   |                                                            
|Non-controlling interests                  |  |                              | (281     | )                                       |  |                                                             | —       |                              |  |                                         | (281     | )                                                          
|Net profit (loss) for the year             |  |                              | (849,856 | )                                       |  |                                                             | 89,616  |                              |  |                                         | (760,240 | )                                                          







For a discussion
on the impact on our financial statements of changing the revenue recognition method for U.S. GAAP purposes from the
percentage of completion revenue recognition method to the method of revenue recognition at the time each unit is delivered,
please see Note 33(c)(ii) to our consolidated financial statements included elsewhere in this annual report.



In July 2014, the
IASB published IFRS 9, which establishes, among other principles, principles that will apply to the classification, measurement
and recognition of financial assets and liabilities. IFRS 9 will replace (i) earlier versions of IFRS 9 and (ii) IAS 39. IFRS 9
is comprised of three phases:



Phase 1 - Classification
and measurement of financial assets and liabilities: Phase 1 introduces an approach for the classification of financial assets
driven by cash flow characteristics and the business model in which an asset is held. This single, principle-based approach will
replace existing rule-based requirements. The new model will also result in a single impairment model being applied to all financial
instruments.



Phase 2 - Impairment:
Phase 2 introduces a new, expected loss impairment model that will require more timely recognition of expected credit losses. It
will require entities to account for expected credit losses (as opposed to incurred credit losses) from when financial instruments
are first recognized. It will also lower the threshold for recognition of full lifetime expected losses.



Phase 3 - Hedge
Accounting: Phase 3 replaces the rule-based hedge accounting requirements in IAS 39. It will introduce a reformed model for
hedge accounting with enhanced disclosures about risk management activity. The new model will align the accounting treatment with
risk management activities, enabling entities to better reflect these activities in their financial statements. In addition, as
a result of these changes, users of the financial statements will be provided with better information about risk management and
the effect of hedge accounting on the financial statements.



IFRS 9 is effective
for annual periods beginning on or after January 1, 2018.



On January 13, 2016,
the IASB published IFRS 16 – Leases (“IFRS 16”), which establishes principles that will apply to the recognition,
measurement, presentation and disclosure of leases in the financial statements of lessors and lessees. IFRS 16 will require lessors
to recognize a lease liability reflecting future lease payments and a “right-of-use assets” for all lease contracts,
except certain short-term leases and leases for low-value assets. The principles that



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apply to the recognition,
measurement, presentation and disclosure of leases in the financial statements of lessees will remain substantially the same. IFRS
16 will be effective for annual periods beginning on or after January 1, 2019, and earlier application of IFRS 16 will be permitted
for IFRS purposes. In Brazil, earlier application of IFRS 16 will be subject to the implementation of IFRS 16 in Brazil and the
prior approval of the CPC and the CVM. The standard can be applied either on the cumulative catch-up approach or the full retrospective
method, and is currently being evaluated by the Company.



Based on available
information, the right-of-use assets and lease liabilities was recognized in the amount of R$5.0 million as of January 1, 2019.
The following standard amendments and interpretations will not have a significant impact on the consolidated financial statements
of the Company:



| | · | IFRIC 23/ICPC 22 Uncertainty over Income Tax Treatments
| | - | -------------------------------------------------------



| | · | Prepayment Features with Negative Compensation (Amendments to IFRS 9)
| | - | ---------------------------------------------------------------------



| | · | Investments in Associates and Joint Ventures (Amendments to CPC 18(R2) / IAS 28)
| | - | --------------------------------------------------------------------------------



| | · | Amendments to Plan Amendment, Curtailment or Settlement (Amendments to CPC 33 / IAS 19)
| | - | ---------------------------------------------------------------------------------------



| | · | Annual improvements to IFRS Standards 2015-2017 cycle – several standards
| | - | -------------------------------------------------------------------------



| | · | Amendments to references to the conceptual framework in the IFRS
| | - | ----------------------------------------------------------------



| | · | IFRS 17 Insurance Contracts.
| | - | ----------------------------



There is no other
standard, amendment or issued interpretation that is not yet adopted that could, in the opinion of our management, have a significant
impact on our financial statements upon adoption.



Recently Adopted and
Issued U.S. GAAP Accounting Standards



Please refer to Note
33(c) to our consolidated financial information for a description of recently adopted U.S. GAAP accounting standards and recently
issued U.S. GAAP accounting standards.



| | C. | Research and Development, Patents and Licenses, etc.
| | -- | ----------------------------------------------------



We have a research
and development department for new products, processes and methodologies focused on reducing the construction cycle. As of December
31, 2018, 2017 and 2016, we had 2, 2 and 5 employees engaged in research and development
activities, respectively. Our research and development expenditures in 2018, 2017 and 2016 were immaterial. See also “Item
4. Information on the Company—B. Business Overview—Construction.”



| | D. | Trend Information
| | -- | -----------------



Elsewhere in this
annual report, including under “Item 3. Key Information—D. Risk Factors” and “Item 5. Operating and Financial
Review and Prospects—A. Operating Results—Brazilian Real Estate Sector,” we discuss trends, uncertainties, demands,
commitments or events which could have a material effect upon our net sales or revenues, income from continuing operations, profitability,
liquidity or capital resources, or that could cause reported financial information to not necessarily be indicative of future operating
results or financial condition.



In addition, while
we believe the long term prospects for the Brazilian housing market have not changed, during 2015, 2016, 2017 and 2018, we recognized
that we needed to adjust how we have approached the demand for high growth and diversification in the market in order to achieve
sustainable, profitable growth. In the Brazilian housing market, demand has outstripped supply on all fronts, from units and availability
of skilled labor, to reliable and experienced suppliers and building partners, to financing, and to the ability to rapidly issue
permits and obtain the necessary approvals to deliver units.



In the second half
of 2011, our management team conducted a detailed analysis of our operations and profitability by project, region and brand and
has developed certain strategies to address the market trends that we have identified. As part of this revised strategy, we planned
to continue to simplify and streamline our organizational and operational structure to reinforce the fundamental strengths of each
of our brands, determining the specific geographic markets where each of our brands had the strongest prospects for performance
and where we would enjoy supply chain efficiencies, and focused our efforts for each brand in its respective geographic markets.
We also implemented a new management structure that, among other things, assigned each brand manager direct responsibility for
the operating performance of each brand.



In 2013 Gafisa completed
its strategic repositioning, which commenced in early 2012. Our goal was to reduce the level of debt, restrict the Company’s
exposure to unprofitable businesses and markets and improve in margins and



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cash generation. One
of the several initiatives we adopted to achieve this goal was the sale of a 70% interest in Alphaville, which contributed to a
decrease in our leverage.



By the end of 2013
we finalized our five-year business plan for the period from 2014 to 2018. We set guidelines for our business including the expected
size of Gafisa and Tenda operations, appropriate leverage, profitability guidelines, and our commitment to capital discipline and
shareholder value generation, which are reflected in the guidance released to the market at the end of 2013.



On February 2, 2014,
Gafisa’s board of directors authorized management to initiate studies for a potential spin-off of Gafisa and Tenda business
units into two independent publicly traded companies. Our management initiated the studies in the first quarter of 2014. The main
objectives of the proposed spin-off are to:



| | · | enable shareholders to allocate resources between Gafisa and Tenda in line with their interests
and investment strategies;
| | - | --------------------------------------------------------------------------------------------------------------------------



| | · | enable Gafisa and Tenda to respond faster to the opportunities in their target markets;
| | - | ---------------------------------------------------------------------------------------



| | · | establish sustainable capital structures for each of Gafisa and Tenda, based on each company’s
risk profile and strategic priorities;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | · | give greater visibility to the market on the individual performance of each of Gafisa and Tenda,
enabling better assessment of intrinsic value; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | · | increase the ability of Gafisa and Tenda to attract and retain talent, through the development
of appropriate cultures and compensation structures consistent with the specific results of each business.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During 2015, the Company
continued to evaluate the potential spin-off of the Gafisa and Tenda business units into two separate entities. During 2015, as
part of the spin-off studies, we (i) separated several joint departments of Gafisa and Tenda, including, among others, the services,
personnel and management department and the legal department, (ii) converted Tenda’s issuer registration with the CVM from
category B to category A, (iii) entered into negotiations with several banks and insurance companies to open lines of credit for
Tenda that are independent of Gafisa, and (iv) reviewed our contracts with our third party counterparties and evaluated the potential
impact of a spin-off on those contracts. On April 29, 2015, we announced to the market that the spin-off studies were ongoing and
would take longer to be concluded than had been initially expected. On August 16, 2016, we announced to the market that that the
spin-off studies were ongoing and that we were evaluating other potential capital structure options and separation alternatives
for the Gafisa and Tenda business units, including a potential offer of securities and/or a sale of equity interests, in addition
to the spin-off itself.



In December 2016,
following the conclusion of our analysis of certain strategic options, our management decided to sell 50% of Tenda’s total
capital stock, and transfer the remaining 50% of Tenda’s total capital stock to our shareholders in connection with a reduction
in our total capital stock. Accordingly, on December 14, 2016, we entered into an SPA with Jaguar Real Estate Partners LP (“Jaguar”)
pursuant to which we offered to sell Tenda shares representing up to 30% of the total capital stock of Tenda, at a price equal
to R$8.13 per share.



During 2017, we did
not issue a launch guidance for the Tenda segment or the Gafisa segment as a result of the continuing weakening economic conditions
and political instability in Brazil. Accordingly, we adopted a conservative approach to launches, focusing on the sale of inventory.



The spin-off of the
Tenda business unit was consummated on May 4, 2017, following: (i) a reduction of the capital stock of Tenda (without the cancellation
of shares), pursuant to which Gafisa, as sole shareholder at that time, received R$100 million (adjusted by the SELIC); (ii) a
reduction of the capital stock of Gafisa, resulting in the distribution to Gafisa shareholders of shares corresponding to 50% of
the capital stock of Tenda; (iii) the conclusion of the preemptive rights exercise pursuant to which Gafisa shareholders acquired
up to 50% of the total share capital of Tenda, at the price per share set forth in the SPA with Jaguar and for a total amount of
R$219.5 million, with no shares being acquired by Jaguar; and (iv) the satisfaction of other conditions precedent for the consummation
of the spin-off. In addition, on May 4, 2017, the Tenda shares were listed on the B3 and began to publicly trade.



On September 25, 2018,
GWI convened an Extraordinary Shareholders’ Meeting for the purpose of dismissing members of the Board of Directors and electing
new members through a multiple-vote process. GWI approved the dismissal of the entire Board of Directors and elected directors
for five of the seven vacant seats. See “Item 6. Directors, Senior Management and Employees—C. Board Practices”,
for further information about our Board of



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Directors. Within three
days of the dismissal and election of the new Board of Directors, the Company’s executive board was removed from office.



On September 28, 2018,
our Board of Directors approved the establishment of the Company’s share buyback program with the objective of generating
value for the Company’s shareholders. Shares purchased by the Company as part of the buyback program will be held in treasury,
and may subsequently be canceled, sold and/or used in connection with the exercise of stock options granted by the Company. The
maximum number of shares the Company may acquire under this program is 3,516,970 common shares, pursuant to Article 8 of CVM Instruction
No. 567/15. This buyback program ends on October 1, 2019. Under our current shares repurchase program, any acquisition by us of
our own shares must be made on a stock exchange and cannot be made by means of a private transaction. See “Item 10. Additional
Information—B. Memorandum and Bylaws—Purchases by us of our own Shares”, for further information. Such events
were discussed at length in the media, which led to variations in the market price of our shares.



On November 26, 2018, our Board of Directors
approved the voluntary delisting of our ADSs from the NYSE and a proposal to maintain our ADR facility as a Level 1 ADR program
to enable investors to retain their ADSs. On December 7, 2018, we filed a Form 25 with the SEC to effect the delisting of the ADSs,
and sent a copy to the NYSE on the same day. The last day of trading on NYSE for our ADSs was December 14, 2018, and our ADSs were
delisted from the NYSE on December 17, 2018. Our ADSs remain eligible for trading in the over-the-counter markets in the United
States, and our common shares will continue to be listed and admitted to trading in the Novo Mercado segment of the B3. In addition
to the information we are required to report under applicable Brazilian regulations, we intend to continue publishing English translations
of our annual report, interim results and communications on our investor relations website at (www.ri.gafisa.com.br), in accordance
with Rule 12g3-2(b) under the Exchange Act.



During February, March
and April 2019, the members of the Company’s Board of Directors elected in late 2018 resigned, with the exception of Pedro
Carvalho de Mello, and new members were elected to replace them. As of the date of this annual report, following the Annual General
Meeting held on April 15, 2019, Gafisa’s Board of Directors is composed of the following members: (i) Leo Julian Simpson
(nominated as chairman of the Board of Directors on April 15, 2019), (ii) Antonio Carlos Romanoski, (iii) Demian Fiocca, (iv) Eduardo
Larangeira Jácome, (v) Nelson Sequeiros Rodriguez Tanure, (vi) Roberto Luz Portella and (vii) Thomas Cornelius Azevedo Reichenheim,
all nominated on April 15, 2019.



On April 15, 2019,
at the Annual General Meeting, the shareholders resolved to suspend the shareholder rights of GWI Asset Management S.A. and the
other members of the GWI Group due to GWI Group’s non-compliance with the Company’s Bylaws as they relate to the Tender
Offer request. In addition, it was resolved to increase the limit of authorized capital of the Company from 71,031,876 ordinary
shares to 120,000,000 ordinary shares. This increase in the Company’s authorized capital enables us to issue new shares in
a sufficient amount to accommodate the financial restructuring of the Company.



On April 15, 2019,
following the General Meeting, in order to raise funds for investments, the newly appointed Board of Directors approved a capital
increase of 26,273,962 new common shares. These newly issued common shares were offered privately to the Company’s shareholders,
and were issued at the reference price of R$ 6.02 per common share (which was determined following an audit conducted by a specialized
firm). The Board of Directors also appointed Roberto Luz Portella as Chief Executive Officer, Chief Financial Officer and Investor
Relations Officer and Eduardo Larangeira Jácome as Operational Executive Officer.



On
August 15, 2019, the Board of Directors approved another capital increase of 48,968,124 new common shares. These newly issued common
shares were offered privately to the Company’s shareholders at B3 S.A. – Brasil, Bolsa, Balcão (former BM&FBovespa),
and were issued at the reference price of R$ 6.57 per common share (which was determined following an audit conducted by a specialized
firm). Following the preemptive rights exercise period and subsequent subscriptions periods, we issued and sold 45.554.148 and
3,413,976, respectively, new common shares of the Company for a total amount of R$254.2 million and R$18.5 million, respectivelu,
all in registered, book-entry form, and with no par value, at a price per share equal to R$5.58 and R$5.42, respectively. Accordingly,
on October 23, 2019, our board of director approved a capital increase in the amount of R$272.7 million. As of the date
of this annual report, the share capital of the Company totaled R$2,926.3 million, represented by 120,000,000 common shares, all
in registered, book-entry form, and with no par value.



On
August 30, 2019 the Board of Directors appointed André Luis Ackermann as Chief Financial Officer, and Eduardo Larangeira
Jácome tendered his resignation to the position of Management Officer, effective as of September



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30, 2019. Eduardo Larangeira
Jácome remains as a member of the Restructuring Committee until December 31, 2019 and a member of the Company’s Board
of Directors.



Also,
on September 20, 2019, Roberto Luz Portella resigned from his position as Chief Executive Officer and Inverstor Relations Officer.
Following his resignation, on September 23, 2019, the Board of Directors appointed André Luis Ackermann as Investor Relations
Officer cumulating with his former responsabilities as Chief Financial Officer.



| | E. | Off Balance Sheet Arrangements
| | -- | ------------------------------



We currently do not
have any off-balance sheet arrangements or significant transactions with unconsolidated entities not reflected in our consolidated
financial statements. All of our interests in and/or relationships with our subsidiaries or jointly-controlled entities are recorded
in our consolidated financial statements.



| | F. | Disclosure of Contractual Obligations
| | -- | -------------------------------------



The table below presents
the maturity of our significant contractual obligations as of December 31, 2018. The table does not include deferred income tax
liability.



|                                        |  | Maturity Schedule     
|--------------------------------------- |  | ----------------------
|                                        |  | Total                 
|                                        |  | (in millions of reais)
|Loans and financing                     |  |                       
|Debentures                              |  |                       
|Interest (1)                            |  |                       
|Real estate development obligations (2) |  |                       
|Obligations for land purchase           |  |                       
|Credit assignments                      |  |                       
|Obligations from operating leases       |  |                       
|Other accounts payable                  |  |                       
|Total                                   |  |                       




| | (1) | Estimated interest payments are determined using the interest rate as of December 31, 2018. However,
our long-term debt is subject to variable interest rates and inflation indices, and these estimated payments may differ significantly
from payments actually made.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Including commitments not reflected in the balance—CFC Resolution No. 963. Pursuant to Brazilian
GAAP, and since the adoption of CFC Resolution No. 963, the total costs to be incurred on the units launched but not sold are not
recorded on our balance sheet. As of December 31, 2018, the amount of “real estate development obligations” related
to units launched but not sold was R$232.3 million.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We also recorded provisions
for contingencies in relation to labor, tax and civil lawsuits in the amounts of R$138.2 million and R$155.6 million in current
and non-current liabilities, respectively, as of December 31, 2018.



| | G. | Safe Harbor
| | -- | -----------



See “Cautionary
Statement Regarding Forward-Looking Statements.”



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ITEM 6. DIRECTORS, SENIOR MANAGEMENT
AND EMPLOYEES



| | A. | Directors and Senior Management Board of Directors
| | -- | --------------------------------------------------



The table below shows
the names, positions, and terms of office of the members of our board of directors:



|Name                                     | Age | Position | Election
        Date | Term
        of Office(1)                   
|---------------------------------------- | --- | -------- | --------------------- | --------------------------------------------
|                                         |     |          |                       |                                             
|Leo Julian Simpson (2)                   | 67  | Chairman | April 15, 2019        | Annual Shareholders’ General Meeting in 2021
|Antonio Carlos Romanoski (2)             | 74  | Director | April 15, 2019        | Annual Shareholders’ General Meeting in 2021
|Thomas Cornelius Azevedo Reichenheim (2) | 72  | Director | April 15, 2019        | Annual Shareholders’ General Meeting in 2021
|Nelson Sequeiros Rodriguez Tanure (2)    | 67  | Director | April 15, 2019        | Annual Shareholders’ General Meeting in 2021
|Roberto Luz Portella                     | 74  | Director | April 15, 2019        | Annual Shareholders’ General Meeting in 2021
|Eduardo Larangeira Jácome                | 63  | Director | April 15, 2019        | Annual Shareholders’ General Meeting in 2021
|Denise dos Passos Ramos                  | 44  | Director | July 3, 2019          | Annual Shareholders’ General Meeting in 2021




| | (1) | Under Brazilian corporate law, an annual general shareholders’ meeting must take place within
the first four months of the calendar year.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Independent member pursuant to Brazilian Law. According to Brazilian Law, a director is considered
independent when: (1) he/she has no relationship with the company, except for holding shares; (2) he/she is not a controlling shareholder,
spouse or relative of the controlling shareholder, has not been in the past three years linked to any company or entity related
to the controlling shareholder; (3) he/she has not been in the past three years an employee nor an executive of the company, of
the controlling shareholder or of any subsidiary of the company; (4) he/she is not a supplier or buyer, direct or indirect, of
the company where the arrangement exceeds a certain amount; (5) he/she is not an employee or manager of any company which renders
services to the company or which uses services or products from the company; (6) he/she is not a spouse or relative of any member
of the company’s management; and (7) he/she does not receive any compensation from the company, except for the compensation
related to its position as a board member.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our directors are
not subject to mandatory retirement due to age.



The following is a
summary of the business experience and principal outside business interests of the current members of our board of directors.



Antonio Carlos Romanoski.
Mr. Antonio Carlos Romanoski held several positions at the Electric Power Company of Paraná
- COPEL for 17 years, including Manager of Finance and Human Resources, Administrative Officer, Chief Financial Officer and member
of the Board of Directors. He also served as Superintendent (resident) overseeing the construction of the Salto Osório and
Foz do Areia Power Plants. He was also responsible for attracting foreign financing from international agencies. Mr. Romanoski
also worked for 15 years at Refrigeração Paraná S.A., the second largest manufacturer of Domestic Appliances
in Brazil, where he held the positions of Chief Financial Officer, General Director and Market Relations Officer. He oversaw the
merger and acquisition process of Industries Pereira Lopez and led the restructuring process of the Prosdócimo Organizations,
overseeing the merger and incorporation of 14 companies. He coordinated the logistics of the sale of the company to Electrolux
do Brasil S.A., where he then served as Chief Executive Officer for three years and as Member of the Board of Directors. He supported
the merger of Refripar with Electrolux S.A., creating Electrolux do Brasil, as well as the merger of the Electrolux / Prosdócimo
brands. In addition, Mr. Romanoski served as president of the Atlas of Home Appliances industry, where he has remained a member
of the Board of Directors since 1988. Mr. Romanoski served as Member of the Board of Directors of TEKA - Tecelagem Kuenrich S.A.
in 2003 and 2004, and in the same period, he was a member of the Board of Directors of Ferropar - Ferrovia Paraná S.A. He
has been a shareholder of CEFI - Center of Excellence in Finance since 1994, which provides business advice with specialization
in mergers, acquisitions, family businesses and financial structuring. He coordinated the following projects, among others: City
Hall of Curitiba - Financial restructuring and capitalization - Inepar S / A Indústria e Construção - Restructuring
of the Group and creation of the Holding Company - De Lara Transportes - Evaluation of the company and advisor in the sale to ALL
- Sonae Emplanta



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- Advisory on fundraising
for Shopping Center - Copel - Member of the Consortium for the privatization of the company - HSBC - Training of 2,000 managers
and directors in the EVA concept - Souza Cruz - Advice on investment project in the State of Paraná - Unimed Rio - Restructuring
and market adequacy. He is also a shareholder of Romanoski & Associados.



Nelson Sequeiros
Rodriguez Tanure. Mr. Nelson Sequeiros Rodriguez Tanure is Chief Executive Officer of Docas Investimentos S.A. He has been
an investor of PETRO RIO S.A. since 2013, and he acquired Editora Pesos S.A. in 2006. He entered into a usufruct agreement for
the Jornal do Brasil, Gazeta Mercantil and Forbes magazine brands in 2001. Mr. Tanure acquired control of Docas S.A. and of its
subsidiaries Boavista S.A. and Boavista Trading in 1999, and he incorporated ISHIBRAS, forming the company Indústrias Verolme-Ishibras
S.A. in 1994. He served as Chairman of the Board of Directors of SADE VIGESA S.A. (a union of South American Engineering and Villares
equipment) in 1991, and he acquired EMAQ VEROLME ESTALEIROS S.A. (a merger of EMAQ Engenharia e Máquinas S.A. and Verolme
Shipyard) in 1989. In 1983, he founded Representação e Comércio Internacional Ltda., a Brazilian trading and
holding company which is the controlling shareholder of Serviços de Engenharia e Equipamentos S.A. and Engenharia e Máquinas
S.A.. He holds a degree in Business Administration from the Federal University of Bahia in 1975, and he graduated from the Institut
des Hautes Etudes de Development Economique et Social - Université Paris I in 1976. He holds a specialization from the Owner
/ President Management Program at Harvard Business School.



Leo Julian Simpson.
Mr. Leo Julian Simpson began his career as a financial lawyer at Rickerbys & Pardoes, working in property development of industrial
and recreational facilities in England. In 1986, he expanded these skills at Shimizu Corporation, Japan’s largest finance
and leisure entrepreneur in Europe and Asia. In 1987, he began working at McKenna & Co. documenting and financing international
infrastructure projects in the telecommunications, energy and transportation sectors, including in the construction of airports
and power plants in the United Kingdom. In addition, Mr. Simpson provided legal advice supporting the creation of companies such
as National Grid, France Telecom, Sprint Corporation and Intelig Telecomunicações in Brazil. He became commercial
director and then president of Intelig Telecomunicações, a position he held until the company was sold by Brazilian
investors to TIM. Mr. Simpson graduated with a degree in law from Bristol University in England in 1977.



Eduardo Langeira
Jácome. Mr. Jácome has served as Officer and Director of Gafisa S.A. since March 15, 2019 and April 15, 2019,
respectively. He graduated in Business Administration from the School of Political and Economic Sciences of Rio de Janeiro. He
has 45 years of experience in Business Management and Human Resources, 35 of which have been in executive positions. He worked
for 23 years at IBM, three years at Coca Cola Andina, five years at Telemar / Oi, four years at Cia. Brasileira de Multimídia
and one year at HRT / PetroRio. He has held planning, implementation and management positions at People & Business Solutions
(2006), Global Sports Network (2010) and PBS Technology (2015). He is a member (2018-2020) of the Executive Board of MercoSerra,
the Development Agency of Serra Carioca, which is a private entity created to support the economic development of the region formed
by Nova Friburgo, Petrópolis and Teresópolis. Mr. Jácome serves as Member of the Fiscal Council (2018-2020)
of ACIANF - Commercial, Industrial and Agricultural Association of Nova Friburgo, and in 2016, he was approved as an Associate
Member of the Brazilian Institute of Corporate Governance (IBGC).



Roberto Luz Portella.
Mr. Roberto Luz Portella has served as Director and Officer of Gafisa S.A. since March 15, 2019. He has worked as a corporate attorney
at Pinheiro Neto Advogados, in the Corporate Law and Mergers and Acquisitions sector, worked at the Brascan / Light Group and taught
law at PUC-RJ. At Banco Brascan de Investimentos, his experience ranged from providing legal advice in the area of bank investments
to the creation of credit products and project finance transactions, in addition to advising on initial public offerings and other
Capital Markets transactions and several large transactions in the area of Mergers and Acquisitions, including structuring the
startup of Aracruz Celulose (where he later joined as counsel, remained for 15 years and assumed of the roles of Director of Financial
and Market Relations Officer and director of several subsidiaries). Mr. Portella set up the strategic planning of the Lorentzen
Group where he became Legal Director and eventually Financial Director, and he also worked on the reorganization the Group, whose
main function was to set up Aracruz’s control group to purchase the dominant position of BNDES. Mr. Portella also served
as Vice-President and then General Counsel at Citibank, coordinating the drafting of the Bank’s Strategic Plan, and conducted
several operations such as negotiating public sector debt, advising in the formation of Banco Múltiplo (a joint venture
with Banco Crefisul) and advising on investments in the area of Insurance and Credit Cards, the department in charge of the recovery
of credits from insolvent debtors. Upon leaving Citibank, he joined Demarest Almeida Lawyers as partner in the Advisory Sector
where he worked until March 2019 in the area of Finance and Capital Markets. With the creation of the Business Law area, he supervised
debt and equity issues, several Mergers and Acquisitions transactions, including the purchase of Open Capital, and Structured Financial
Operations. At Demarest, he also participated in management as a member of



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the Board of Directors
and Officers. He is member of the American Chamber for Brazil (AMCHAN-SP) and a member of the Fiscal Council of Petro S.A. Mr.
Portella holds a Bachelor’s Degree in Law from the Faculty of Law of UERJ, with specialization in the areas of Business and
Tax Law from the Getúlio Vargas Foundation of Rio de Janeiro (FGV-RJ). He also studied as postgraduate in North American
Law at Brown University and in International Legal Studies at Harvard Law School.



Thomas Cornelius
Azevedo Reichenheim. Mr. Thomas Cornelius Azevedo Reichenheim is the former Director of several companies, notably Auxiliary
Bank, Auxiliary Investment Bank, Auxiliar Seguradora, La Fonte Fechaduras and LFTel S.A. He is also the owner of Carisma Comercial
Ltda. of T.R Portfolios Ltda. where he advises on the creation of capital and financial institutions. Mr. Reichenheim graduated
with a degree in Business Administration from the Fundação Getúlio Vargas, in 1972, and in Law from Faculdades
Metropolitanas Unidas, in 1972.



Denise dos Passos
Ramos.Mrs. Ramos has over 20 years’ experience in the real estate sector, including as a lawyer at Banif – Banco
Internacional do Funchal (Brasil) S.A and as Operating Legal Advisor to the Legal Office of Ipiranga Produtos de Petróleo
S.A. She was also head of the legal department of Petroflex Indústria e Comércio S.A., a company of the Lanxess Energizing
Chemistry group. She is currently Chief Executive Officer at Alberta Albko Ltda. Mrs Ramos holds a Law degree from Universidade
Federal do Rio de Janeiro and completed an MBA in Business Management from Fundação Getúlio Vargas. Also completed
graduate programs in Contractual Law from Fundação Getúlio Vargas and Environmental Law from Pontifícia
Universidade Católica do Rio de Janeiro.



The table below shows
the names, positions, and terms of office of our executive officers:



|Name                 | Age | Position                                               | Election
        Date                                                       | Term
        of Office
|-------------------- | --- | ------------------------------------------------------ | --------------------------------------------------------------------------- | ----------------------
|André Luis Ackermann | 41  | Chief Financial Officer and Investor Relations Officer | August 29, 2019 as CFO and September 23, 2019 as Investor Relations Officer | August 28, 2022       
|                     |     |                                                        |                                                                             |                       
|Saulo Nunes          | 53  | Chief Operational Officer                              | May 17, 2019                                                                | May 16, 2022          



The business address
of each of our executive officers is Av. Pres. Juscelino Kubitschek, No. 1830, Block 2, 3rd Floor, 04543-900 – São
Paulo, SP – Brazil.



Our Relationship with our Executive
Officers and Directors



As
of December 31, 2018, our board of officers in the aggregate held 0.00046% of our share capital and our board of directors in the
aggregate held a 49.07% direct or indirect interest in our share capital. As of December 31, 2018, there were no contracts of any
type or any other material agreements entered into by us with any members of our board of directors or with any member of our board
of officers. As of December 31, 2018, some of our executive officers held interests in our subsidiaries as directors and/or executive
officers. In none of these cases, as of the referenced date, were the interests held material.



As of December 31,
2017, our board of officers in the aggregate held 0.064% of our share capital and our board of directors in the aggregate held
a 0.397% direct or indirect interest in our share capital. As of December 31, 2017, there were no contracts of any type or any
other material agreements entered into by us with the members of our board of directors and our board of officers. As of December
31, 2017, some of our executive officers held interests in our subsidiaries as directors and/or executive officers. In none of
these cases, as of the referenced date, were the interests held material.



As of December 31,
2016, our board of officers in the aggregate held 0.6% of our share capital and our board of directors in the aggregate held a
0.2% direct or indirect interest in our share capital. As of December 31, 2016, there were no contracts of any type or any other
material agreements entered into by us with the members of our board of directors and our board of officers. As of December 31,
2016, some of our executive officers held interests in our subsidiaries as directors and/or executive officers. In none of these
cases, as of the referenced date, were the interests held material.



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B.       Compensation



For each of 2018, 2017, and 2016



Under Brazilian corporate
law, the company’s shareholders are responsible for establishing the aggregate amount paid to members of the board of directors,
the executive officers and the members of the fiscal council. Once the shareholders establish an aggregate amount of compensation,
the members of the board of directors are then responsible for setting individual compensation levels.



For each of 2018,
2017 and 2016, the aggregate compensation we paid to the members of the board of directors was R$1.5 million, R$2.0 million and
R$2.3 million, respectively, considering Gafisa only for the years ended December 31, 2018 and 2017 and Gafisa and Tenda for the
year ended December 31, 2016.



For each of 2018,
2017 and 2016, the aggregate compensation we paid to the members of the fiscal council was R$219 thousand, R$243 thousand and R$296
thousand, respectively, considering Gafisa only for the years ended December 31, 2018 and 2017 and Gafisa and Tenda for the year
ended December 31, 2016.



For each of 2018,
2017 and 2016, the aggregate compensation we paid to the executive officers was R$5.4 million (net of bonuses for Gafisa executive
officers) R$7.7 million (net of bonuses for Gafisa and Tenda executive officers) and R$14.2 million (net of bonuses for Gafisa
executive officers), respectively, which includes, unless otherwise indicated, fixed compensation, annual bonus amounts and the
costs related to Stock Options Programs, considering Gafisa only for the years ended December 31, 2018 and 2017 and Gafisa and
Tenda for the year ended December 31, 2016.



Approximately 40%
of the total compensation paid to Gafisa officers is variable. For the year ended December 31, 2018 and 2017, there were no payment
related to short term bonuses (Gafisa only). The amount related to short-term bonuses paid for our officers for the year ended
December 31, 2016 was R$7.6 million, considering Gafisa and Tenda.



For each of 2018,
2017 and 2016, the individual compensation we paid to members of our board of directors (fixed compensation in 2016, fixed compensation
in 2017 and fixed compensation in 2018), fiscal council (fixed compensation) and officers (fixed compensation, short-term bonus
and costs related to Stock Options Programs) is set forth in the tables below.



Gafisa



|2018                                             |  | Board of Directors |         | Fiscal Council |  | Executive Officers
|------------------------------------------------ |  | ------------------ | ------- | -------------- |  | ------------------
|Number of members(1)                             |  |                    | 5.5     |                |  |                   
|Annual highest individual compensation (in R$)   |  |                    | 182,698 |                |  |                   
|Annual lowest individual compensation (in R$)(2) |  |                    | 48,220  |                |  |                   
|Annual average individual compensation (in R$)   |  |                    | 91,193  |                |  |                   




| | (1) | Based on the average number of members during the period.
| | --- | ---------------------------------------------------------



| | (2) | Annual lowest individual compensation includes only the members of board of directors, fiscal council
and executive officers and does not include members who are also executive officers (if a member is an executive officer, he or
she is paid as an executive officer).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2017                                             |  | Board of Directors |         | Fiscal Council |  | Executive Officers
|------------------------------------------------ |  | ------------------ | ------- | -------------- |  | ------------------
|Number of members(1)                             |  |                    | 7.00    |                |  |                   
|Annual highest individual compensation (in R$)   |  |                    | 365,141 |                |  |                   
|Annual lowest individual compensation (in R$)(2) |  |                    | 234,058 |                |  |                   
|Annual average individual compensation (in R$)   |  |                    | 290,236 |                |  |                   




| | (1) | Based on the average number of members during the period.
| | --- | ---------------------------------------------------------



| | (2) | Annual lowest individual compensation includes only the members of board of directors, fiscal council
and executive officers who served an entire year and does not include members who are also executive officers (if a member is an
executive officer, he or she is paid as an executive officer).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|2016                                             |  | Board of Directors |         | Fiscal Council |  | Executive Officers
|------------------------------------------------ |  | ------------------ | ------- | -------------- |  | ------------------
|Number of members(1)                             |  |                    | 7.00    |                |  |                   
|Annual highest individual compensation (in R$)   |  |                    | 365,141 |                |  |                   
|Annual lowest individual compensation (in R$)(2) |  |                    | 195,048 |                |  |                   
|Annual average individual compensation (in R$)   |  |                    | 282,713 |                |  |                   




| | (1) | Based on the average number of members during the period.
| | --- | ---------------------------------------------------------



| | (2) | Annual lowest individual compensation includes only the members of board of directors, fiscal council
and executive officers who served an entire year and does not include members who are also executive officers (if a member is an
executive officer, he or she is paid as an executive officer).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Tenda (discontinued
operations)



|2016                                             |  | Board of Directors |         | Fiscal Council |  | Executive Officers
|------------------------------------------------ |  | ------------------ | ------- | -------------- |  | ------------------
|Number of members(1)                             |  |                    | 9.08    |                |  |                   
|Annual highest individual compensation (in R$)   |  |                    | 126,670 |                |  |                   
|Annual lowest individual compensation (in R$)(2) |  |                    | 126,670 |                |  |                   
|Annual average individual compensation (in R$)   |  |                    | 128,845 |                |  |                   




| | (1) | Based on the average number of members during the period.
| | --- | ---------------------------------------------------------



| | (2) | Annual lowest individual compensation includes only the members of board of directors, fiscal council
and executive officers who served an entire year and does not include members who are also executive officers (if a member is an
executive officer, he or she is paid as an executive officer).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



C.       Board
Practices



General Information



We are managed by
a board of directors consisting of at least five and up to nine directors and at least two and up to eight executive officers.
Our directors are elected for a two-year term and our executive officers are elected for a three-year term. Reelection of officers
and directors is permitted. We also have (i) a fiscal council, which under Brazilian Law is not a permanent body, although currently
installed, (ii) permanent advisory committees created in accordance with our bylaws, namely: an audit committee and a corporate
governance and compensation committee and (iii) executive committees established by the Board of Directors, namely: an investment
executive committee, a finance executive committee, and an ethics executive committee. See “—A. Directors and Senior
Management Board of Directors.”



Board of Directors



Our board of directors
is our decision-making body responsible for formulating general guidelines and policies for our business, including our long term
strategies. Among other things, our board of directors is responsible for appointing and supervising our executive officers.



Our board of directors
meets at least once every two months and at any other time when a meeting is called by its chairman or by at least two other effective
members. The decisions of our board of directors are taken by the majority vote of those members present at the respective meeting
and constituting a quorum of at least four members. In the event of a tie vote, the chairman of our board of directors has, in
addition to his personal vote, the right to cast a tie-breaking vote. In addition, pursuant to Brazilian corporate law, a member
of our board of directors is prevented from voting in any shareholders’ or board of directors’ meeting, or from acting
in any business or transaction, in which he may have a conflict of interest with our company.



Under Brazilian corporate
law, a company’s board of directors must have at least three members. Our bylaws provide for a board of directors of up to
nine members, from which at least 20% or two members, whichever is greater, shall be independent members, as determined by the
Listing Rules of the Novo Mercado. Our directors are elected at our annual general shareholders’ meeting for a two-year
term of office, with reelection permitted, and are subject to removal at any time by our shareholders at a shareholders’
general meeting. Although the Listing Rules of the Novo Mercadorequire at least 20% or two independent members, our board
of directors currently has five independent members, out of a total
of seven members.



Article 141 of Brazilian
corporate law provides that shareholders with at least 10% of a company’s total capital stock may request the adoption of
the multiple voting procedure for the election of the board of directors, even where there is no provision for this in the company’s
bylaws. The multiple voting procedure grants each share as many votes as the number of board members, and allows shareholders to
allocate either all of their votes to a single candidate or to distribute their votes among several candidates.



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All the voting proceedings
discussed in the previous paragraphs currently apply to our company.



As prescribed by CVM
Instruction No. 282, of June 26, 1998, the minimum voting capital percentage required for the adoption of the multiple voting procedure
in publicly-held companies may be reduced as a result of the amount of its capital stock. Based on the current amount of our capital
stock, shareholders representing 5% of our total capital stock may request the adoption of the multiple voting procedure in order
to elect the members to our board of directors. The referred minimum percentage may vary from 5% to 10% depending on the amount
of our capital stock, as prescribed in the aforementioned CVM Instruction No. 282, of June 26, 1998. If the adoption of the multiple
voting procedure is not requested, directors are elected by a majority vote of our shareholders, and such shareholders who, individually
or collectively, represent at least 10% of our shares, are entitled to appoint, in a separate vote, a director and its alternate.



The Listing Rules
of the Novo Mercado also provide that all members of our board of directors and our board of officers must comply with the
arbitration clause in the bylaws before taking office.



Executive Officers



Under Brazilian corporate
law, a company’s board of executive officers must have at least two members, and each of such members must be a resident
in Brazil. Furthermore, no more than one-third of our directors may serve as members of our board of officers at any given time.
In addition, under the Listing Rules of the Novo Mercado, the chief executive officer of our company shall not serve as
the chairman of the board of directors.



Our executive officers
are our legal representatives and are primarily responsible for managing our day-to-day operations and implementing the general
policies and guidelines set forth in our shareholders’ general meetings and by our board of directors. Our bylaws require
that our board of officers be composed of at least two members and a maximum of eight members. The members of our board of officers
are appointed by our board of directors for a term of three-years, and may be reelected or removed by our board of directors at
any time. Our bylaws and our board of directors determine the role of our executive officers. Currently, we have a board of officers
comprised of two members: André
Luis Ackermann and Saulo Nunes.



The chief executive
officer submits the business plan, annual budget, investment plans and new expansion plans for Gafisa and our subsidiaries to the
approval of the board of directors. The chief executive officer enacts these plans and develops our strategy and operational plan,
including the manner in which we will execute the resolutions approved at the shareholders’ meeting and by the board of directors.
Together with the other officers, he also supervises and coordinates our activities. The officer in charge of investor relations
supplies our financial information to investors, the CVM and the B3, and is also responsible for keeping an updated register based
on the applicable regulations.



Fiscal Council



Under Brazilian corporate
law, the fiscal council is a corporate body independent from the management of the company and its external auditors. The company
fiscal council is not a permanent body, and whenever installed, must consist of no less than three and no more than five
members. The primary responsibility of the fiscal council is to review management’s activities and the company’s financial
statements and to report its findings to the shareholders of the company. The fiscal council is not equivalent to an audit committee
as contemplated by the Securities Exchange Act, as amended. Under Brazilian corporate law, a fiscal council must be established
at a shareholders’ general meeting upon request of shareholders representing at least 10% of the shares with voting rights,
or 5% of the shares with no voting rights, and its members shall remain in office until the annual general shareholders’
meeting of the year following their election. Each member of the fiscal council is entitled to receive compensation in an amount
equal to at least 10% of the average amount paid to each executive officer (excluding benefits and profit sharing).



As prescribed by CVM
Instruction No. 324, of January 19, 2000, the minimum voting capital percentage required to request the fiscal council to be installed
may be reduced as a result of the amount of the company’s capital stock. Based on the current amount of our capital stock,
shareholders representing 2% of our voting capital stock may request the fiscal council to be installed. The referred minimum percentage
may vary from 2% to 8% depending on the amount of our capital stock, as prescribed in the aforementioned CVM instruction.



Individuals who are
also employees or members of the administrative bodies of our company, of companies controlled by us, or of companies forming a
group of companies with us (pursuant to Chapter XXI of Brazilian corporate law), as well as spouses or parents of our management,
cannot serve on the fiscal council.



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Our by-laws provide
for a non-permanent fiscal council composed of at least three and up to five members, which can be formed and have its members
elected at the shareholders’ general meeting, as requested by the shareholders, in the events set forth by Brazilian corporate
law. When in operation, the compensation of our fiscal council is set at the shareholders’ general meeting that elects it.



We do not currently
have a fiscal council in place and will not form a fiscal council or have members elected to it unless requested and approved by
the shareholders at a shareholders’ general meeting, as set forth by Brazilian corporate law.



We have also established
a permanent audit committee. See “—Audit Committee.”



Audit Committee



Our bylaws provide
for an Audit Committee that convenes regularly, as often as it determines is appropriate to carry out its responsibilities. The
Audit Committee must be comprised of at least three members, all of which must be independent members. The Audit Committee is currently
composed of Gilberto Braga, Pedro Carvalho de Mello and Thomas Cornelius Azevedo Reichenheim. Our board of directors has determined
Gilberto Braga and Pedro Carvalho de Mello are each independent for the purpose of Rule 10A-3 of the Exchange Act. Our board of
directors has determined that Gilberto Braga is an audit committee financial expert within the meaning of the regulations promulgated
by the United States Securities and Exchange Commission.



This committee has
responsibility for, among others, planning and reviewing our annual and quarterly reports and accounts with the involvement of
our auditors, focusing particularly on compliance with legal requirements and accounting standards, and ensuring that an effective
system of internal financial controls is maintained, as set forth in the Company’s by-laws. The ultimate responsibility for
reviewing and approving our annual and quarterly reports and accounts remains with our directors.



Corporate Governance and Compensation
Committee



Our bylaws provide
for a Corporate Governance and Compensation Committee that convenes regularly, as often as it determines is appropriate to carry
out its responsibilities. The Corporate Governance and Compensation Committee must be comprised of at least three members, all
of which must be independent. The Corporate Governance and Compensation Committee is currently comprised of Antonio Carlos Romanoski,,
Nelson Sequeiros Rodriguez Tanure, and Thomas Cornelius Azevedo Reichenheim. This committee, among other things, considers and
periodically reports on matters relating to the size, identification, selection and qualification of the board of directors, executive
officers and candidates nominated for the board of directors and its committees, is responsible for overseeing compliance with
the corporate governance principles applicable to us under our bylaws and other policies, as well as for proposing improvements
and changes to such applicable principles; reviews and makes recommendations to our directors regarding its compensation policies
and all forms of compensation to be provided to our executive officers and other employees.



| | D. | Employees
| | -- | ---------



As of December 31,
2018, we had 422 employees at Gafisa across the following states:



|States         |  | Gafisa Number of Employees
|-------------- |  | --------------------------
|Rio de Janeiro |  |                           
|São Paulo      |  |                           
|Total          |  |                           

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The table below shows
the number of employees for the periods presented, within the macro areas of the company:



|Period   |  | Operations |       | Administration & Finance |  | Business Development |     | Sales |  | Total
|-------- |  | ---------- | ----- | ------------------------ |  | -------------------- | --- | ----- |  | -----
|2018     |  |            | 234   |                          |  |                      | 127 |       |  |      
|2017     |  |            | 242   |                          |  |                      | 213 |       |  |      
|2016 (1) |  |            | 1,244 |                          |  |                      | 500 |       |  |      
|2015     |  |            | 1,297 |                          |  |                      | 499 |       |  |      
|2014     |  |            | 1,134 |                          |  |                      | 527 |       |  |      




| | Note: | For the years ended December 31, 2017 and 2018, the numbers
presented refer to the employees of Gafisa, and do not refer to the employees of Tenda.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | (1) | Total number includes 1,684 Tenda employees, of which 917 were allocated in Operations, 236 in
Administration and Finance, 61 in Business Development and 470 in Sales.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our administrative
employees carry out management, finance, information technology, legal and human resources activities among others. Our construction
site employees focus on management and oversight of our construction workers, the majority being outsourced. The outsourced professionals
are hired by the contractors to carry out various tasks on the construction sites. As of the date of this annual report, we estimate
that approximately 438 outsourced professionals are providing services to Gafisa across Brazil, all in the Southeast region of
Brazil.



We offer training
programs to our employees, subcontractors and outsourced employees. All of our professionals involved in the construction of our
developments are trained prior to the beginning of their work and are supervised directly by our engineers.



The majority of our
employees and outsourced professionals of the State of São Paulo are enrolled with the Civil Construction Industries Workers’
Union (SINTRACON). As a rule, the Civil Construction of Large Building Industry in the State of São Paulo (SINDUSCON-SP)
annually negotiates with SINTRACON collective bargaining agreements applicable to our employees. The most recent collective bargaining
agreement for our employees and outsourced professionals in the State of São Paulo was executed in May 2017, establishing
a salary adjustment of 3.99% as of May 2017. This collective bargaining agreement became effective in May 2017 and will expire
in April 2018. The majority of our employees and outsourced professionals of the State of Rio de Janeiro are members of the Civil
Construction, Tiles, Cement, Marble and Granite Products, Road Construction, Paving, and Land Moving and Industrial Maintenance
and Assembly Industries’ Workers Union of the Rio de Janeiro Municipality (SINTRACONST-RIO). As a rule, the Civil Construction
of Large Building Industry in the State of Rio de Janeiro (SINDUSCON-RIO) annually negotiates with SINTRACONST-RIO the collective
bargaining agreements applicable to our employees. The most recent collective bargaining agreement for our employees and outsourced
professionals in the State of Rio de Janeiro was executed in March 2017, establishing a salary adjustment of 2% as of March 2017.
This collective bargaining agreement became effective in March 2017 and expired in February 2018. As of the date of this annual
report, we are negotiating the collective bargaining agreements for our employees in the states of São Paulo and Rio de
Janeiro related to 2018.



We believe that our
relationship with our employees and workers’ unions is good. In all the regions where we operate, we maintain a stable relationship
with the workers unions, which generally decreases the risk of strikes.



The benefits we offer
to our permanent employees include life insurance, dental plan, health insurance, meal tickets and profit sharing.



Health and Safety



We are committed to
preventing work-related accidents and diseases. Accordingly, we maintain a risk prevention program which seeks to maintain and
enhance the health and physical conditions of our employees, by anticipating, recognizing, evaluating and controlling any existing
or potential environmental risks in the workplace.



In addition, we have
an internal committee for the avoidance of accidents, which seeks to prevent diseases and accidents from occurring in the workplace.
We make significant investments in this area, providing frequent training programs for our construction employees as well as for
our subcontractors’ employees, and we require our subcontractors to follow strict guidelines.



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| | E. | Share Ownership
| | -- | ---------------



As of the date of
this annual report, our directors and executive officers do not hold, on an aggregate basis, any direct or indirect interest of
greater than 5% of our total share capital or of the share capital of any of our subsidiaries or jointly-controlled entities. As
of December 31, 2018, some of our executive officers held interests in our subsidiaries and jointly-controlled entities as directors
and executive officers. In none of these cases, as of the date of this annual report, were the interests held material.



The table below sets
forth the number of our total shares beneficially owned by each of our directors and executive officers as of the date of this
annual report:



|Name                        | Position                                        | Number
        of Shares Owned
|--------------------------- | ----------------------------------------------- | ------------------------------
|                            |                                                 |                               
|Denise dos Passos Ramos     | Member of the board of directors                | 555                           
|Andre Luis Ackermann        | Investors Relations and Chief Financial Officer | 10,000                        
|Saulo Nunes de Aquino Filho | Chief Operational Officer                       | 2,800                         



Stock Option Plans



Gafisa’s stock
option plans seek to: (1) encourage our expansion and success by allowing our executives and key employees to acquire shares of
our capital stock in order to encourage their integration with the company; (2) allow us to obtain and retain the services of executives
and key employees by offering them the benefit of becoming one of our shareholders; and (3) align the interests of our executives
and key employees with the interests of our shareholders.



We have individual
agreements with our key employees and executives for Gafisa, under which they are entitled to purchase shares of our capital stock
pursuant to the terms and conditions of the stock option plans and the specific conditions set forth in their agreements.



In 2002, our shareholders
ratified the terms and conditions of our stock option plan. A standard stock option program to grant subscription rights related
to our preferred shares was approved by our board of directors at a meeting held on April 3, 2000. As a result of our entry in
the Novo Mercado segment of B3, our preferred shares were converted into common shares, and therefore all options relating
to this plan grant subscription rights related to our common shares. Currently, we do not have any stock option grants related
to this plan.



On February 3, 2006,
our shareholders approved a new stock option plan. Under the 2006 stock option plan, our board of directors may release further
programs on a regular basis of options to purchase up to 5% of the total outstanding shares of our company, as set forth in the
2006 stock option plan. Such new programs would grant our executives and key employees the right to subscribe and/or acquire our
shares for a set price, under terms and conditions according to the agreements set for each participant. Currently, we do not have
any stock option grants related to this plan.



Our most recent stock
option plan was approved on May 18, 2008 during a special shareholders’ general meeting. Under this new stock option plan,
our board of directors may create additional programs on a regular basis for options to purchase up to 5% of the total outstanding
shares of our company, as set forth in the 2008 stock option plan.



Under this stock option
plan, the board of directors may also grant different types of options to certain beneficiaries, namely “A options”,
which are regular options, and “B options,” for the exercise price of R$0.09. The exercise of B options, if granted,
is subject to the proportional purchase of common shares or exercise of a regular option under this 2008 plan, according to the
terms and conditions set forth in each program, and to lapse two years from the common share purchase date.



As of the date of
this annual report, all active stock option Programs follow the Plan approved in 2008.



2012 Programs



Two stock option programs
were approved in 2012 for executive officers and key employees.



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The first is a standard
stock option program granting subscription rights related to our common shares. Under this program, the board of directors may
grant to certain beneficiaries the right to subscribe and/or acquire our shares for a set price, under the terms and conditions
set forth in the stock option plan agreement entered into with each participant.



Under the second program,
the board of directors may grant different types of B options for the exercise price of R$0.09 per share. The exercise of B options,
if granted, is subject to the proportional exercise of regular options at market price, granted under this second program, according
to the terms and conditions set forth in such second program, and to lapse one year from the grant date.



As of the date of
this annual report, options to purchase 101,099 shares of our common shares have been granted to key employees and executive officers
pursuant to this second program. Out of the total options granted, none have been acquired or expired pursuant to such agreement.



2013 Programs



Two stock option programs
were approved in 2013 for executive officers and key employees.



The first is a standard
stock option program granting subscription rights related to our common shares. Under this program, the board of directors may
grant to certain beneficiaries the right to subscribe and/or acquire our shares for a set price, under the terms and conditions
set forth in the stock option plan agreement entered into with each participant.



Under the second program,
the board of directors may grant different types of B options for the exercise price of R$0.09 per share. The exercise of B options,
if granted, is subject to the proportional exercise of regular options at market price, granted under this program, according to
the terms and conditions set forth in this second program, and to lapse one year from the grant date.



As of the date of
this annual report, options to purchase 50,281 shares of our common shares have been granted to key employees and executive officers
pursuant to this second program. Out of the total options granted, none have been acquired or expired pursuant to such agreement.



2014 Programs



One stock option program
was approved in 2014 for executives and key employees.



Under this program,
the board of directors may grant different types of B options for the exercise price of R$0.09 per share. The exercise of B options,
if granted, is subject to the proportional exercise of regular options at market price, granted under this program, according to
the terms and conditions set forth in each program, and to lapse one year from the grant date.



As of the date of
this annual report, options to purchase 161,068 shares of our common shares have been granted to employees and executives pursuant
to this agreement. The options granted included 100,254 “B” options. Out of the total options granted, 10. 412 have
been acquired, expired or cancelled pursuant to such program.



2015 Programs



One stock option program
was approved in 2015 for executives and key employees.



This program is a
standard stock option program granting subscription rights related to our common shares. Under this program, the board of directors
may grant to certain beneficiaries the right to subscribe and/or acquire our shares for a set price, under the terms and conditions
set forth in the stock option plan agreement entered into with each participant.



As of the date of
this annual report, options to purchase 264,570 shares of our common shares have been granted to key employees and executive officers
pursuant to this agreement. Out of the total options granted, 6.907 have been acquired, expired or cancelled pursuant to such program.



In addition to the
above stock option program, the board of directors approved a “Phantom Shares” program, payable in cash in accordance
with the amount of options exercisable by the executives and key employees during the exercise period under the 2015 stock option
program.



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2016 Programs



One stock option program
was approved in 2016 for executives and key employees.



This program is a
standard stock option program granting subscription rights related to our common shares. Under this program, the board of directors
may grant to certain beneficiaries the right to subscribe and/or acquire our shares for a set price, under the terms and conditions
set forth in the stock option plan agreement entered into with each participant.



As of the date of
this annual report, options to purchase 163,900 shares of our common shares have been granted to key employees and executive officers
pursuant to this agreement. Out of the total options granted, none have been acquired or expired pursuant to such agreement.



In addition to the
above stock option program, the board of directors approved a “Phantom Shares” program, payable in cash in accordance
with the amount of options exercisable by the executives and key employees during the exercise period under the 2016 stock option
program.



2017 Programs



No stock option program
was approved in 2017 for executives and key employees.



2018 Programs



One stock option program was approved in
2018 for executives and key employees.



This program is a
standard stock option program granting subscription rights related to our common shares. Under this program, the board of directors
may grant to certain beneficiaries the right to subscribe and/or acquire our shares for a set price, under the terms and conditions
set forth in the stock option plan agreement entered into with each participant.



As of the date of
this annual report, options to purchase 325,980 shares of our common shares have been granted to key employees and executive officers
pursuant to this agreement. Out of the total options granted, none have been acquired or expired pursuant to such agreement.



After the vesting
period of 4 years, the options may be exercised in whole or in part as follows: 60% as of March 30, 2022; 20% as of March 30, 2023
and 20% remaining as of March 30, 2024. The price set for the 2018 Program was R $ 15.00.



|Gafisa Active Programs             |  | Number of Stock Options granted (2) |           | Number of Stock Options Outstanding (Not Expired or exercised) as of the date of this annual report (2) |  | Exercise Price per Stock Option (2) |           | Expiration
|---------------------------------- |  | ----------------------------------- | --------- | ------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | --------- | ----------
|August 2012 (Standard SOP) (1)     |  |                                     | 264,036   |                                                                                                         |  |                                     | 77,852    |           
|May 2013 (Standard SOP) (1)        |  |                                     | 101,612   |                                                                                                         |  |                                     | 21,210    |           
|March 2014 (Restricted Type A) (1) |  |                                     | 198,850   |                                                                                                         |  |                                     | 174,835   |           
|March 2014 (Restricted Type B) (1) |  |                                     | 124,651   |                                                                                                         |  |                                     | 70,109    |           
|April 2015 (Standard SOP) (Gafisa) |  |                                     | 264,570   |                                                                                                         |  |                                     | 285,932   |           
|April 2016 (Standard SOP) (Gafisa) |  |                                     | 163,900   |                                                                                                         |  |                                     | 176,221   |           
|March 2018 (Standard SOP) (Gafisa) |  |                                     | 2,685,474 |                                                                                                         |  |                                     | 433,398   |           
|Total                              |  |                                     |           |                                                                                                         |  |                                     | 1,239,557 |           




| | (1) | Options unvested or vested and not yet exercised.
| | --- | -------------------------------------------------



| | (2) | Considering the reverse stock split of all Gafisa’s shares at a ratio of 13.483023074 to
1 consummated on March 23, 2017 and other adjustments.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 7. MAJOR SHAREHOLDERS AND RELATED
PARTY TRANSACTIONS



| | A. | Major Shareholders
| | -- | ------------------



As of the date of
this annual report, the following shareholders held more than 5.0% of our common shares. The following table sets forth information
of our directors and officers as a group, as well as common shares held in treasury and other shares in the public float. Each
holder of common shares has the same rights.



|Shareholders                          |  | Shares (1) |             | (%)
|------------------------------------- |  | ---------- | ----------- | ---
|Board of Directors                    |  |            | 16,428      |    
|Treasury shares                       |  |            | 3,084,768   |    
|River and Mercantile Asset Management |  |            | 6,914,175   |    
|Brazilian Multimarket Investments LCC |  |            | 7,475,111   |    
|Planner Group                         |  |            | 37,528,566  |    
|Public Float                          |  |            | 64,980,952  |    
|Total                                 |  |            | 120,000,000 |    




| | (1) | Considering the reverse stock split of all Gafisa’s shares at a ratio of 13.483023074 to
1 consummated on March 23, 2017.
| | --- | -------------------------------------------------------------------------------------------------------------------------



| | (2) | Considering the cancelations of 1,030,325 Gafisa’s shares on December 19,2018 and 370,000
Gafisa’s shares on January 22, 2019.
| | --- | ------------------------------------------------------------------------------------------------------------------------------



We had a total of
35 record shareholders located in the United States. We are not aware of any shareholders’
agreement currently in force with our main shareholder.



| | B. | Related Party Transactions
| | -- | --------------------------



Other than arrangements
which are described in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management Board
of Directors—Our Relationship with our Executive Officers and Directors” and the transaction described below, since
January 1, 2007, there has not been, and there is not currently proposed, any material transaction or series of similar transactions
to which we were or will be a party in which any director, executive officer, holder of 5% of our capital stock or any member of
their immediate family had or will have a direct or indirect interest.



Under Brazilian corporate
law, our directors and executive officers cannot vote on any matter in which they have a conflict of interest and such transactions
can only be approved on reasonable and fair terms and under conditions that are no more favorable than the terms and conditions
prevailing in the market or offered by third parties.



We participate in
the development of real estate ventures with other partners, directly or through related parties, based on the constitutive documents
of condominiums and/or consortia. The management structure of these enterprises and the cash management are centralized in the
lead partner of the enterprise, which manages the construction schedule and budgets. Thus, the lead partner ensures that the investments
of the necessary funds are made and allocated as planned. The sources and uses of resources of the venture are reflected in the
balance sheet of the ventures, reflecting the respective participation percentages of the partners, which are not subject to inflation
adjustments or financial charges and do not have a predetermined maturity date. The average term for the development and completion
of the projects in which the resources are invested is between 24 and 30 months. Please refer to Note 21 to our consolidated financial
statements for further information on balances with related parties.



As of and for the
years ended December 31, 2018, 2017 and 2016, we have not entered into any loan or other type of financing agreement with our directors
or executive officers. In the years ended December 31, 2018, 2017 and 2016, there were no units sold to management members, and
the amount receivable was R$0.2 million and R$1.0 million as of December 31, 2017 and 2016, respectively. There was no amount receivable
as of December 31, 2018.



| | C. | Interests of Experts and Counsel
| | -- | --------------------------------



Not applicable.



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ITEM 8. FINANCIAL INFORMATION



| | A. | Consolidated Statements and Other Financial Information
| | -- | -------------------------------------------------------



For our consolidated
financial statements and notes thereto see “Item 18. Financial Statements.”



Legal Proceedings



We are currently party
to several legal and administrative proceedings arising from the normal course of our business, principally relating to civil,
environmental, tax and labor claims. We establish provisions in our balance sheets relating to potential losses from litigation
based on estimates of probable losses. Brazilian GAAP requires us to establish provisions in connection with probable losses and
we record a provision when, in the opinion of our management, we feel that an adverse outcome in a litigation is probable and a
loss can be estimated. The determination of the amounts provisioned is based on the amounts involved in the claims and the opinion
of external legal counsel.



Civil Claims



As of December 31,
2018, we were a party to 4,693 civil actions, totaling R$718.1 million. Of these actions, we were the plaintiff in 344 actions
and the defendant in 4,349 actions, with aggregate amounts of R$235.6 million and R$483.1 million, respectively.



Most of these civil
claims involve ordinary course matters relating to the development of our properties, including annulment of contractual clauses
and termination of agreements with the reimbursement of the amounts paid. We also have a few civil claims where we discuss the
resolution of the construction partnership.



As of December 31,
2018, the provisions related to civil claims include R$21.3 million related to lawsuits in which the Company is included as successor
in enforcement actions for judicial and extrajudicial debts, in which the original debtor is a former shareholder of Gafisa, Cimob
Companhia Imobiliária (“Cimob”) or companies that are part of the economic group of Cimob. The plaintiff alleges
that the Company should be liable for the debts of Cimob. We have made judicial deposits amounting to R$16.4 million in connection
with these claims. The Company is filing appeals against all decisions, as it considers that the inclusion of Gafisa in the claims
to be legally unreasonable; these appeals aim at releasing amounts and obtaining the recognition that it cannot be held liable
for the debt of a company that does not have any relationship with Gafisa. The Company has obtained both favorable and unfavorable
decisions on appeal, and the final decision of each pending appeal cannot be predicted at present.



The Company is a plaintiff
in proceedings against Cimob and its former and current controlling shareholders. The Company is seeking (i) restitution of amounts
already paid by the Company in connection with the lawsuits in which the Company is included as successor in enforcement actions
for judicial and extrajudicial debts proceedings in which the original debtor is Cimob and (ii) the recognition of the court that
it does not have any relationship with Cimob and cannot therefore be held liable for the debt of Cimob. The final decision is on
appeal, and cannot be predicted at present.



As of December 31,
2018, the provision for our civil claims amounted to R$235.5 million.



Environmental Claims



As of December 31,
2018, we were the defendants in certain environmental claims alleging damage to a permanent conservation area and we are currently
not able to estimate the aggregate amount of such claims.



In addition, we are
occasionally party to other administrative environmental inquiries or claims by the Public Prosecution Offices or by other governmental
agencies or third parties. These inquiries may result in public environmental claims against us and the findings in these inquires
may give rise to other administrative and criminal claims. However, based on currently available information, we do not believe
these matters are, or are likely to be in the future, material to our business or financial condition.



In Case No. 20654-60.2011.4.01.3200,
federal prosecutors (Ministério Público Federal) argue that the company has built one of the towers of “Riviera
da Ponta Building” on Federal Government property, next to a riverbank. The federal prosecutors claimed R$88.3 million in
damages, comprising both environmental liability for construction in an allegedly “protected area” and payoff for the
property. We estimate the probability of the Company to be sentenced to pay R$88.3 million as remote because we believe that the
federal prosecutors’ computations to get this number are unreasonable, since neither the value nor the extension of the area
supposedly invaded are accurate.



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As of December 31,
2018, we have made no provisions for environmental claims.



Tax Claims



As of December 31,
2018, we were party to several tax proceedings involving tax liabilities in the aggregate amount of R$95.0 million. As of December
31, 2018, the provision for tax liabilities amounted to R$0.6 million. In addition, we have deposited R$40.0 million with the court
in connection with some of these proceedings. These amounts take into consideration the tax liabilities of our subsidiaries, in
proportion to our interest in their share capital. The main tax proceedings to which we are a party are described below.



Alphaville is a party
to legal and administrative claims related to Federal VAT (IPI) and State VAT (ICMS) on two imports of aircraft in 2001 and 2005,
respectively, under leasing agreements without purchase options. The likelihood of loss in the ICMS case is rated by legal counsel
as remote. According to the negotiation of the sale of controlling interest of 70% in Alphaville, it was agreed in the purchase
and sale contract that Gafisa is responsible in the event of an unfavorable decision.



Several municipalities
charge a municipal tax on construction services on an arbitrated basis, which varies depending on the characteristic of the construction.
We have filed lawsuits against the municipalities of São Paulo and São Caetano do Sul to challenge the calculation
of the arbitrated basis on several of our developments under construction. In these proceedings, we deposited R$11 million with
the courts and we are awaiting the final decision. In addition, the municipalities of Rio de Janeiro, Niterói, São
Paulo and Santo Andre have issued tax assessments against us. We have filed administrative defenses and are awaiting the final
administrative decisions. The total amount involved in these proceedings is R$11 million.



We filed a lawsuit
against the Brazilian Ministry of Finance to challenge the increase in the PIS and Cofins rates from 0% to 0.65% and 4%, respectively,
on financial income earned by legal entities subject to the non-cumulative regime, on the basis that in our view, this increase
is illegal and unconstitutional. Accordingly, we requested from the Brazilian courts a preliminary injunction prohibiting the Brazilian
Ministry of Finance from collecting the PIS and Cofins contributions on financial revenues. The Brazilian courts denied our request.
We appealed the decision and as of December 31, 2018, we had deposited R$15.5 million with the court in connection with the lawsuit,
which is pending a final decision.



Labor Claims



As of December 31,
2018, we were a defendant in 1.944 labor claims resulting from our ordinary course of business, of which approximately 79.1% were
filed by outsourced workers and approximately 9.6% were filed by our former employees. The alleged legal bases for these claims
mainly relate to termination benefits, overtime hours, employee relationship and dismissal rights. As of December 31, 2018, the
total value involved in the labor claims filed against us was approximately R$85.8 million. As of December 31, 2018, the provision
for labor claims amounted to R$57.7 million.



In addition, we are
periodically party to other administrative labor inquiries or claims by the Public Prosecution Offices or by other governmental
agencies or third parties. These inquiries may result in public labor claims against us and the findings in these inquires may
give rise to other claims. However, based on currently available information, we do not believe these matters are, or are likely
to be in the future, material to our business or financial condition.



We have adopted certain
measures to audit third party contractors. The objective of these measures is to evaluate compliance by third party contractors
with labor obligations to their employees. We believe this will help us minimize the risks of potential labor liabilities.



Arbitration



We are also involved
in arbitrations proceedings, commenced by us against a partner seeking to discuss damages suffered in connection with the development
of certain real estate projects, stemming from breach of contract obligations.



In summary the arbitrations
proceedings are:



| | · | Arbitration POLO:
| | - | -----------------



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The Company requested
the filing of an Arbitration Procedure before the Mediation and Arbitration Center of the Brazil-Canada Chamber of Commerce, on
July 31, 2018, against Yogo Participações and Empreendimentos Imobiliários S.A. (“Yogo”); Polo
Real Estate Fund of Investments and Holdings and Polo Capital Real Estate Gestão de Recursos Ltda. as Yogo shareholders;
and Comasa - Construtora Almeida de Martins Ltda., in connection with alleged breaches of certain contractual obligations. As of
the date of this annual report, the arbitration is ongoing. The initial provision for this proceeding was R$12,617,783.34.



| | · | Arbitration BKO:
| | - | ----------------



In October 2013, Gafisa,
SPE 111 and SPE 81 filed an arbitration proceeding against BKO alleging: (i) a default by BKO under the London Ville, Avant Garde
and Vittá construction contracts, due to (i.a.) non-compliance with the physical schedule of the works, and (i.b.) overflow
of the maximum guaranteed price / target cost and / or constructive defects; (ii) unilateral and unjustified termination by BKO
of the Avant Garde and Vittá construction contracts; and (iii) the unenforceability of invoices issued by BKO under the
construction contracts of Avant Garde and Vittá. BKO claims (i) in relation to the London Ville venture, that Gafisa failed
to comply with the MOU signed between the parties to complete the work; (ii) in relation to the Avant Garde project, that Gafisa
never paid the contractual bonus that BKO would be entitled since it has achieved the Target Cost stipulated in the first phase
of the construction contract, which affected the second phase of the contract; (iii) in relation to the Vittá venture, that
Gafisa ceased to pay for the work, which led to the termination of the contract. During the evidence stage of the proceedings,
an accounting and engineering examination was commissioned. The expert examination was completed and, following the hearing of
witnesses that took place on May 9, 2019 and May 10, 2019, the parties presented their final arguments.



In parallel, taking
into account possible deviations of capital and assets by BKO, Gafisa requested the seizure of R$59,949,330.66, and the Arbitral
Tribunal granted the seizure of 5% (five percent) of BKO’s net sales and credits arising from a lawsuit filed by BKO (Case
file No. 1068081-53.2015.8.26.0100). The seizure of net sales was later replaced by an attachment over more than 20 real estate
properties belonging to BKO. As of the date of this annual report, the attachment is pending execution by the respective real
estate officer.



As of December 31,
2018, we had not made any provisions for our arbitration claims.



Other Developments



On June 14, 2012,
we received a subpoena from the SEC Division of Enforcement related to the Matter of Certain 20-F Filer Home Builders (HO-11760).
The subpoena requests that we produce all documents from January 1, 2010 to the present related to the preparation of our financial
statements, including, among other things, copies of our financial policies and procedures, board and audit committee and operations
committee minutes, monthly closing reports and financial packages, any documents relating to possible financial or accounting irregularities
or improprieties and internal audit reports. The SEC’s investigation is a non-public, fact-finding inquiry and it is not
clear what action, if any, the SEC intends to take with respect to the information it gathers. The SEC subpoena does not specify
any charges. The Company has already submitted all the information requested by SEC, which as of the publication of these financial
statements has not issued any opinion. We have not received any further notice from the SEC after delivering the requested information
in the first half of 2012.



On July 31, 2012,
we received a letter from the CVM: CVM/SEP/GEA-5/ Letter No. 208/2012, requesting information related to criteria for measurement
and recognition of revenue and enhancement in the disclosure of some notes to our financial information. We have already provided
all the information requested by the CVM. In addition, on February 19, 2013, we received a letter from the CVM: CVM/SEP/GEA-5/
Letter No. 040/2013 recommending enhancements to the notes to our financial statements regarding the percentage of assets by venture
that is included in the structures of equity segregation of the purchase.



On July 11, 2013,
the Company received CVM/SEP/GEA-5 Letter No. 240/2013, which requested information on the criteria for measuring and recognizing
revenues. The Company has already provided all the information requested by CVM. On November 2013, we received a letter from the
CVM: SEP/GEA-5/no 362/2013, requesting information related to some control deficiencies. We have already provided all the information
requested by the CVM.



The CVM letters listed
above led to administrative proceeding “Processo Administrativo Sancionador No RJ2014-9034” involving Wilson Amaral
de Oliveira and Alceu Duilio Calciolari, former executive officers of the Company, and André Bergstein, former chief financial
officer of the Company.



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Wilson Amaral de Oliveira,
Alceu Duilio Calciolari and André Bergstein presented their defenses on December 8, 2014, and submitted first proposals
to enter into leniency agreements (termos de compromisso) on January 1, 2015, followed by second proposals in August 2017,
which were approved by the CVM and entered into in September 2017.



Pursuant to the leniency
agreements, Wilson Amaral de Oliveira, Alceu Duilio Calciolari and André Bergstein were required to pay certain administrative
fines, which they duly paid and following which administrative proceeding No RJ2014-9034 with the CVM was closed.



Dividend Policy



The amount of any
of our distributions of dividends and/or interest on shareholders’ equity will depend on a series of factors, such as our
financial conditions, prospects, macroeconomic conditions, tariff adjustments, regulatory changes, growth strategies and other
issues our board of directors and our shareholders may consider relevant, as discussed below.



Amounts Available for
Distribution



At each annual general
shareholders’ meeting, our board of directors is required to propose to our shareholders how our earnings of the preceding
fiscal year are to be allocated. For purposes of Brazilian corporate law, a company’s income after federal income tax for
such fiscal year, net of any accumulated losses from prior fiscal years and amounts allocated to debentures, employees’ and
management’s participation in earnings and founders’ shares, represents its “net income” for such fiscal
year. In accordance with Brazilian corporate law, an amount equal to the company’s “net income” may be affected
by the following:



| | · | reduced by amounts allocated to the legal reserve;
| | - | --------------------------------------------------



| | · | reduced by amounts allocated to any statutory reserve;
| | - | ------------------------------------------------------



| | · | reduced by amounts allocated to the contingency reserve, if any;
| | - | ----------------------------------------------------------------



| | · | reduced by amounts allocated to the tax incentives reserve;
| | - | -----------------------------------------------------------



| | · | reduced by amounts allocated to the investment reserve;
| | - | -------------------------------------------------------



| | · | increased by reversals of contingency reserves recorded in prior years; and
| | - | ---------------------------------------------------------------------------



| | · | increased by amounts allocated to the investment reserve, when realized and if not absorbed by
losses.
| | - | ------------------------------------------------------------------------------------------------------



Our calculation of
net income and allocation of funds to our reserves for any fiscal year are determined on the basis of our audited unconsolidated
financial statements for the immediately preceding fiscal year.



Allocation of Net Income



According to Brazilian
corporate law, we have two types of reserve accounts: (1) profit reserves and (2) capital reserve.



Profit Reserves



Our profit reserves
consist of the following:



| | · | Legal Reserve. Under Brazilian corporate law and our by-laws, we are required to maintain
a legal reserve to which we must allocate 5% of our net income for each fiscal year until the aggregate amount of such reserve
equals 20% of our share capital. However, we are not required to make any allocations to our legal reserve in a fiscal year in
which the legal reserve, when added to our other established capital reserves, exceeds 30% of our total share capital. The portion
of our net income allocated to our legal reserve must be approved by our annual general shareholders’ meeting and the balance
of such reserve may only be used to increase our share capital or to absorb losses, but is unavailable for the payment of dividends.
As of December 31, 2018, there was no amount allocated to our legal reserve.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Statutory Reserve. Under Brazilian corporate law, we are permitted to provide for the allocation
of part of our net income to discretionary reserve accounts that may be established in accordance with our bylaws.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The allocation
of our net income to discretionary reserve accounts may not be made if it serves to prevent distribution of the mandatory
distributable amount. According to our bylaws, up to 71.25% of our net income may be allocated to an investment reserve to
finance the expansion of our activities and the activities of our controlled companies by subscribing for capital increases,
creating new projects or participating in consortia or any other type of association to achieve our corporate purpose.
The allocation of this reserve cannot jeopardize the payment of the mandatory dividends.This statutory reserve is
established in accordance with our bylaws as an investment reserve, and such reserve may not exceed 80% of our share capital.
As of December 31, 2018, there was no amount allocated to our statutory reserve.



| | · | Contingency Reserve.
Under Brazilian corporate law, a percentage of our net income may be allocated to a contingency reserve for anticipated losses
that are deemed probable in future years. Management must indicate the cause of the anticipated loss and justify the establishment
of the reserve for allocation of a percentage of our net income. Any amount so allocated in a prior year either must be reversed
in the year in which the justification for the loss ceases to exist or charged off in the event that the anticipated loss occurs,
whose value can be estimated. The allocations to the contingency reserve are subject to the approval of our shareholders
in a general shareholders’ meeting. As of December 31, 2018, there was no amount allocated to our contingency reserve.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Non-realized
                                         Profit Reserve. Under Brazilian corporate law, the amount by which the mandatory
                                         distributable amount exceeds the “realized” net income in a given fiscal
                                         year, as proposed by the board of directors, the
                                         excessmay be allocated to the investment reserve. Brazilian corporate law defines
                                         “realized” net profits as the amount by which net profits exceed the sum
                                         of (1) the net positive results, if any, from the equity method of accounting and (2)
                                         the net profits, net gains or net returns resulting from transactions or the accounting
                                         of assets and liabilities based on their market value, to be received after the end of
                                         the following fiscal year. All amounts allocated to the non-realized profit reserve must
                                         be paid as mandatory dividends when those “non-realized” profits are realized
                                         if they have not been designated to absorb losses in subsequent periods. As of December
                                         31, 2018, there was no amount allocated to our non-realized profit reserve.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Retained
                                         Earnings Reserve. Under Brazilian corporate law, a portion of our net income may
                                         be reserved for investment projects in an amount based on a capital expenditure budget
                                         approved by our shareholders. If such budget covers more than one fiscal year, it might
                                         be reviewed annually at the general shareholders’ meeting. The allocation of this
                                         reserve cannot jeopardize the payment of the mandatory dividends. As of December 31,
                                         2018, there was no amount allocated to our retained earnings reserve.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Capital Reserves



The capital reserve
is formed by (a) amounts received by shareholders in excess of the par value of shares issued (premium on capital stock), as well
as the part of the issue price of the shares with no par value that exceeds the amount intended to form the capital stock; and
(b) proceeds from the sale of founders’ shares and warrants. Under Brazilian corporate law, capital reserve may only be applied
to: (1) absorb losses that exceed accumulated earnings and revenue reserves; (2) redeem, reimburse or buy our own shares; and (3)
increase our share capital.



Mandatory Distribution
of Dividends



Brazilian corporate
law generally requires that the bylaws of each Brazilian company specify a minimum percentage of the amounts available for distribution
by such company for each fiscal year that must be distributed to shareholders as dividends or as interest on shareholders’
equity, also known as the mandatory dividend.



The mandatory dividend
is based on a percentage of adjusted net income, rather than a fixed monetary amount per share. Under our bylaws, at least 25%
of our net income, as calculated under Brazilian GAAP and adjusted under Brazilian corporate law (which differs significantly from
net income as calculated under U.S. GAAP), for the preceding fiscal year must be distributed as a mandatory dividend. Adjusted
net income means the distributable amount before any deductions for profit retention and statutory reserves.



Under
Brazilian corporate law, however, we are allowed to suspend the distribution of the mandatory dividends in any year in which our
board of directors report to our general shareholders’ meeting that the distribution would be inadvisable in view of our
financial condition. Such suspension is subject to the approval at the shareholders’ meeting and review by members of the
fiscal council. Our board of directors must file a justification for such suspension
with the CVM within five days of the relevant general shareholders’ meeting. If the mandatory dividend is not paid, the



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unpaid amount shall be
attributed to a special reserve account. If not absorbed by subsequent losses, those funds shall be paid out as dividends as soon
as the financial condition of the company permits.



The mandatory dividend
may also be paid in the form of interest attributable to shareholders’ equity, which is considered to be a deductible financial
expense for purpose of calculating our income and social contribution tax obligations, provided that certain requirements are met.
See “Item 10. Additional Information—E. Taxation” for further information.



Payment of Dividends



We are required by
Brazilian corporate law and our bylaws to hold an annual general shareholders’ meeting within the first four months following
the end of each fiscal year, at which time, among other things, the shareholders have to decide on the allocation of the results
from the preceding year and on the payment of dividends based on our financial results from the previous fiscal year.



Under Brazilian corporate
law, dividends are generally required to be paid to the holder of record on the date of the dividend declaration date within 60
days following the date the dividend was declared, unless a shareholders’ resolution sets forth another date of payment,
which, in either case, must occur within the fiscal year in which such dividend was declared. A shareholder has a three-year period
from the date of the dividend payment to claim dividends, which do not bear interest and are not monetarily restated, after which
the aggregate amount of any unclaimed dividends shall legally revert to us.



Our board of directors
may declare interim dividends to be deducted from the retained earnings or profit reserves in our semi-annual or annual financial
statements. In addition, our board of directors may pay dividends from our net income based on our net income registered on semi-annual
or quarterly balance sheet. The dividends paid in each semester may not exceed the amounts accounted for in our capital reserve
accounts. Any payment of interim dividends may be set off against the amount of mandatory dividend relating to the net profit earned
in the year in which the interim dividends were paid.



In general, shareholders
who are not residents of Brazil must register their equity investment with the Central Bank to have dividends, sales proceeds or
other amounts with respect to their shares eligible to be remitted outside of Brazil. The common shares underlying the ADSs are
held in Brazil by Banco Itaú S.A., also known as the custodian, as agent for the depositary, who is the registered owner
on the records of the registrar for our shares. The depositary registers the common shares underlying the ADSs with the Central
Bank and, therefore, it is possible to have dividends, sales proceeds or other amounts with respect to the common shares remitted
outside Brazil.



Payments of cash dividends
and distributions, if any, are made in reais to the custodian on behalf of the depositary, which then converts such proceeds
into U.S. dollars and causes such U.S. dollars to be delivered to the depositary for distribution to holders of ADSs. In the event
that the custodian is unable to convert immediately the reais received as dividends into U.S. dollars, the amount of U.S.
dollars payable to holders of ADSs may be adversely affected by any depreciation of the real that occurs before the dividends are
converted. Under current Brazilian tax law, dividends paid to persons who are not Brazilian residents, including holders of ADSs,
will not be subject to Brazilian withholding tax, except for dividends declared based on profits generated prior to December 31,
1995, which will be subject to Brazilian withholding income tax at varying tax rates. See “Item 10. Additional Information—E.
Taxation.”



Holders of ADSs have
the benefit of the electronic registration obtained from the Central Bank, which permits the depositary and the custodian to convert
dividends and other distributions or sales proceeds with respect to the common shares represented by ADSs into foreign currency
and remit the proceeds outside of Brazil. In the event the holder exchanges the ADSs for common shares, the holder will be entitled
to continue to rely on the depositary’s certificate of registration for five business days after the exchange. Thereafter,
in order to convert foreign currency and remit outside of Brazil the sales proceeds or distributions with respect to the common
shares, the holder must obtain a new certificate of registration in its own name that will permit the conversion and remittance
of such payments through the commercial exchange rate market.



Under current Brazilian
legislation, the Brazilian government may impose temporary restrictions of foreign capital abroad in the event of a serious imbalance
or an anticipated serious imbalance of Brazil’s balance of payments. See “Item 3. Key Information—D. Risk Factors—Risks
Relating to Our Common Shares and the ADSs.”



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Interest on Equity



Under the Brazilian
tax legislation effective January 1, 1996, Brazilian companies are permitted to pay “interest” to holders of equity
securities and treat such payments as a deductible financial expense for Brazilian income tax purposes and, from 1997, for social
contribution on net profit purposes. The purpose of the tax law change is to encourage the use of equity investment, as opposed
to debt, to finance corporate activities. Payment of such interest may be made at the discretion of our board of directors. The
amount of any such notional “interest” payment to holders of equity securities is generally limited in respect of any
particular year to the greater of:



| | · | 50% of net income (after the deduction of the provisions for social contribution on net profits
but before taking into account the provision for corporate income tax and the interest attributable to shareholders’ equity)
for the period in respect of which the payment is made; or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 50% of the sum of retained earnings and profit reserves as of the beginning of the year in respect
to which such payment is made.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



For tax deduction
purposes, the rate applied in calculating interest attributable to shareholders’ equity cannot exceed the pro rata die
variation of the Long Term Interest Rate (Taxa de Juros de Longo Prazo), or TJLP, as determined by the Central Bank from
time to time.



For accounting purposes,
although the interest should be reflected in the statement of operations for tax deduction, the charge is reversed before the calculation
of the net income in the statutory financial statements and deducted from the shareholders’ equity in the same way as the
dividend. Please refer to “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations—Income—Interest
on Shareholders’ Equity” below for a discussion of tax consequences related to the receipt of payments of interest
attributable to shareholders’ equity by a non-resident holder of our common shares or ADSs.



The amount distributed
to shareholders as interest attributable to equity, net of any withholding tax, may be included as part of the minimum mandatory
dividend. In accordance with applicable law, we are required to pay to shareholders an amount sufficient to ensure that the net
amount they receive in respect of interest attributable to shareholders’ equity, after payment of the applicable withholding
tax, plus the amount of declared dividends, is at least equivalent to the amount of the minimum mandatory dividend. A shareholder
has a three-year period from the date of the interest payment to claim interest attributable to equity, after which the aggregate
amount of any unclaimed interest shall legally revert to us.



If a payment of interest
on equity is recorded at net value as part of a mandatory dividend, we will pay the income tax on behalf of our shareholders at
the time the payment is distributed. Otherwise, the income tax will be paid by the shareholders, subject to our obligation to retain
and collect taxes on the payment.



History of Payment of Dividends and
Interest on Equity



In 2010, we distributed
dividends in the total amount of R$50.7 million, or R$0.12 per share (after giving effect to the stock split of one existing share
into two newly issued shares approved at our shareholders’ meeting on February 22, 2010), for fiscal year 2009. In 2011,
we distributed dividends in the total amount of R$98.8 million, or R$0.2991 per share, for fiscal year 2010.



In 2012, we did not
distribute any dividends, related to fiscal year 2011. In 2013, we did not distribute any dividends, related to fiscal year 2012.



On December 20, 2013,
we approved the distribution of interest on equity, charging the account of net income for the current fiscal year, according to
the extraordinary balance sheet of December 3, 2013 and deducted from the mandatory minimum dividends of 2013 fiscal year, as set
forth on §7, Article 9, Law 9,249/95 and CVM Deliberation No. 207/96, in the gross amount of R$130.2 million, corresponding
to R$0.3111 per outstanding share.



On April 25, 2014,
we approved the payment of dividends in the total amount of R$32.9 million, or R$0.082 per share (excluding treasury shares) for
fiscal year 2013. The dividends were distributed on December 11, 2014, as approved by a meeting of the board of directors held
on December 1, 2014.



On April 25, 2014,
we approved the distribution of interest on equity, charging the account of net income for the current fiscal year, according to
the extraordinary balance sheet of December 3, 2013 and deducted from the mandatory minimum dividends of 2013 fiscal year, as set
forth on §7, Article 9, Law 9,249/95 and CVM Deliberation No. 207/96,



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in the gross amount of
R$130.2 million, corresponding to R$0.3111 per outstanding share. The interest on equity was distributed on December 11, 2014,
as approved by a meeting of the board of directors held on December 1, 2014.



In 2015, we did not
distribute any dividends related to fiscal year 2014.



On April 25, 2016,
we approved the payment of dividends in the total amount of R$17.7 million, or R$0.048 per share (excluding treasury shares) for
fiscal year 2015. The dividends were distributed on December 22, 2016, as approved by a meeting of the board of directors held
on December 16, 2016.



In 2016, we did not
distribute any dividends related to fiscal year 2015.



In 2017, we did not
distribute any dividends related to fiscal year 2016.



In 2018, we did not
distribute any dividends related to fiscal year 2017.



| | B. | Significant Changes
| | -- | -------------------



None.



ITEM 9. THE OFFER AND LISTING



| | A. | Offer and Listing Details
| | -- | -------------------------



Our common shares
started trading on the B3 on February 17, 2006 and the ADSs started trading on the NYSE on March 16, 2007. The last day for trading
of our ADSs was December 14, 2018. The table below sets forth, for the indicated periods, the high and low closing prices of the
ADSs on the NYSE, in U.S. dollars, and the common shares on the B3, in reais:



|                                                   |  | New York Stock Exchange |       | São Paulo Stock Exchange    
|-------------------------------------------------- |  | ----------------------- | ----- | ----------------------------
|                                                   |  | High                    |       | Low                         
|                                                   |  | (in US$ per ADS)        |       | (in reais per common shares)
|Year Ended                                         |  |                         |       |                             
|December 31, 2014                                  |  |                         | 3.58  |                             
|December 31, 2015                                  |  |                         | 1.89  |                             
|December 31, 2016                                  |  |                         | 1.99  |                             
|December 31, 2017(2)                               |  |                         | 20.59 |                             
|December 31, 2018(through December 14, 2018)(3)    |  |                         | 12.99 |                             
|Quarter                                            |  |                         |       |                             
|First quarter 2017(2)                              |  |                         | 20.59 |                             
|Second quarter 2017(2)                             |  |                         | 20    |                             
|Third quarter 2017(2)                              |  |                         | 9.41  |                             
|Fourth quarter 2017(2)                             |  |                         | 12.88 |                             
|First quarter 2018                                 |  |                         | 12.99 |                             
|Second quarter 2018                                |  |                         | 7.75  |                             
|Third quarter 2018                                 |  |                         | 6.66  |                             
|Fourth quarter 2018 (through December 14, 2018)(3) |  |                         | 8.359 |                             
|Month                                              |  |                         |       |                             
|October 2018                                       |  |                         | 7.38  |                             
|November 2018                                      |  |                         | 7.97  |                             
|December 2018 (through December 14, 2018)(3)       |  |                         | 8.50  |                             




| | (1) | Average number of shares traded per day.
| | --- | ----------------------------------------



| | (2) | Considering the reverse stock split of all Gafisa’s
shares at a ratio of 13.483023074 to 1 consummated on March 23, 2017.
| | --- | -------------------------------------------------------------------------------------------------------------------------



| | (3) | The last day of trading for our ADSs on the NYSE was
December 14, 2018.
| | --- | -----------------------------------------------------------------------



On November 26, 2018, our Board of Directors
approved the voluntary delisting of our ADSs from the NYSE and a proposal to maintain our ADR facility as a Level 1 ADR program
to enable investors to retain their ADSs. On December 7, 2018, we filed a Form 25 with the SEC to effect the delisting of the ADSs,
and sent a copy to the



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NYSE on the same day. The last day of trading
on NYSE for our ADSs was December 14, 2018, and our ADSs were delisted from the NYSE on December 17, 2018. Our ADSs remain eligible
for trading in the over-the-counter markets in the United States, and our common shares will continue to be listed and admitted
to trading in the Novo Mercado segment of the B3. In addition to the information we are required to report under applicable Brazilian
regulations, we intend to continue publishing English translations of our annual report, interim results and communications on
our investor relations website at (www.ri.gafisa.com.br), in accordance with Rule 12g3-2(b) under the Exchange Act.



We are part of the
IbrX-100, an index measuring the total return on a theoretical portfolio composed of 100 stocks selected among B3’s most
actively traded securities. Additionally, we are part of the MSCI Emerging Markets Index, which is a free float-adjusted market
capitalization index that is designed to measure equity market performance in the global emerging markets. Through the inclusion
on these indices, our stock has expanded opportunity for increased liquidity.



We are part of the
following indices of the Brazilian stock market:



| | · | IBRA: This index comprises all stocks actively traded on the cash market operated by B3 that have
a certain minimum liquidity and active trading criteria;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IBRX 100: This index measures the average stock performance of the
100 most actively traded stocks of the Brazilian stock market.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| | · | ICON: This index measures the average stock performance of the more
actively traded cyclical and non-cyclical consumer stocks.
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | · | IMOB: This index is a real estate sector index covering B3’s most actively traded securities;
| | - | ---------------------------------------------------------------------------------------------



| | · | IGCX: This index comprises all stocks trading on the Novo Mercadoand Levels 1 and 2 of
the B3;
| | - | ----------------------------------------------------------------------------------------------



| | · | IGCT: The stocks that comprise this index are selected as constituents of the Special Corporate
Governance Equity Index (IGC) to the extent they meet certain additional membership criteria;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | IGC-NM: This index comprises stocks listed for trading on the Novo Mercado segment of the B3;
| | - | ---------------------------------------------------------------------------------------------



| | · | ITAG: This index comprises stocks which give minority shareholders enhanced tag-along rights protection
in addition to the protection required by law in the event of a change of control;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | SMLL: This index comprises small capitalization stocks; and
| | - | -----------------------------------------------------------



| | · | INDX: This index was developed to measure the performance of the most representative companies
of the industrial sector, an important segment of the Brazilian economy. Its theoretical portfolio is composed by the industry’s
most representative stocks, which are selected among B3’s most actively traded securities.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | B. | Plan of Distribution
| | -- | --------------------



Not applicable.



| | C. | Markets
| | -- | -------



Our common shares
are listed on the B3 under the symbol “GFSA3,” and they trade OTC under the symbol “GFSAY”.



Trading on the B3



Trading on the São
Paulo Stock Exchange is conducted every business day, from 10:00 a.m. to 5:00 p.m. or 6:00 p.m. (depending on the time of the year),
on an electronic trading system called the PUMA Trading System (“PUMA”). Trading is also conducted between 5:30 p.m.
(or 6:30 p.m.) and 6:00 p.m. (or 7:00 p.m.), on an online system connected to PUMA and Internet brokers called the “after
market” The “after-market” trading is scheduled after the close of principal trading sessions, when investors
may send purchase and sell orders and trade through the



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home broker system. This
after-market trading is subject to regulatory limits on price volatility of securities traded by investors operating on the Internet.



The CVM and the B3
have discretionary authority to suspend trading in shares of a particular issuer under certain circumstances. Trading in securities
listed on the B3, including the Novo Mercado, Bovespa Mais, Bovespa Mais Nível 2 and Levels 1 and 2 segments, may
be effected off the exchanges in the unorganized over-the-counter market in certain circumstances.



The shares of all
companies listed on the B3, including the Novo Mercado, Bovespa Mais, Bovespa Mais Nível 2 and Level 1 and Level
2 companies, are traded together.



Settlement of transactions
occurs three business days after the trade date, without adjustments to the purchase price. Delivery of and payment for shares
are made through the facilities of separate clearing houses for each exchange, which maintain accounts for brokerage firms, the
Central Securities Depository of the B3 (Central Depositária de Ativos da B3). The seller is ordinarily required
to deliver the shares to the B3 clearing house on the second business day following the trade date.



In order to maintain
control over the fluctuation of the B3 index, the B3 has adopted a “circuit breaker” system pursuant to which trading
sessions may be suspended for a period of 30 minutes or one hour whenever specified indices of the B3 fall below the limits of
approximately 10% and 15%, respectively, in relation to the closing index levels for the previous trading session.



Although the Brazilian
equity market is the largest in Latin America in terms of capitalization, it is smaller and less liquid than the major U.S. and
European securities markets. The B3 is significantly less liquid than other major exchanges in the world. The B3, had a market
capitalization of US$820.7 billion as of December 31, 2018 and an average daily trading
volume of US$2.43 billion for 2018. Although any of the outstanding shares of a listed
company may trade on the B3, in most cases fewer than half of the listed shares are actually available for trading by the public,
the remainder being held by small groups of controlling persons, by government entities or by one main shareholder. The relative
volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the common shares at
the time and price you desire and, as a result, could negatively impact the market price of these securities.



Trading on Brazilian
stock exchanges by non-residents of Brazil is subject to registration procedures. See “—Investment in Our Common Shares
by Non-Residents of Brazil.”



Regulation of Brazilian Securities
Markets



The Brazilian securities
markets are mainly governed by Law No. 6,385, of December 7, 1976, Law No. 4,728, of July 14, 1965 and Brazilian corporate law,
each as amended and supplemented, and by regulations issued by the CVM, which has authority over stock exchanges and the securities
markets generally; the CMN; and the Central Bank, which has, among other powers, licensing authority over brokerage firms and regulates
foreign investment and foreign exchange transactions.



These laws and regulations,
among others, provide for licensing and oversight of brokerage firms, governance of the Brazilian stock exchanges, disclosure requirements
applicable to issuers of traded securities, restrictions on price manipulation and protection of minority shareholders. They also
provide for restrictions on insider trading. However, the Brazilian securities markets may not be considered to be as highly regulated
and supervised as the U.S. securities markets or securities markets in some other jurisdictions. Accordingly, any trades or transfers
of our equity securities by our officers and directors, our controlling shareholders or any of the officers and directors of our
controlling shareholders must comply with the regulations issued by the CVM. See “Item 10. Additional Information—B.
Memorandum and Bylaws—Disclosure Requirements.”



We have the option
to ask that trading in our securities on the B3 be suspended in anticipation of a material announcement. Trading may also be suspended
on the initiative of the B3 or the CVM, based on or due to, among other reasons, a belief that a company has provided inadequate
information regarding a material event or has provided inadequate responses to inquiries by the CVM or the B3.



Under
Brazilian corporate law, a corporation is either publicly held, as we are, or
closely held. All public companies are registered with the CVM and are subject to reporting requirements. A company registered
with the CVM may trade its securities either on the B3, if it has registered to have its securities traded at the B3, or on the



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Brazilian over-the-counter
market. The shares of a listed company may also be traded privately, subject to several limitations. Our common shares are listed
on Novo Mercado segment of the B3.



The Brazilian over-the-counter
market consists of direct trades between individuals in which a financial institution registered with the CVM (and in the relevant
over the counter market) serves as intermediary. The Brazilian over-the-counter market is divided into two categories: (i) an organized
over the counter market, in which the transactions are supervised by self-regulating entities authorized by the CVM; and (ii) a
non-organized over the counter market, in which the transactions are not supervised by self-regulating entities authorized by the
CVM. In either case, transactions are directly traded outside of the stock exchange market, through a financial institution authorized
by the CVM. No special application, other than registration with the CVM, is necessary for securities of a public company to be
traded in this market. The CVM requires that it be given notice of all trades carried out in the Brazilian over-the-counter market
by the respective intermediaries.



Investment in Our Common Shares by
Non-Residents of Brazil



Portfolio Investment



Investors
residing outside Brazil are authorized to purchase equity instruments, including our common shares, in the form of foreign portfolio
investments on the B3, provided that they comply with the registration requirements set forth in (i) CVM Instruction No. 560,
published on March 25, 2015, which revoked CVM Instruction No. 325 and (ii) Resolution No. 4,373 of September 29, 2014,
issued by CMN (“Resolution No. 4,373”).



With
certain exceptions, Resolution No. 4,373/14 investors are permitted to carry out any type of transaction in the Brazilian financial
capital market involving a security traded on a stock, futures or organized over-the-counter market authorized by the CVM. Investments
and remittances outside Brazil of gains, dividends, profits or other payments under our common shares are made through the foreign
exchange market. See “Item 10. Additional Information—D. Exchange Controls.”



In
order to become a Resolution No. 4,373/14 investor, an investor residing outside Brazil must:



| | · | appoint
                                         a representative in Brazil with powers to take actions relating to the investment (before
                                         CVM, Central Bank and other regulatory entities) and to receive judicial notifications;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | appoint
                                         an authorized custodian in Brazil for the investments, which must be a financial institution
                                         duly authorized by the Central Bank and CVM;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | appoint
                                         a tax representative in Brazil;
| | - | --------------------------------------------------------------------------------



| | · | through its representative in Brazil, register itself as a foreign investor with the CVM and the
Central Bank; and
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | through its representative in Brazil, register itself with the Brazilian Internal Revenue (Receita
Federal) pursuant to Regulatory Instruction No. 1,470 of May 30, 2014, and Regulatory Instruction No. 1,548 of February 13,
2015, as the case may be.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Securities and other
financial assets held by foreign investors pursuant to Resolution No. 4,373/14 must be registered or maintained in deposit accounts
or under the custody of an entity duly licensed by the Central Bank or the CVM. In addition, securities trading by foreign investors
is generally restricted to transactions carried out in the Brazilian stock exchanges or in organized over-the-counter markets licensed
by the CVM. Therefore, as a general rule, no private sale of securities and other financial assets held by foreign investors pursuant
to Resolution No. 4,373/14 are permitted.



Foreign Direct Investment



Foreign direct investors
under Law No. 4,131/62 may sell their shares in both private or open market transactions, but these investors will generally be
subject to less favorable tax treatment on gains as compared to foreign portfolio investors.



A foreign direct investor
under Law No. 4,131/62 must:



| | · | register itself as a foreign direct investor and the investment with the Central Bank;
| | - | --------------------------------------------------------------------------------------



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| | · | obtain a taxpayer identification number from the Brazilian tax authorities;
| | - | ---------------------------------------------------------------------------



| | · | appoint a tax representative in Brazil; and
| | - | -------------------------------------------



| | · | appoint a representative in Brazil for service of process in respect of suits based on Brazilian
corporate law.
| | - | ---------------------------------------------------------------------------------------------------------------



Depositary Receipts



Resolution No. 4,373/14,
which revoked Resolutions No. 1,927/92 and 3,845/10 of the CMN, regulates the issuance of depositary receipts in foreign markets
in connection with shares of Brazilian issuers. Our ADSs program was approved by the CVM on March 8, 2007.



If a holder of ADSs
decides to exchange ADSs for the underlying common shares, the holder may (1) sell the common shares on the B3 and rely on the
depositary’s electronic registration for five business days from the date of the exchange to obtain and remit U.S. dollars
abroad upon the holder’s sale of our common shares; (2) convert its investment into a foreign portfolio investment under
Resolution No.4,373/14, subject to simultaneous foreign exchange transactions (without actual inflow or outflow of funds); or (3)
convert its investment into a foreign direct investment under Law No. 4,131/62, subject to simultaneous foreign exchange transactions.



If a holder of ADSs
wishes to convert its investment into either a foreign portfolio investment under Resolution No. 4,373/14 or a foreign direct investment
under Law No. 4,131/62, it should first comply with such regulations, obtaining his own foreign investor registration with the
Central Bank or with the CVM as the case may be, in advance of exchanging the ADSs for common shares and of executing the simultaneous
foreign exchange agreements.



The custodian is permitted
to update the depositary’s electronic registration to reflect conversions of foreign portfolio investments under Resolution
No. 4,373/14 into ADSs. If a foreign direct investor under Law No. 4,131/62 wishes to deposit its shares into the ADR program in
exchange for ADSs, such holder will be required to execute simultaneous foreign exchange transactions and to present to the custodian
evidence of payment of the applicable taxes. Please refer to “Item 10. Additional Information—E. Taxation—Brazilian
Tax Considerations” for a description of the tax consequences to an investor residing outside Brazil of investing in our
common shares in Brazil.



| | D. | Selling Shareholders
| | -- | --------------------



Not applicable.



| | E. | Dilution
| | -- | --------



Not applicable.



| | F. | Expenses of the Issue
| | -- | ---------------------



Not applicable.



ITEM 10. ADDITIONAL INFORMATION



| | A. | Share Capital
| | -- | -------------



Not applicable.



| | B. | Memorandum and Bylaws
| | -- | ---------------------



Registration



We
are currently a publicly-held company incorporated under the Laws of Brazil,
registered with the Board of Trade of the State of São Paulo (JUCESP) under NIRE 35300147952 and with the CVM under No.
01610-1, and enrolled with the Brazilian Taxpayer’s Authorities under CNPJ/MF No. 01,545,826/0001-07.



Corporate Purposes



Article 3 of our bylaws
provides that our corporate purpose is to: (1) promote and develop any type of real estate project, whether our own or that of
a third party, in the latter case as a contractor and agent; (2) purchase and sell any type of real estate; (3) perform civil construction
and provide civil engineering services; and (4) develop and



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implement marketing strategies
for any type of real estate project, whether our own or that of a third party. In addition, we may participate in companies that
are not affiliated to us in Brazil and outside of Brazil.



Issued Share Capital



As
of December 31, 2018, our share capital was R$2.521.318.365,26,
all of which was fully subscribed and paid-in. Our share capital was comprised of 43,727,589registered, book-entry common
shares, without par value. Under our bylaws, our board of directors may increase our share capital to the limit of our authorized
capital by issuing up to 71,031,876 common shares without the need of specific shareholder approval. Our shareholders must approve
any capital increase above that amount at a shareholders’ general meeting. Pursuant to the agreement entered into with the
B3 for the listing of our shares on the Novo Mercado, we are not permitted to issue preferred shares.



On March 15, 2019
the Company received a letter signed by Planner Corretora de Valores S.A. and Planner Redwood Asset Management Administração
de Recursos Ltda (both jointly known as “Planner”), in the capacity of administrators of investment funds holding 18.55%
of the Company’s capital stock, requesting the Board of Directors of the Company to convene an Extraordinary General Meeting
(“EGM”) pursuant to article 123 of the Brazilian Corporation Law to increase the Company’s authorized capital,
from the then 71,031,876 (seventy-one million, thirty-one thousand, eight hundred and seventy-six) common shares to 120,000,000
(one hundred and twenty million) common shares, with the consequent amendment of article 6 of the Company’s Bylaws. The Meeting
was held on April 15, 2019, and the Shareholders approved the increase in the authorized capital to 120,000,000.



Novo Mercado



Our shares were accepted
for trading on the Novo Mercado on February 17, 2006. A voluntary delisting from the Novo Mercado must be preceded
by a public tender offer, pursuant to the rules applicable to the cancellation of the registration as a public company. See “—Delisting
from the Novo Mercado.” In the Novo Mercado, listed companies are required to, among others, (1) only issue
common shares, (2) maintain a minimum free float equal to at least 25% of the company’s capital stock (or 15% of the company’s
capital stock, provided its Average Daily Trading Volume (ADTV) remains equal to or greater than R$25,000,000.00), (3) detail and
include additional information in the quarterly information and (4) make available the annual financial statements in English and
based on international accounting standards.



The rules imposed
by the Novo Mercado aim at providing transparency in relation to the activities and economic situation of the companies
to the market, as well as more power to the minority shareholders in the management of the companies, among other rights. The main
rules relating to the Novo Mercado, to which the company is subject, are summarized below.



According to CMN Resolution
No. 3,792 of September 24, 2009, which governs the closed complementary social security entities’ investment policy (Entidades
Fechadas de Previdência Complementar — EFPC), such pension funds may invest up to 70% of its variable income investment
portfolio (in which are included corporate stakes) in publicly held companies listed in the Novo Mercado, which may, therefore,
improve the development of this corporate governance segment, benefiting the companies listed therein, taking into account the
immense financial equity held by such pension funds in Brazil.



Authorization for Trading
in the Novo Mercado



Firstly,
the company that is authorized to list its securities on the Novo Mercado of B3 shall keep its listed company registrywith
the CVM updated, which allows the trading of the company’s common shares at the stock market. The Listing Rules of the Novo
Mercado were revised in 2017 and the rules are in full force and effect since January 2, 2018. We have adapted our bylaws
to the new rules of the Novo Mercado, at the General Shareholders Meeting dated of April 24, 2018.



According
to the Listing Rules of the Novo Mercado, the company willing to negotiate its securities on the Novo Mercado shall,
among other conditions: (1) along with its controlling shareholder (if any), execute a Listing Agreement in the Novo Mercado;(2) adapt its bylaws to comply with the minimum requirements determined in the Listing Rules of the Novo Mercado;
and (3) the capital of the company shall be exclusively divided into common shares and a minimum free float equal to 25% of the
capital stock (or 15% of the company’s capital stock, provided its Average Daily Trading Volume (ADTV) remains equal to
or greater than R$25,000,000.00) shall be maintained by the company. The existence of founders’ shares by the companies
listed on the Novo Mercado is prohibited.



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In addition to the
previous requirements, the company’s bylaws may not (1) establish any provision which restricts the number of votes of any
shareholder or group of shareholders (as defined in the Listing Rules of the Novo Mercado) to a percentage inferior to 5%
of the company’s corporate capital, (2) determine qualified quorums for matters submitted for the approval of the shareholders’
general meetings, except as provided by law, nor (3) restrict or establish any encumbrance to shareholders who vote favorably to
the suppression or amendment of any provision of the company’s bylaws.



Board of Directors



The board of directors
of companies authorized to have their shares traded on the Novo Mercado shall be comprised of at least five members, of
which at least 20% or 2 members, whichever is greater, shall be independent, as defined in the Listing Rules of the Novo Mercado.
The members of the board of directors shall be elected by a shareholders’ general meeting for a maximum two-year term of
office, and are eligible for reelection. All new members of the board of directors, of the board of officers and of the fiscal
council shall, before taking office, undertake to comply with the arbitration clause in the bylaws.



The
positions of chairman of the board of directors and of chief executive officer may not be held by the same person, except in the
event of vacancy, for a maximum period of one year. Any cumulation of positions in
this sense, as well as steps being taken to cease such cumulation, must be disclosed by the company.



The
board of directors shall always disclose to the market an opinion regarding any tender offer of the company’s shares, informing,
among others, their position on the convenience and consequences of such offer in respect to (a) the interests of the company
and of the shareholders regarding the price and the potential impact on the liquidity of such securities held by the shareholders,
(b) the strategic plans disclosed by the offering shareholder with regard to the company and (c) any alternatives to the acceptance
of the tender offer available in the market. Additionally, the board of directors shall always emphasize that each shareholder
is responsible for the final decision regarding the acceptance or not of such tender offer.



Other
Novo Mercado Characteristics



Novo
Mercado rules cover other areas designed to foster high levels of corporate governance and market transparency. Companies
are required to keep the minimum stock percentage floating in the market in order to foster dispersion of share ownership. In
addition, companies are obliged to assign tag-along rights to their shareholders in order to ensure equal treatment if a controlling
shareholder sells its controlling stake.



The
Novo Mercado rules require companies to provide information on the number of shares held by the controlling shareholder, if any,
in addition to other information required by the Listing Rules of the Novo Mercado. Companies are also required to give
more disclosure regarding related party transactions in which a company may be involved. The Listing Rules of the Novo Mercadoalso require companies to prepare and disclose to B3 and to the market a Securities Negotiation Policy applicable at least
to the company, its controlling shareholders, directors, officers, members of the fiscal council and members of other committees,
as well as a Code of Conduct establishing the company’s principles and values regarding its relationship with its management,
employees, service providers and any person or entity with which the company maintains any relation. Pursuant to Novo Mercadorules, the company also needs to structure and disclose a process for evaluating the board of directors, it’s committees
and officers.



Finally,
the company, controlling shareholders, other shareholders, directors, officers and members of a company’s fiscal council
are required to submit to arbitration any disputes that may arise relating to their status as issuer, shareholders, management
and fiscal council members, especially in light of the provisions of Law 6,385/76, Law 6,404/76, the company’s bylaws, the
rules issued by the National Monetary Council, the Central Bank of Brazil and CVM, as well as other rules applicable to the securities
market in general, Listing Rules of the Novo Mercado, other rules and regulations established by B3, and the Novo Mercado
participation agreement. The arbitrations shall take place before the Market Arbitration Chamber established by the B3 and shall
be conducted in accordance with the Rules of the Market Arbitration Chamber.



Company Management



We are managed by
a board of directors (Conselho de Administração) and a board of officers (Diretoria). See “Item
6. Directors, Senior Management and Employees—C. Board Practices.”



The members of the
board of directors and of the board of officers must be individuals, provided that the latter must also be Brazilian residents.



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Conflict of Interests



According to Brazilian
corporate law a director or an officer shall not take part in any corporate transaction in which he/she has an interest which conflicts
with the interest of the company. In this case, he/she shall disclose his/her disqualification to the other directors or officers
and shall cause the nature and extent of his/her interest to be recorded in the minutes of the board of directors or board of officers’
meeting, as the case may be.



With due compliance
with the rules above relating to conflict of interests, a director or an officer may only contract with the company under reasonable
and fair conditions, identical to those which prevail in the market or under which the corporation would contract with third parties.
Any business contracted otherwise is voidable and the director or the officer concerned shall be obliged to transfer to the corporation
all benefits which he/she may have obtained in such business.



According to Brazilian
corporate law, a director or officer may not:



| | · | perform any act of generosity to the detriment of the company;
| | - | --------------------------------------------------------------



| | · | without prior approval of the shareholders’ general meeting or the board of directors, borrow
money or property from the company or use its property, services or take advantage of its standing for his/her own benefit, for
the benefit of a company in which he/she has an interest or for the benefit of a third party; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | by virtue of his or her position, receive any type of direct or indirect personal advantage from
third parties, without authorization in the bylaws or from a shareholders’ general meeting.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



According to our bylaws,
any business or agreement between the company and any shareholder, director or officer must be previously approved by the board
of directors, except if specified in our annual budget or business plan.



Rules for Retirement



There is no retirement
age limit relating to directors or officers pursuant to the Brazilian law and our bylaws.



Policy for the Trading of Our Securities



On,
August 10, 2015, our board of directors approved the second amendment of our Conduct Manual on Information Disclosure and Use
and Securities Trading Policy, which was approved on July 15, 2009, and
establishes the following procedures regarding the policy for the trading of our securities:



| | · | the company and all of our directors, executive officers, employees, members of the other bodies
with technical or consultant duties, our possible controlling shareholders, and whoever by virtue of his/her position, job, or
post at our company or our subsidiaries and affiliates, and who have signed the compliance statement and became aware of information
of a material transaction or event involving our company, are restricted from trading in our securities until such material transaction
or event is disclosed to the market as a material fact, except as regards treasury stock transactions, through private trading,
the exercise of options to purchase shares of our capital stock, with stock option plan approved by the shareholders, or a possible
buyback, also through private trading, carried out by us, provided that such buyback program is carried due to the exercise of
stock options in connection with the plan or program. This restriction is extended to periods prior to the announcement of such
information or annual or interim financial statements or prior to disclosure of a material fact in accordance with applicable law;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | trading of our securities or transactions related to our securities carried out by the aforementioned
persons pursuant to an Individual Investment Program, consisting of long-term investments, as defined in the Trading Policy, is
not subject to the aforementioned restrictions;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the restrictions of the Trading Policy also apply to our former directors and executive officers
who resigned prior to the public disclosure of a transaction or fact that began during their administration (a) for the six month
period following the end of their duties with the company, or (b) until the disclosure of the material event or the related financial
statements, whichever occurs first; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the abovementioned restrictions also apply to indirect trading carried out by such persons, except
those conducted by investment funds, provided that the investment funds are not exclusive and the transaction decisions taken by
the investment fund officers cannot be influenced by its unit holders.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Rights of Common Shares



Each of our common
shares entitles its holder to one vote at an annual or special shareholders’ general meeting. A holder of ADSs has the right
under the deposit agreement to instruct the depositary to exercise the voting rights for the common shares represented by his/hers
ADSs. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Common Shares and the ADSs.” Pursuant
to our bylaws, Brazilian corporate law and the Novo Mercado rules, owners of common shares are entitled to dividends, or
other distributions made in respect of common shares, in proportion to their ownership of outstanding shares. See “Item 8.
Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy” and “Item
9. The Offer and Listing—C. Markets— Investment in Our Common Shares by Non-Residents of Brazil” for a more complete
description of payment of dividends and other distributions on our common shares. In addition, upon our liquidation, holders of
our shares are entitled to share all our remaining assets, after payment of all our liabilities, ratably in accordance with their
respective participation in the total amount of our issued and outstanding shares. Holders of our common shares are entitled to
participate on a pro rata basis in future capital calls by our company except in some specific circumstances under Brazilian
law, as described in “—Preemptive Rights.” Our common shares have tag along rights, which enable their holders
to, upon the sale of a controlling interest in us, receive 100% of the price paid per common share of the controlling block by
a single or series of transaction.



Options



According to our bylaws,
we may, within our authorized share capital and upon resolution of the shareholders’ general meeting, grant stock options
to (1) our directors, executive officers and employees, or (2) individuals who provide services to us or to companies we control.



Appraisal Rights



Shareholders who are
absent, dissent or abstain from voting on certain actions taken during a shareholders’ general meeting have the right under
Brazilian corporate law to withdraw from our company and to receive the value of their shares.



According to Brazilian
corporate law, shareholder appraisal rights may be exercised in the following circumstances, among others:



| | · | a reduction in the percentage of our mandatory dividends;
| | - | ---------------------------------------------------------



| | · | a change in our corporate purpose;
| | - | ----------------------------------



| | · | an acquisition, by our company, of a controlling stake in another company if the acquisition price
is outside of the limits established by Brazilian corporate law;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a merger of shares involving our company, a merger of our company into another company, if we are
not the surviving entity, or our consolidation with another company; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an approval of our participation in a group of companies (as defined in Brazilian corporate law).
| | - | -------------------------------------------------------------------------------------------------



Brazilian corporate
law further provides that any resolution regarding a spin-off will also entitle shareholders to withdraw if the spin-off:



| | · | causes a change in our corporate purpose, except if the equity is spun-off to a company whose primary
activities are consistent with our corporate purposes;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reduces our mandatory dividends; or
| | - | -----------------------------------



| | · | causes us to join a group of companies (as defined in Brazilian corporate law).
| | - | -------------------------------------------------------------------------------



In cases where (1)
our company merges with another company where we are not the surviving company, or (2) we are consolidated with another company,
or (3) we participate in a group of companies (as defined in Brazilian corporate law), our shareholders will not be entitled to
withdraw from our company if their respective shares are (a) liquid, i.e. part of the B3 index or other stock exchange index in
Brazil or abroad, (as defined by the CVM), and (b) widely held, such that less than 50% of our shares are held by a controlling
shareholder or by companies a controlling



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shareholder controls.
We are currently part of the IBOVESPA (the B3 index) and have no controlling shareholder. Therefore, our shares are, at present,
considered liquid and widely held for the purposes of this paragraph.



The right to withdraw
expires 30 days after publication of the minutes of the relevant shareholders’ general meeting. We are entitled to reconsider
any action giving rise to withdrawal rights for within 10 days after the expiration of the 30-day period if the redemption of shares
of absent, dissenting or non-voting shareholders would jeopardize our financial stability. If shareholders exercise withdrawal
rights, they are entitled to receive the economic value of the company’s shares, as determined by a valuation report issued
by a specialized firm.



Redemption of Shares



According to Brazilian
corporate law, we may redeem our shares by a decision taken in a special shareholders’ general meeting by shareholders representing
at least 50% of our share capital. The share redemption may be paid with our profit, profit reserves or capital reserves. If the
share redemption is not applicable to all shares, the redemption will be made by lottery. If custody shares are picked in the lottery
and there are no rules established in the custody agreement, the financial institution will specify on a pro rata basis,
the shares to be redeemed.



Registration of Shares



Our shares are held
in book-entry form with Itaú Unibanco Corretora S.A., which will act as the custodian agent for our shares. Transfer of
our shares will be carried out by means of book entry by Itaú Unibanco S.A., debiting the share account of the seller and
crediting the share account of the buyer, with the presentation of a written order of the transferor or a judicial authorization
or order to effect such transfers.



Preemptive Rights



Except as provided
below, our shareholders have a general preemptive right to participate in any issuance of new shares, convertible debentures and
warrants, in proportion to their respective shareholding at such time, but the conversion of debentures and subscription warrants
into shares, the granting of options to purchase shares and the issuance of shares as a result of its exercise, are not subject
to preemptive rights. In addition, Brazilian corporate law allows for companies’ bylaws to give the board of directors the
power to exclude preemptive rights or reduce the exercise period of such rights with respect to the issuance of new shares, debentures
convertible into shares and subscription warrants up to the limit of the authorized share capital if the distribution of those
shares, debentures or subscription warrants is effected through a sale on a stock exchange, through a public offering or through
an exchange of shares in a tender offer the purpose of which is to acquire control of another company. Shareholders are allowed
to exercise the preemptive rights for a period of at least 30 days following the publication of notice of the issuance of shares,
convertible debentures and warrants, and the right may be transferred or disposed of for consideration.



Holders of ADSs may
be unable to exercise preemptive rights with respect to our common shares underlying the ADSs. See “Item 3. Key Information—D.
Risk Factors—Risks Relating to Our Common Shares and the ADSs—Holders of ADSs may be unable to exercise preemptive
rights with respect to our common shares underlying the ADSs.”



Shareholders’ General Meetings



Under Brazilian corporate
law, at our shareholders’ meetings, shareholders are empowered to take any action relating to our corporate purpose and to
pass any such resolutions as they deem necessary. The approval of our financial statements and the determination of the allocation
of our net profits with respect to each fiscal year take place at our annual general shareholders’ meeting immediately following
such fiscal year. The election of our directors and, if requested by shareholders, of members of our fiscal council typically takes
place at the annual general shareholders’ meeting, although under Brazilian corporate law it may also occur at a special
shareholders’ general meeting.



A special shareholders’
general meeting may be held concurrently with the annual general shareholders’ meeting. Pursuant to our bylaws and Brazilian
corporate law, the following actions, among others, may only be taken at a general shareholders’ meeting:



| | · | amendment of our bylaws, including amendment of our corporate purpose;
| | - | ----------------------------------------------------------------------



| | · | election and dismissal, at any time, of our directors and members of our fiscal council;
| | - | ----------------------------------------------------------------------------------------



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| | · | determination of the aggregate compensation of our board of directors and board of officers, as
well as the fiscal council’s compensation;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | · | approval of stock splits and reverse stock splits;
| | - | --------------------------------------------------



| | · | approval of a stock option plan;
| | - | --------------------------------



| | · | approval of the company’s financial statements;
| | - | -----------------------------------------------



| | · | resolution upon the destination of our net profits and distribution of dividends;
| | - | ---------------------------------------------------------------------------------



| | · | election of the fiscal council to function in the event of our dissolution;
| | - | ---------------------------------------------------------------------------



| | · | cancellation of our registration with the CVM as a publicly-held company;
| | - | -------------------------------------------------------------------------



| | · | suspension of the rights of a shareholder who has violated Brazilian corporate law or our bylaws;
| | - | -------------------------------------------------------------------------------------------------



| | · | acceptance or rejection of the valuation of in-kind contributions offered by a shareholder in consideration
for shares of our capital stock;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | · | approval of our transformation into a limited liability company or any other corporate form;
| | - | --------------------------------------------------------------------------------------------



| | · | delisting of our common shares from the Novo Mercado;
| | - | -----------------------------------------------------



| | · | appointment of a financial institution responsible for our valuation, in the event of a mandatory
tender offer, specifically in the event that a tender offer for our common shares is carried out in connection with the delisting
of our common shares from the Novo Mercado or cancellation of our registration as a publicly-held company;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reduction in the percentage of mandatory dividends;
| | - | ---------------------------------------------------



| | · | participation in a group of companies (as defined in Brazilian corporate law);
| | - | ------------------------------------------------------------------------------



| | · | approval of any merger, consolidation with another company or spin-off;
| | - | -----------------------------------------------------------------------



| | · | approval of our dissolution or liquidation, the appointment and dismissal of the respective liquidator
and the official review of the reports prepared by him or her; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | authorization to petition for bankruptcy or request for judicial or extrajudicial restructuring.
| | - | ------------------------------------------------------------------------------------------------



According to Brazilian
corporate law, neither a company’s bylaws nor actions taken at a shareholders’ meeting may deprive a shareholder of
specific rights, such as:



| | · | the right to participate in the distribution of profits;
| | - | --------------------------------------------------------



| | · | the right to participate equally and ratably in any remaining residual assets in the event of liquidation
of the company;
| | - | -------------------------------------------------------------------------------------------------------------------------



| | · | preemptive rights in the event of subscription of shares, convertible debentures or subscription
warrants, except in some specific circumstances under Brazilian law described in “—Preemptive Rights;”
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the right to inspect and monitor the management of the company’s business in accordance with
Brazilian corporate law; and
| | - | -------------------------------------------------------------------------------------------------------------------------



| | · | the right to withdraw from the company in the cases specified in Brazilian corporate law, described
in “—Appraisal Rights.”
| | - | ---------------------------------------------------------------------------------------------------------------------------



Quorum for our Shareholders’
General Meetings



As a general rule,
Brazilian corporate law provides that a quorum at a shareholders’ general meeting consists of shareholders representing at
least 25% of a company’s voting capital on the first call and, if that quorum is not reached,



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any percentage on the
second call. A quorum for the purposes of amending our bylaws consists of shareholders representing at least two-thirds of voting
capital on the first call and any percentage on the second call.



As a general rule,
the affirmative vote of shareholders representing at least the majority of our issued and outstanding common shares present in
person, remotely (as described in “—Remote Voting”) or represented by proxy at a shareholders’ general
meeting is required to ratify any proposed action, with abstentions not taken into account. However, the affirmative vote of shareholders
representing one-half of our issued and outstanding voting capital is required to:



| | · | reduce the percentage of mandatory dividends;
| | - | ---------------------------------------------



| | · | change our corporate purpose;
| | - | -----------------------------



| | · | merge or consolidate our company with another company;
| | - | ------------------------------------------------------



| | · | spin-off a portion of our assets or liabilities;
| | - | ------------------------------------------------



| | · | approve our participation in a group of companies (as defined in Brazilian corporate law);
| | - | ------------------------------------------------------------------------------------------



| | · | apply for cancellation of any voluntary liquidation;
| | - | ----------------------------------------------------



| | · | approve our dissolution; and
| | - | ----------------------------



| | · | approve the merger of all our shares into another company.
| | - | ----------------------------------------------------------



A quorum smaller than
one-half of our issued and outstanding voting capital may be authorized by the CVM for a publicly-held company with widely-traded
and widespread shares that has had less than half of the holders of its voting shares in attendance at its last three shareholders’
meetings. In such case, resolutions may only be taken on a third call.



According to our bylaws
and for so long as we are listed on the Novo Mercado, we may not issue preferred shares or founders’ shares and we
will have to conduct a tender offer in order to delist ourselves from the Novo Mercado.



Notice of our Shareholders’
General Meetings



According to Brazilian
corporate law, notice of our shareholders’ general meetings must be published at least three times in the Diário
Oficial do Estado de São Paulo, the official newspaper of the State of São Paulo, and in another widely circulated
newspaper in the same State, previously chosen at an annual shareholders meeting, which, in our case is O Estado de São
Paulo.



According to CVM Instruction
No. 559 of March 27, 2015 (which deals with the approval of ADR programs), the first notice must be published no later than 15
days before the date of the meeting on the first call, and no later than eight days before the date of the meeting on the second
call.



In
addition, the CVM may suspend for up to 15 days the required prior notice of the special shareholders’ general meeting so
that it may further analyze the proposal to be voted upon at such meeting. Such call notice in all circumstances shall contain
the date, time, place and agenda for the meeting and a list of the documents that will be required from our shareholders to be
admitted at the meetings, and in case of amendments to the bylaws, the indication of the relevant matters. CVM Instruction No.
481 of December 17, 2009 also requires that additional information be disclosed in the call notice for certain matters. For example,
in the event of an election of directors, the call notice shall also disclose the minimum percentage of equity participation required
from a shareholder to request the adoption of cumulative voting procedures. All documents pertaining to the matters to be discussed
at the shareholders’ general meeting shall be made available to the shareholders upon publication of the first call notice,
except if the law or CVM regulations provide otherwise. Pursuant to CVM Instruction
No. 418, the company should provide one (1) month before the date on the general meeting, among others, the following documents
(i) copy of the financial statements; (ii) independent auditors’ report; (iii) opinion of the fiscal council, including
dissenting votes, if any; and (iv) remote vote bulletin.



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Location of our Shareholders’
General Meetings



Our shareholders’
meetings shall take place at our head offices at Av. Pres. Juscelino Kubitschek, No. 1830, Block 2, 3rd Floor, 04543-900 –
São Paulo, SP – Brazil. Brazilian corporate law allows our shareholders to hold meetings outside our head offices
in the event of force majeure, provided that the relevant notice contains a clear indication of the place where the meeting will
occur, which, in any case, shall never be held outside the city where the company’s headquarters are located.



Who May Call our Shareholders’
General Meetings



According to Brazilian
corporate law, our board of directors may call a shareholders’ general meeting. Shareholders’ general meetings may
also be called by:



| | · | any shareholder, if our directors fail to call a shareholders’ general meeting within 60
days after the date they were required to do so under applicable laws and our bylaws;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | shareholders holding at least 5% of our share capital if our directors fail to call a meeting within
eight days after receipt of a request to call the meeting by those shareholders, and such request must indicate the proposed agenda;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | shareholders holding at least 5% of voting share capital or 5% of non-voting share capital if our
directors fail to call a meeting within eight days after receipt of a request to call the meeting to convene a fiscal council;
and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our fiscal council (if installed), in the event our board of directors delays calling an annual
shareholders’ meeting for more than one month. The fiscal council may also call a special general shareholders’ meeting
at any time if it believes that there are significant or urgent matters to be addressed.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There is an obligation
of the chairman of our board of directors to call a shareholders’ general meeting if: (1) we are not under control of a shareholder
holding more than 50% of our voting capital, and (2) B3 determines that the price of our shares shall be quoted separately or that
the trading of our shares on the Novo Mercado shall be suspended by reason of non-compliance with the listing rules of Novo
Mercado. At such a meeting all members of our board of directors must be replaced. In the event the shareholders’ general
meeting is not called by the chairman of the board of directors within the time period established in our bylaws, the meeting may
be called by any shareholder of the company.



Conditions for Admission at our Shareholders’
General Meetings



A shareholder may
be represented at a shareholders’ general meeting by a proxy, as long as the proxy is appointed less than a year before such
shareholders’ general meeting. The proxy must be either a shareholder, an executive officer or a director of our company,
a lawyer or a financial institution. An investment fund must be represented by its investment fund officer. A legal entity may
be represented by its legal representative.



Shareholders attending
a shareholders’ general meeting must deliver proof of their status as shareholders and proof that they hold the shares they
intend to vote by delivery of proper identification and a receipt issued by the custodian agent of our shares.



Remote Voting



Participation
and remote voting at the general shareholders’ meetings of publicly-held companies is regulated by CVM Instruction
No. 481 of December 2009, as amended from time to time, which aims to facilitate the participation of shareholders in general
meetings either through voting or through the submission of proposals. This rule provides the following:



| | · | the creation of a remote voting ballot through which shareholders may exercise their right to vote
prior to the date the general meeting is held;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the possibility to include in the voting bulletin a list of candidates and submit minority shareholders ́
proposals for deliberation at the general meeting, with due observance of certain deadlines and percentages of equity interest,
in order to facilitate shareholders’ participation in general meetings; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | the deadlines, procedures and means of transmitting the bulletin, which may be transmitted by the
shareholder: (a) to the custodian (if the shares held by the shareholder are kept at a centralized deposit), (b) to the book-entry
agent of the shares issued by the company (if such shares are not kept at a centralized deposit) or (c) directly to the company.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, publicly-held
companies are required to adopt certain measures in connection with the voting process. Publicly-held companies are required to:
(1) inform the market of the adoption of the cumulative voting process in annual meetings immediately upon receipt of the first
valid requirement, (2) disclose the final voting summary statements, the final voting detailed statements, as well as any voting
statement presented by a shareholder at the general meetings and (3) register in the minutes of the general meeting the number
of approving, rejecting or abstaining votes for each item on the agenda, including the votes received by each member of the Board
of Directors and/or Fiscal Council elected in such annual shareholders’ meeting.



The
application of CVM Rule No. 561 became mandatory on January 1, 2017 for companies that on April 9, 2015 had at least one share
class listed either on the Index Brasil 100 or the IBOVESPA index of the B3, such as Gafisa.



Arbitration



Any disputes or controversies
involving our company, our shareholders, members of our management or our fiscal council that may arise relating to their status
as issuer, shareholders, management and fiscal council members, especially in light of the provisions of Law 6,385/76, Law 6,404/76,
the company’s bylaws, the rules issued by the National Monetary Council, the Central Bank and CVM, as well as other rules
applicable to the securities market in general, Listing Rules of the Novo Mercado, other rules and regulations established
by B3 and the Novo Mercado participation agreement, must be submitted to arbitration conducted in accordance with the Rules
of the Market Arbitration Chamber established by the B3.



Going Private Process



We may become a private
company by the decision of our shareholders only if we conduct a public tender offer to acquire all of our outstanding shares in
accordance with the rules and regulations of Brazilian corporate law, the CVM and the Novo Mercado regulations which requires:



| | · | a fair bid price at least equal to the value estimated of the company; and
| | - | --------------------------------------------------------------------------



| | · | shareholders holding more than two thirds of the outstanding shares have specifically approved
the process or accepted the offer.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



The minimum price
offered for the shares in the public tender offer will correspond to the economic value of such shares, as determined by a valuation
report issued by a specialized firm, and we may only purchase shares from shareholders that have voted in favor of us becoming
a private company after purchasing all shares from the other shareholders that did not vote in favor of such deliberation and that
have accepted the public tender offer.



The valuation report
must be prepared by a specialized and independent firm of recognized experience chosen by the shareholders representing the majority
of the outstanding shares present at the relevant shareholders’ meeting (excluding, for such purposes, treasury shares, shares
held by our affiliates and by other companies that are a part of our economic group, as well as blank votes) from a list of three
institutions presented by our board of directors. All the expenses and costs incurred in connection with the preparation of the
valuation report must be paid for by the person making the tender offer.



Shareholders holding
at least 10% of our outstanding shares may require our management to call a special shareholders’ general meeting to determine
whether to perform another valuation using the same or a different valuation method. This request must be made within 15 days following
the disclosure of the price to be paid for the shares in the public offering. The shareholders who make such request as well as
those who vote in its favor must reimburse us for any costs involved in preparing the new valuation, if the new valuation price
is not higher than the original valuation price. If the new valuation price is higher than the original valuation price, the public
offering must be made at the higher price.



Delisting from the Novo Mercado



We may, at any time,
delist our common shares from the Novo Mercado, provided that shareholders approve the decision. Delisting of shares from
the Novo Mercado does not require delisting from the B3.



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For our common shares
to be delisted from the Novo Mercado, it must be preceded by a public tender offer pursuant to the rules applicable to the
going private process. Such tender offer may be dismissed if a waiver is approved by a general shareholders meeting.



If our delisting from
the Novo Mercado occurs due to the cancellation of our registration as a publicly held company, all the other requirements
established by such delisting shall be followed. See “—Going Private Process.”



If the reorganization
involves resulting companies that do not intend to apply for listing on Novo Mercado, this structure must be approved by
a majority of the company’s shareholders holding free float shares and present at the general shareholders meeting.



If our share control
is sold within twelve months of our delisting from the Novo Mercado, the selling controlling shareholder and the acquirer
shall offer (i) to acquire the shares of all other shareholders under the same conditions offered to the selling controlling shareholder
or (ii) to pay the difference between the tender offer price accepted by former shareholders, duly updated, and the price obtained
by the controlling shareholder in selling its own shares.



Sale of a Controlling Stake in our
Company



Under the Listing
Rules of the Novo Mercado, the sale of a controlling interest in our company, either through a single transaction or through
successive transactions, takes place under a suspension or resolution condition, where the acquirer agrees to, within the time
and pursuant to the conditions specified under Brazilian corporate law and the Listing Rules of the Novo Mercado, make a
tender offer of the remaining shares of the other shareholders under the same terms and conditions granted to the selling controlling
shareholder.



A tender offer is
also required under the following conditions:



| | · | when rights are assigned for a subscription of shares and other securities or rights related to
securities convertible into shares that results in the sale of the company’s controlling stake;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | when, if the controlling shareholder is an entity, the control of such controlling entity is transferred;
and
| | - | -------------------------------------------------------------------------------------------------------------



| | · | when a controlling stake is acquired through an agreement for the purchase of shares. In this case,
the acquirer is obligated to make a tender offer under the same terms and conditions granted to the selling shareholders and reimburse
the shareholders from whom he/she had purchased the shares traded on stock exchanges within the six months before the sale date
of the company’s share control. The reimbursement value is the difference between the price paid to the selling controlling
shareholder and the amount traded on stock exchanges per share, during this period, adjusted by the inflation in the period. Such
amount shall be distributed among all persons who sold shares issued by the company in the stock market trading session in which
the acquirer made its acquisitions, proportionally to the daily net selling balance of each acquisition, being B3 responsible for
processing such distribution according to its regulations.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The buyer, when necessary,
must take the necessary measures to recompose the minimum 25% of outstanding shares in the market within the subsequent six months.



Mandatory Tender Offer in Case of
Acquisition of a Relevant Equity Stake



Under the rules of
our bylaws, if any person acquires our shares directly or indirectly, or any securities or rights related to such shares, in an
amount representing 50% or more of our corporate capital, such acquirer has to carry out a mandatory tender offer for the acquisition
of all shares issued by the Company. The minimum price offered for the shares in the public tender offer will correspond to the
economic value of such shares, as determined by a valuation report issued by a specialized firm.



The valuation report
must be prepared by a specialized and independent firm of recognized experience chosen by the shareholders representing the majority
of the outstanding shares present at the relevant shareholders’ meeting (excluding, for such purposes, shares held by the
controlling shareholder, if any, by the members of the board of directors and officers appointed, directly or indirectly, by the
controlling shareholder, if any, treasury shares, as well as abstentions) from a list of three institutions presented by our board
of directors. All the expenses and costs incurred in connection with the preparation of the valuation report must be paid for by
the person making the tender offer.



Shareholders holding
at least 10% of our outstanding shares may require our management to call a special shareholders’ general meeting to determine
whether to perform another valuation using the same or a different



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valuation method. This
request must be made within 15 days following the disclosure of the price to be paid for the shares in the public offering. The
shareholders who make such request as well as those who vote in its favor must reimburse us for any costs involved in preparing
the new valuation, if the new valuation price is not higher than the original valuation price. If the new valuation price is higher
than the original valuation price, the acquirer may either increase the offer price or withdraw the tender offer, in the latter
case provided that it shall dispose of the shares in excess of 50% of our corporate capital within 3 months counted from the special
general meeting mentioned in this paragraph.



A tender offer as
a result of an acquisition of a relevant equity stake, in accordance to our bylaws, is not mandatory in any of the following cases:
(1) if the same shareholder remains as controlling shareholder; (2) if the relevant equity stake is obtained as a result of purchases
made under another public tender offer for the acquisition of our shares, made in accordance with the Novo Mercado Listing
Rules or with the applicable law; provided that the offer was made for all shares of the company and at least the minimum price,
equivalent to the price of the mandatory tender offer, has been paid; (3) if a relevant equity stake is obtained involuntarily
as a result of a corporate reorganizations, cancellation of shares in treasury, share redemption, capital reduction, or of a subscription
of shares made under a primary public offer for distribution of our shares where the preemptive rights were not exercised by all
shareholders who had it or which did not have as subscribers as expected; or (4) in the case of a sale of a controlling stake,
which is subject to the rules described above for such case.



Purchases by us of our own Shares



Purchases by us of
our own shares are regulated by CVM Rule No. 567 of September, 2015. The rule requires us to obtain the prior approval of our shareholders
in connection with a purchase by us of our own shares if such purchase:



| | · | is conducted outside an organized securities markets and results, whether in a single transaction
or by a series of transactions, in us acquiring more than 5% of the type or class of shares in circulation over a period of 18
months;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | is conducted outside an organized securities markets and is for a price that is, (i) in the case
of an acquisition of shares, more than 10% greater than the market quotation for such shares, or(ii) in the case of a disposal
of shares, more than 10% lower than the market quotation for such shares;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | aims to change or preserve the composition of the controlling stock or the administrative structure
of the company; or
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | is conducted outside an organized securities markets with a related party.
| | - | --------------------------------------------------------------------------



Our board of directors
may approve the acquisition of our own shares in other circumstances. The decision to acquire our shares for purposes of maintaining
the acquired shares in treasury or of cancelling them may not, among other things:



| | · | result in the reduction of our share capital;
| | - | ---------------------------------------------



| | · | require the use of resources greater than our profit reserves and other available reserves, as
provided in our financial statements;
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | · | create, as a result of any action or inaction, directly or indirectly, any artificial demand, supply
or condition relating to share price;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | · | involve any unfair practice;
| | - | ----------------------------



| | · | be used for the acquisition of unpaid shares or shares held by our controlling shareholders; or
| | - | -----------------------------------------------------------------------------------------------



| | · | when a public offer for acquisition of the shares of the company is being made.
| | - | -------------------------------------------------------------------------------



We may not keep in
treasury more than 10% of our outstanding common shares, including the shares held by our subsidiaries and affiliates.



On February 2, 2015,
our Board of Directors approved the closing of a repurchase of shares program as approved on December 3, 2014. During the course
of this program, we purchased 30,207,130 of Gafisa’s common shares to be kept in treasury and future disposal.



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On the same date,
the Board of Directors of Gafisa approved the repurchase of its common shares to be kept in treasury and future cancellation or
disposal up to 27,000,000, which corresponded to 10% of the then outstanding common shares.



On March 3, 2016,
the Board of Directors of Gafisa approved the closing of the repurchase of shares program as approved on February 2, 2015. During
the course of this program, we purchased 1,000,000 of Gafisa’s common shares to be kept in treasury and future disposal.



On the same date,
the Board of Directors of Gafisa approved the creation of a repurchase program of its common shares to be kept in treasury and
future cancellation or disposal up to 8,198,565 common shares, which corresponded to 5% of the then outstanding common shares.
The objective of this program is to acquire shares in order to effectively use the Company’s available funds, aiming at medium-term
and long-term profitability. Additionally, a portion of the shares to be acquired might be reserved for the exercise of options
and/or shares to be granted in the Stock Option Plan previously approved by the Company’s shareholders at the Company’s
general meeting. The purchase of shares by Gafisa under this program was conditioned on the maintenance of Gafisa’s consolidated
net debt to equity ratio at or below 60%. This program ended on September 2, 2017.



On
September 28, 2018, our Board of Directors approved the opening of the Company’s share buyback program with the objective
of generating value for the Company’s shareholders. Shares purchased by the Company as part of the buyback program will
be held in treasury, and may subsequently be canceled, sold and/or used in connection with the exercise of stock options granted
by the Company. The maximum number of shares the Company may acquire under this program is 3,516,970
common shares, pursuant to Article 8 of CVM Instruction No. 567/15. This buyback program ends on October 1, 2019. Under our current
shares repurchase program, any acquisition by us of our own shares must be made on a stock exchange and cannot be made in a private
transaction. See “Item 10. Additional Information—B.
Memorandum and Bylaws—Purchases by us of our own Shares”, for further information.



Disclosure Requirements



We are subject to
the reporting requirements established by Brazilian corporate law and the CVM. Furthermore, because we are listed with the Novo
Mercado, we must also follow the disclosure requirements provided for in the Listing Rules of the Novo Mercado.



Disclosure of Information



The Brazilian securities
regulations require that a publicly-held corporation provide the CVM and the relevant stock exchanges with periodic information
that includes annual information statements, quarterly financial statements, quarterly management reports, independent auditor
reports, notices and minutes of shareholders’ meetings, among others. In addition, we also must disclose any material development
related to our business to the CVM and the B3.



We observe the Novo
Mercado disclosure standards and are required to, among other things:



| | · | present the company’s financial statements, standard financial statements form (DFP), quarterly
information form (ITR) and Reference Form (Formulário de Referência);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | material events;
| | - | ----------------



| | · | information about dividends and other distributions in notices to shareholders or market notices;
| | - | -------------------------------------------------------------------------------------------------



| | · | earnings releases;
| | - | ------------------



| | · | include a note in the quarterly information form (ITR) regarding all operations with related parties;
| | - | -----------------------------------------------------------------------------------------------------



| | · | disclose and maintain updated the information presented in the Reference Form regarding any shareholder
holding, directly or indirectly, at least 5% of the company’s capital stock, considering the information received by company
from the relevant shareholders;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | disclose, monthly, the individual and consolidated amount and characteristics of our securities
held directly or indirectly by controlling shareholders (if this is the case), as well as persons related to the controlling shareholder;
and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | disclose, monthly, the individual and consolidated changes in the amount of securities held by
controlling shareholders (if this is the case), as well as persons related to the controlling shareholder.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Disclosure of Trading
by Insiders



Pursuant to the rules
of the Novo Mercado, each of our possible controlling shareholders must disclose to the B3 information in connection with
the total amount and characteristics of securities owned, directly or indirectly, by them and issued by us, or any derivatives
referenced in such securities, as well as any subsequent trading of such securities and derivatives. In the case of individuals,
such information shall also include securities held by the spouse, companion or dependents of such persons, included in the annual
income tax statement of such controlling shareholder. This information must be communicated to the B3 within 10 days following
the end of each month.



CVM
regulations require our directors, executive officers, members of the fiscal council, and members of any other technical or advisory
body to disclose to us, to the CVM and to the B3, the total amount, the characteristics and form of acquisition of securities
issued by us, listed companies under our control or the control of our listed controlling shareholders, including derivatives
referenced in such securities that are held by each of them, as well as any change in such investments within 10 days after the
end of the month when the securities were traded, any change in information related
to the tax-payer registry number (CNPJ or CPF) must be communicated to the company within 15 days after the change. In
the case of individuals, such information shall also include securities held by the spouse, companion or dependents of such persons,
included in the annual income tax statement and companies controlled directly or indirectly by such person.



As
of September 2015, pursuant to changes introduced by CVM Rule No. 568/15 to CVM Rule No. 358/02, we are required to disclose to
the CVM and to the B3 the total amount and the characteristics of securities issued by us, which are held by us or any of our
affiliates, as well as any change in such investments, within 10 days after the end of the month in which the relevant securities
were traded.



In
addition, CVM Rule No. 568/15 also amended CVM Rule No. 358/02 regarding, among other things, (1) the change in the form of calculation
of trades of relevant equity interests to determine when a disclosure obligation of those trades is triggered, and (2) the regulation
of individual investment plans, as described below.



In
addition, our controlling shareholders, our shareholders who have caused the election of members of our board of directors or
fiscal council, as well as any individual, legal entity or group of persons acting jointly whose direct or indirect participation
reaches 5%, 10%, 15% and so on, of our shares, must provide to us, and we shall
transmit to the CVM and the B3, the following information:



| | · | the name and qualification of the person providing the information;
| | - | -------------------------------------------------------------------



| | · | reason and purpose for the acquisition and amount of securities to be acquired, including, as the
case may be, a representation of the acquirer stating that the acquisition does not aim at modifying the management or the controlling
structure of the company;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | amount of shares, as well as other securities and related derivatives, by type and/or class, already
owned, directly or indirectly, by the acquirer or any person related with the acquirer; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | information on any agreement regarding the exercise of voting rights or the purchase and sale of
our securities.
| | - | ----------------------------------------------------------------------------------------------------------------



The disclosure requirement
referred to above will also apply to any person or group acting jointly, holding participation equal to or in excess of 5%, each
time such person increases or decreases its participation in our shares by an amount equal to 5% of our shares.



Finally, pursuant
to the individual investment plans introduced by CVM Rule No. 568/15, direct or indirect controlling shareholders, members of any
statutory governing bodies of a publicly-held corporation, as well as any persons who, due to their responsibility, function or
position in a listed company, its controlling company, subsidiaries or affiliates have potential access to insider information,
are now allowed, subject to certain requirements, to trade in the company’s shares in certain periods during which such trading
would otherwise be prohibited.



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Disclosure of Material
Developments



According
to Law No. 6,385 of December 7, 1976, and subsequent amendments, and CVM Instruction No. 358 of January 3, 2002, and subsequent
amendments, we must, by deliberation of the board of directors, adopt a policy of disclosure
of a material act or fact. Therefore, we mustdisclose any material development related to our business to the CVM and
to the B3 and must publish a notice of the material development. A development is deemed to be material if it has a material impact
on the price of our securities, on the decision of investors to trade in our securities or on the decision of investors to exercise
any rights as holders of any of our securities. CVM Instruction No. 358 lists some
examples of material developments, including, among others: (i) a decision to promote the cancellation of registration of the
publicly-held company; (ii) an incorporation, merger or spin-off involving the company or related companies; (iii) a change in
the composition of the company’s equity; and (iv) a transformation or dissolution of the company.



Pursuant
to CVM regulations, the Investor Relations Director is the primary responsible party for a company’s disclosure involving
material developments, notwithstanding co-liability of other administrators in certain cases.



Under special circumstances,
we may request confidential treatment of certain material developments from the CVM, when our management believes that public disclosure
could result in adverse consequences to us.



| | C. | Material Contracts
| | -- | ------------------



On December 30, 2009,
the shareholders of Gafisa and Tenda approved a corporate restructuring to consolidate Gafisa’s non-controlling share ownership
in Tenda. The restructuring was accomplished by exchanging all of the remaining Tenda shares not held by Gafisa into Gafisa shares.
As a result of the restructuring, Tenda became a wholly-owned subsidiary of Gafisa.



On May 27, 2010, the
shareholders of Gafisa approved the acquisition of 20% of Alphaville’s shares, by means of a merger of the totality of shares
issued by Shertis Empreendimentos e Participações S.A. or “Shertis”, which main asset are shares representing
20% of Alphaville’s shares, in the total amount of R$126.5 million. As a consequence of such merger, Gafisa issued 9,797,792
common shares, paid to the former shareholders of Shertis. On July 3, 2013, we acquired the remaining shares of Alphaville, corresponding
to 20% of its capital stock, by means of the acquisition by Tenda of all the shares of EVP Participações SA, a holding
company that had Renato de Albuquerque and Nuno Luís de Carvalho Lopes Alves as shareholders and the holder of the remaining
shares of Alphaville. Gafisa paid R$366,661,985.11 in Brazilian national currency to the former owners of the shares.



On December 9, 2013,
we completed the sale of a majority stake in Alphaville to Private Equity AE Investimentos e Participações (“Fundo
AE”), a company controlled by Pátria Investimentos Ltda. and Blackstone Real Estate Advisor L.P., which was previously
announced on June 7, 2013. All precedent conditions were met including governmental approval, to the completion of the transaction.
The transaction was concluded with a sale of 50% stake by Gafisa and 20% stake by Tenda, with Gafisa retaining the remaining 30%
of Alphaville capital stock. The proceeds from the transaction, post adjustments agreed to in the Share and Purchase Agreement,
were R$1.54 billion, consisting of R$1.25 billion from Fundo AE for the acquisition of Alphaville shares, and an R$290 million
dividend distribution by Alphaville.



On December 14, 2016,
we entered into an SPA with Jaguar pursuant to which we will sell Tenda shares representing up to 30% of the total capital stock
of Tenda, at a price equal to R$8.13 per share, after offering 50% of the total capital stock of Tenda for the exercise of preemptive
rights of Gafisa’s shareholders.



The spin-off of the
Tenda business unit was consummated on May 4, 2017, following: (i) a reduction of the capital stock of Tenda (without the cancellation
of shares), pursuant to which Gafisa, as sole shareholder at that time, received R$100 million (adjusted by the SELIC); (ii) a
reduction of the capital stock of Gafisa, resulting in the distribution to Gafisa shareholders of shares corresponding to 50% of
the capital stock of Tenda; (iii) the conclusion of the preemptive rights exercise pursuant to which Gafisa shareholders acquired
up to 50% of the total share capital of Tenda, at the price per share set forth in the SPA with Jaguar and for a total amount of
R$219.5 million, with no shares being acquired by Jaguar; and (iv) the satisfaction of other conditions precedent for the consummation
of the spin-off. In addition, on May 4, 2017, the Tenda shares were listed on the B3 and began to publicly trade.



In 2018 the Company
did not sign any new material contracts.



On October 21, 2019,
we informed our shareholders and the market that we entered into a Purchase and Sale, Stock Redemption, Corporate Restructuring
Agreement with Alphaville Urbanismo S.A., Private Equity AE Investimentos e Participações S.A. and affiliates of
PEAE, setting forth the terms and conditions for the sale of our



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shares in Alphaville.
As of the date of this annual report, we hold 21.20% of Alphaville’s shares, a decrease from our previous 30% stake, as a
result of a capital increase in Alphaville by affiliates of PEAE. The sale price totals R$100 million, payable through credit offsets
and the delivery of certain assets. The consummation of the transaction is subject to customary conditions precedent, including
a corporate restructuring of certain assets of Alphaville, the obtainment of third party consents and corporate approvals. This
transaction is in line with the Company’s strategy to optimize and improve the Company’s portfolio and capital allocation,
aiming at creating value for our shareholders.



| | D. | Exchange Controls
| | -- | -----------------



There are no restrictions
on ownership of our common shares by individual or legal entities domiciled outside Brazil. However, the right to convert dividend
payments and proceeds from the sale of our shares into foreign currency and to remit such amounts abroad is subject to requirements
under foreign investment legislation which generally establish that the relevant investment be registered with the Central Bank
and/or the CVM. Subject to certain procedures and specific regulatory provisions, the purchase and sale of foreign currency and
the international transfer of reais by a person or legal entity resident, domiciled or headquartered in Brazil, as the case
may be, is allowed, without limitation as to amount, provided that the underlying transaction is legal, legitimate and has economic
substance, as evidenced by the applicable supporting documentation submitted to the financial institution in charge of the foreign
exchange transaction. In addition, foreign currencies may only be purchased through duly authorized financial institutions headquartered
in Brazil. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil—Restrictions on the movement
of capital out of Brazil may adversely affect your ability to receive dividends and distributions on the ADSs and on our common
shares, or the proceeds of any sale of our common shares” and “Item 9. The Offer and Listing—C. Markets—Investment
in Our Common Shares by Non-Residents of Brazil.”



In the past, the Brazilian
Central Bank has intervened occasionally to control unstable movements in foreign exchange rates. We cannot predict whether the
Brazilian Central Bank or the Brazilian government will continue to let the realfloat freely or will intervene in the exchange
rate market through the return of a currency band system or otherwise. The realmay depreciate or appreciate against the
U.S. dollar substantially.



Brazilian law provides
that, whenever there is a serious imbalance in Brazil’s balance of payments or there are serious reasons to foresee a serious
imbalance, temporary restrictions may be imposed on remittances of funds abroad. We cannot assure you that such measures will not
be taken by the Brazilian government in the future. See “Item 3. Key Information—D. Risk Factors—Risks Relating
to Brazil—Restrictions on the movement of capital out of Brazil may adversely affect your ability to receive dividends and
distributions on the ADSs and on our common shares, or the proceeds of any sale of our common shares” and “Item 9.
The Offer and Listing—C. Markets—Investment in Our Common Shares by Non-Residents of Brazil.”



| | E. | Taxation
| | -- | --------



The following discussion
contains a description of material Brazilian and U.S. federal income tax consequences of the acquisition, ownership and disposition
of common shares or ADSs. The discussion is based upon the tax laws of Brazil and regulations thereunder and on the tax laws of
the United States and regulations thereunder as of the date hereof, which are subject to change.



Although there is
at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have entered into
a Tax Information Exchange Agreement and have had discussions that may culminate in an income tax treaty. No assurance can be given,
however, as to whether or when an income tax treaty will enter into force or how it will affect the U.S. Holders (as defined below)
of common shares or ADSs. Prospective holders of common shares or ADSs should consult their own tax advisers as to the tax consequences
of the acquisition, ownership and disposition of common shares or ADSs in their particular circumstances.



Brazilian Tax Considerations



The following discussion
summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposition of our common shares or ADSs
by a holder that is not domiciled in Brazil for purposes of Brazilian taxation (a “Non-Resident Holder”). This discussion
is based on Brazilian law as currently in effect, which is subject to change, possibly with retroactive effect, and subject to
different interpretations. Any change in that law may change the consequences described below.



The tax consequences
described below do not take into account the effects of any tax treaties or reciprocity agreements for tax treatment entered into
by Brazil and other countries. The discussion also does not address any tax consequences under the tax laws of any state or municipality
of Brazil. The description below is not intended to



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constitute a complete
analysis of all tax consequences relating to the acquisition, exchange, ownership and disposition of our common shares or ADSs.
Each Non-Resident Holder should consult his or her own tax adviser concerning the Brazilian tax consequences of an investment in
our common shares or ADSs.



Income tax



Dividends.
Dividends paid by a Brazilian corporation, such as ourselves, including stock dividends and other dividends paid to a Non-Resident
Holder of common shares or ADSs, are currently not subject to income withholding tax in Brazil to the extent that such amounts
are related to profits generated after January 1, 1996. Dividends paid from profits generated before January 1, 1996 may be subject
to Brazilian income withholding tax at varying rates depending on the year the profits were generated, according to the tax legislation
applicable to each corresponding year. There is uncertainty regarding the taxation of dividends supported by profits earned in
the 2014 calendar year, due to the new rules introduced in Brazil in order to align the Brazilian tax system with the International
Financial Reporting Standards, or “IFRS”, as of January 1, 2015. As we did not earn profits in that year, this issue
should not apply to us. Interest on Shareholders’ Equity. Law No. 9,249, dated December 26, 1995, as amended, permits
a Brazilian corporation, such as ourselves, to make distributions to shareholders of interest on shareholders’ equity as
an alternative to making dividend distributions and to treat such payments as a deductible expense for purposes of calculating
Brazilian corporate income tax and social contribution on net profits, to the extent the limits described below are observed. These
distributions may be paid in cash. For tax purposes, this interest is limited to the daily pro rata variation of the Brazilian
long-term interest rate, or TJLP, as determined by the Central Bank from time to time, and the amount of the deduction may not
exceed the greater of:



| | · | 50% of net income (after the deduction of social contribution on net profits but before taking
into account the provision for corporate income tax and the interest on shareholders’ equity) for the period in respect of
which the payment is made; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 50% of the sum of retained profits and profit reserves as of the date of the beginning of the period
in respect of which the payment is made.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



Payment of interest
on shareholders’ equity to a Non-Resident Holder is subject to income withholding tax at the rate of 15%, or 25% if the Non-Resident
Holder is domiciled in a Tax Favorable Jurisdiction, as defined below.



These payments of
interest on shareholders’ equity may be included, at their net value, as part of any mandatory dividend. To the extent payment
of interest on shareholders’ equity is so included, the Company is required to distribute to shareholders an additional amount
to ensure that the net amount received by them, after payment of the applicable withholding income tax, plus the amount of declared
dividends is at least equal to the mandatory dividend.



Gains



According to Law No.
10,833/03, enacted on December 29, 2003, the disposition or sale of assets located in Brazil by a Non-Resident Holder, whether
to another non-Brazilian resident or to a Brazilian resident, may be subject to capital gain taxes in Brazil.



Therefore, with respect
to the disposition of our common shares, which are treated as assets located in Brazil, a non-Brazilian resident will be subject
to income tax on the gains assessed according to the rules described below, regardless of whether the transactions are conducted
in Brazil or with a Brazilian resident.



With respect to the
ADSs, although the matter is not entirely clear, it is reasonable to take the position that ADSs do not constitute assets located
in Brazil for the purposes of Law No. 10,833/03 and, therefore, that the gains realized by a Non-Resident Holder on the disposition
of our ADSs to another Non-Resident Holder should not be taxed in Brazil. We cannot assure you, however, that the Brazilian tax
authorities or the Brazilian courts will agree with this interpretation. Accordingly, gains on a disposition of ADSs by a Non-Resident
Holder may be subject to income tax in Brazil in the event that courts determine that ADSs constitute assets located in Brazil.
For more information, please refer to “Item 3. Key Information—D. Risks Factors—Risks Relating to Our Common
Shares and the ADSs—Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to a disposition of
the ADSs.”



As a general rule,
gain realized as a result of a disposition or sale of common shares (or ADSs should they be deemed to be “assets located
in Brazil”) is the positive difference between the amount realized on the sale or other disposition of the securities and
their acquisition cost.



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Under Brazilian law,
however, income tax rules on such gains can vary, depending on the domicile of the Non-Resident Holder, the type of registration
of the investment by the Non-Resident Holder with the Central Bank and how the disposition is carried out, as described below.



Gains assessed on
a disposition of common shares carried out on a Brazilian stock exchange (which includes the transactions carried out on the organized
over-the-counter market) are:



| | · | exempt from income tax when the gain is earned by a Non-Resident Holder that (1) has registered
its investment in Brazil with the Central Bank under the rules of Resolution No. 4,373, dated September 14, 2014, which replaced
Resolution 2,689, dated January 26, 2000 (a “4,373 Holder”) and (2) is not a resident or domiciled in a country or
location that does not tax income, or that taxes it at a maximum rate lower than 20%; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | in all other cases, subject to income tax at a rate of up to 25%. In these cases, a withholding
income tax of 0.005% of the sale value will be applicable and can be later offset against any income tax due on the capital gain.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Any other gains recognized
on a sale or disposition of the common shares that is not carried out on a Brazilian stock exchange are subject to (1) income tax
at a progressive rate from 15% up to 22.5%, when realized by a Non-Resident Holder that is not resident or domiciled in a Tax Favorable
Jurisdiction; and (2) income tax up to a rate of 25% when realized by a Non-Brazilian Holder that is resident or domiciled in a
Tax Favorable Jurisdiction. In the event that these gains are related to transactions conducted on the Brazilian non-organized
over-the-counter market with intermediation, the withholding income tax of 0.005% shall also be applicable and can be offset against
the eventual income tax due on the capital gain.



In the case of a redemption
of common shares (or ADSs, should they be deemed to be “assets located in Brazil”) or a capital reduction by a Brazilian
corporation, such as ourselves, the positive difference between the amount received by the Non-Resident Holder and the acquisition
cost of the common shares or ADSs redeemed is treated as capital gain derived from the sale or exchange of shares not carried out
on a Brazilian stock exchange and is therefore subject to income tax at a rate from 15% to 22.5%, or up to 25%, as described above.



Any exercise of preemptive
rights relating to the common shares or ADSs will not be subject to Brazilian income tax. Gains realized by a Non-Resident Holder
on the disposition of preemptive rights relating to the common shares (or ADSs, should they be deemed to be “assets located
in Brazil”) will be subject to Brazilian income tax according to the same rules applicable to the sale or disposition of
common shares.



As a Non-Resident
Holder of ADSs, you may cancel your ADSs and exchange them for the underlying common shares and no income tax may be levied on
such exchange, as long as the appropriate rules are complied with in connection with the registration of the investment with the
Central Bank and as long as ADSs are not deemed to be “assets located in Brazil.” See “Item 9 The Offering and
Listing—C. Markets—Investment in Our Common Shares by Non-Residents of Brazil—Depositary Receipts” for
a discussion of the rules related to exchanging ADS for common shares.



The deposit of common
shares by Non-Resident Holders in exchange for ADSs may be subject to Brazilian income tax if the acquisition cost of the common
shares is lower than (a) the average price per common share on a Brazilian stock exchange on which the greatest number of such
common shares were sold on the day of deposit; or (b) if no common shares were sold on that day, the average price on a Brazilian
stock exchange on which the greatest number of common shares were sold in the 15 trading sessions immediately preceding such deposit.
The difference between the acquisition cost and the average price of the common shares will be considered to be a capital gain
subject to income tax at a rate from 15% up to 22.5% or 25%, as described above. In some circumstances, it could be reasonable
to take the position that this tax is not applicable in the case of a Non-Resident Holder that is a 4,373 Holder and is not a resident
in a Tax Favorable Jurisdiction.



There can be no assurance
that the current favorable treatment of 4,373 Holders will continue in the future.



Law 13,259/16, dated
March 16, 2016, increased tax rates on capital gains earned by Brazilian individuals and certain legal entities. The new rates
should apply as from 2017 as follows: (i) 15% on the capital gain not exceeding R$5,000,000; (ii) 17.5% on the capital gain amount
which varies from R$5,000,000 and R$10,000,000; (iii) 20% on the capital gain amount which varies from R$10,000,000 and R$30,000,000;
and (iv) 22.5% on the capital gain which exceeds R$ 30,000,000. The new rates should also apply to Non-Resident Holders depending
on their type of investment, jurisdiction and the sale transaction, to be determined on a case by case basis.



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Discussion on Tax
Favorable Jurisdictions and Privileged Tax Regimes



A “Tax Favorable
Jurisdiction” is a country or location that (1) does not impose taxation on income or imposes the income tax at a rate lower
than 20% or (2) imposes restrictions on the disclosure of shareholding composition or the ownership of the investment. A regulation
issued by the Ministry of Treasury on November 28, 2014 decreased from 20% to 17% this minimum threshold for certain specific cases.
The 17% threshold applies only to countries and regimes aligned with international standards of fiscal transparency in accordance
with rules to be established by the Brazilian tax authorities.



Law No. 11,727/08
created the concept of “Privileged Tax Regimes”, which encompasses the countries and jurisdictions that: (1) do not
tax income or tax it at a maximum rate lower than 20%, or 17%, as applicable; (2) grant tax advantages to a non-resident entity
or individual (i) without the need to carry out a substantial economic activity in the country or territory or (ii) conditioned
to the non-exercise of a substantial economic activity in the country or territory; (3) do not tax or taxes proceeds generated
abroad at a maximum rate lower than 20%, or 17%, as applicable; or (4) restricts the ownership disclosure of assets and ownership
rights or restricts disclosure about economic transactions carried out.



Normative Ruling 1,037
provides a list of Tax Favorable Jurisdictions and Privileged Tax Regimes. Normative Ruling No. 1,037 is periodically updated to
include and exclude countries, locations and tax regimes from the lists of Tax Favorable Jurisdictions and Privileged Tax Regimes.



In principle, the
best interpretation of Law No. 11,727/08 leads us to conclude that the concept of Privileged Tax Regimes should be applied solely
for purposes of transfer pricing rules in export and import transactions, for the definition of the applicable rate of withholding
income tax on the remittance of specific items of income and for certain other Brazilian tax purposes that are not relevant to
an investment by a Non-Resident Holder in our common shares or ADSs. Although we are of the opinion that the concept of Privileged
Tax Regimes should not affect the tax treatment of a Non-Resident Holder described above, we cannot assure you that subsequent
legislation or interpretations by the Brazilian tax authorities regarding the definition of “privileged tax regimes”
will not apply such regime to Non-Resident Holders. Investors should consult with their own tax advisors regarding the consequences
of the implementation of Law No. 11,727, Normative Ruling No. 1,037 and of any related Brazilian tax laws or regulations concerning
Tax Favorable Jurisdictions and Privileged Tax Regimes.



Tax on Foreign Exchange
and Financial Transactions



Foreign Exchange
Transactions. Brazilian law imposes a Tax on Foreign Exchange Transactions, or IOF/Exchange Tax, on the conversion of reais
into foreign currency and on the conversion of foreign currency into reais. Any inflow of funds related to investments carried
out on the Brazilian financial and capital markets by 4,373 Holders is currently subject to the IOF/Exchange Tax at a rate of zero
percent. Foreign exchange transactions related to outflows of funds in connection with investments carried out on the Brazilian
financial and capital markets are subject to the IOF/Exchange Tax at a rate of zero percent, which also applies to payments of
dividends and interest on shareholders’ equity to 4,373 Holders with respect to investments on the Brazilian financial and
capital markets.



Nevertheless, the
rate applicable to most foreign exchange transactions is 0.38%. In any case, the Brazilian government may increase the rate at
any time by up to 25% on the foreign exchange transaction amount. However, any increase in rates will only apply to future transactions.



The purchase of ADSs
by a Non-Resident Holder outside Brazil generally does not require the execution of a foreign exchange agreement with the Brazilian
Central Bank. If this is the case, the IOF/Exchange Tax is not due. The IOF/Exchange Tax is levied at a zero percent rate in connection
with foreign exchange agreements, without any actual flows of funds, that are required for a cancellation of ADSs and exchange
for shares traded on a Brazilian stock exchange.



Tax on Transactions
Involving Bonds and Securities. Brazilian law imposes a Tax on Transactions Involving Bonds and Securities, or IOF/Bonds Tax,
due on transactions involving bonds and securities, including those carried out on a Brazilian stock exchange. The rate of IOF/Bonds
Tax applicable to transactions involving common shares is currently zero percent. The rate of the IOF/Bonds Tax applicable to the
transfer of shares with the sole purpose of enabling the issuance of ADSs is currently also zero percent. However, the Brazilian
government may increase the rate of the IOF/Bonds Tax at any time by up to 1.5% per day on the transaction amount, but only in
respect of future transactions.



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Other Brazilian
Taxes



There are no Brazilian
inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of common shares or ADSs, except for
gift and inheritance taxes that may be imposed by some Brazilian states. There are no Brazilian stamp, issue, registration, or
similar taxes or duties payable by holders of common shares or ADSs.



U.S. Federal Income Tax Considerations



The following discussion
is a summary of material U.S. federal income tax consequences to U.S. Holders described herein of owning and disposing of common
shares or ADSs, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant
to a particular person’s decision to hold such securities. The discussion applies only to the U.S. Holders described below
that hold common shares or ADSs as capital assets for U.S. federal tax purposes and does not address all of the tax consequences
applicable to all categories of investors, some of which may be subject to special rules, such as:



| | · | certain financial institutions;
| | - | -------------------------------



| | · | dealers or traders in securities who use a mark-to-market method of tax accounting;
| | - | -----------------------------------------------------------------------------------



| | · | persons holding common shares or ADSs as part of a hedging transaction, straddle, wash sale, conversion
transaction or integrated transaction or persons entering into a constructive sale with respect to the common shares or ADSs;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
| | - | ----------------------------------------------------------------------------------------------



| | · | entities classified as partnerships for U.S. federal income tax purposes;
| | - | -------------------------------------------------------------------------



| | · | persons liable for the alternative minimum tax;
| | - | -----------------------------------------------



| | · | tax-exempt entities, including “individual retirement accounts” or “Roth IRAs;”
| | - | -------------------------------------------------------------------------------



| | · | persons that own or are deemed to own ten percent or more of our stock (by vote or value);
| | - | ------------------------------------------------------------------------------------------



| | · | persons who acquired our ADSs or common shares pursuant to the exercise of any employee stock option
or otherwise as compensation; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | · | persons holding our ADSs or common shares in connection with a trade or business conducted outside
of the United States.
| | - | ------------------------------------------------------------------------------------------------------------------------



If an entity that
is classified as a partnership for U.S. federal income tax purposes holds common shares or ADSs, the U.S. federal income tax treatment
of a partner will generally depend on the status of the partner and upon the activities of the partnership. Partnerships holding
common shares or ADSs and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income
tax consequences of holding and disposing of common shares or ADSs.



This discussion is
based on the Internal Revenue Code of 1986, as amended, or the Code, administrative pronouncements, judicial decisions and final,
temporary and proposed Treasury regulations, all as of the date hereof, any of which is subject to change, possibly with retroactive
effect. It is also based in part on representations by the depositary and assumes that each obligation under the deposit agreement
and any related agreement will be performed in accordance with its terms.



You are a “U.S.
Holder” if you are a beneficial owner of our common shares or ADSs and if you are, for U.S. federal income tax purposes:



| | · | a citizen or individual resident of the United States;
| | - | ------------------------------------------------------



| | · | a corporation, or other entity taxable as a corporation, created or organized in or under the laws
of the United States, any state therein or the District of Columbia; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an estate or trust the income of which is subject to U.S. federal income taxation regardless of
its source.
| | - | -----------------------------------------------------------------------------------------------------------



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The summary of
U.S. federal income tax consequences set out below is intended for general informational purposes only. You should consult your
advisers with respect to the particular tax consequences to you of owning or disposing of common shares or ADSs, including the
applicability and effect of state, local, non-U.S. and other tax laws and the possibility of changes in tax laws.



In general, if you
own ADSs, you will be treated as the owner of the underlying shares represented by those ADSs for U.S. federal income tax purposes.
Accordingly, no gain or loss will be recognized if you exchange ADSs for the underlying shares represented by those ADSs.



The U.S. Treasury
has expressed concerns that parties to whom American depositary shares are released before shares are delivered to the depositary
(“pre-release”) or intermediaries in the chain of ownership between U.S. Holders and the issuer of the security underlying
the American depositary shares may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders
of American depositary shares. Such actions would also be inconsistent with the claiming of the reduced rate of tax, described
below, applicable to dividends received by certain non-corporate holders. Accordingly, the creditability of Brazilian taxes, and
the availability of the reduced tax rate for dividends received by certain non-corporate holders, each described below, could be
affected by actions taken by such parties or intermediaries.



Please consult your
tax adviser concerning the U.S. federal, state, local and foreign tax consequences of purchasing, owning and disposing of common
shares or ADSs in your particular circumstances.



Except as discussed
below under “—Passive Foreign Investment Company Rules,” this discussion assumes that the Company will not be
a passive foreign investment company, or “PFIC,” for U.S. federal income tax purposes for any taxable year.



Taxation of Distributions



Distributions paid
on ADSs or common shares (including any amounts that are treated as interest on shareholders’ equity for Brazilian tax purposes
and any Brazilian withholding taxes deducted from distributions), other than certain pro rata distributions of ordinary
shares, will generally be treated as dividends to the extent paid out of the Company’s current or accumulated earnings and
profits as determined under U.S. federal income tax principles. Because the Company does not maintain calculations of its earnings
and profits under U.S. federal income tax principles, it is expected that distributions will generally be reported to you as dividends.



Subject to applicable
limitations and the discussion above regarding concerns expressed by the U.S. Treasury, dividends paid by “qualified foreign
corporations” to certain non-corporate U.S. Holders may be taxable at rates applicable to long-term capital gains. A foreign
corporation is treated as a qualified foreign corporation with respect to dividends paid on stock that is readily tradable on a
securities market in the United States. You should consult your tax adviser to determine whether the favorable rate will apply
to dividends you receive and whether you are subject to any special rules that limit your ability to be taxed at this favorable
rate.



The amount of a dividend
will include any amounts withheld by the Company in respect of Brazilian taxes on the distribution. The amount of the dividend
will be treated as foreign-source dividend income to you and will not be eligible for the dividends-received deduction generally
available to U.S. corporations under the Code. Dividends will be included in your income on the date of your, or in the case of
ADSs, the depositary’s, receipt of the dividend. The amount of any dividend income paid in reais will be the U.S.
dollar amount calculated by reference to the exchange rate in effect on the date of such receipt, regardless of whether the payment
is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, you should not be
required to recognize foreign currency gain or loss in respect of the dividend income. You may have foreign currency gain or loss
if the amount of such dividend is converted into U.S. dollars after the date of such receipt. See also “—Brazilian
Tax Considerations—Tax on Foreign Exchange and Financial Transactions.”



Subject to applicable
limitations that may vary depending upon your circumstances and subject to the discussion above regarding concerns expressed by
the U.S. Treasury, Brazilian income taxes withheld from dividends on common shares or ADSs will be creditable against your U.S.
federal income tax liability. The rules governing foreign tax credits are complex, and you should consult your tax adviser regarding
the availability of foreign tax credits in your particular circumstances. Instead of claiming a credit, you may, at your election,
deduct foreign taxes, including Brazilian taxes in computing your taxable income, subject to generally applicable limitations under
U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued
in the relevant taxable year.



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Sale or Other Disposition
of Common Shares or ADSs



For U.S. federal income
tax purposes, gain or loss you realize on the sale or other disposition of common shares or ADSs will be capital gain or loss,
and will be long-term capital gain or loss if you have held the common shares or ADSs for more than one year. Long-term capital
gains of non-corporate U.S. Holders (including individuals) are eligible for reduced rates of taxation. The deductibility of capital
losses is subject to limitations.



The amount of your
gain or loss will equal the difference between the amount realized on the disposition and your tax basis in the common shares or
ADSs disposed of, in each case as determined in U.S. dollars. If a Brazilian tax is withheld on the sale or disposition of common
shares or ADSs, your amount realized will include the gross amount of the proceeds of such sale or disposition before deduction
of the Brazilian tax. See “—Brazilian Tax Considerations—Gains” for a description of when a disposition
may be subject to taxation by Brazil. Such gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.
Consequently, you will not be able to credit any Brazilian income tax imposed on such gains against your U.S. federal income tax
liability unless you have other creditable taxable income from foreign sources in the appropriate foreign tax credit basket. You
should consult your tax adviser as to whether the Brazilian tax on gains would be creditable against your U.S. federal income tax
on foreign-source income from other sources.



Other Brazilian Taxes



Any Brazilian IOF/Bond
Tax and the IOF/Exchange Tax imposed on the deposit of common shares in exchange for ADSs and the cancellation of ADSs in exchange
for common shares (as discussed above under “—Brazilian Tax Considerations—Tax on Foreign Exchange and Financial
Transactions”) will not be treated as creditable foreign taxes for U.S. federal income tax purposes. U.S. Holders should
consult their tax advisers regarding the treatment of these taxes for U.S. federal income tax purposes.



Passive Foreign Investment
Company Rules



In general, a non-U.S.
corporation is a PFIC for any taxable year if: (1) 75% or more of its gross income consists of passive income (the “income
test”) or (2) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the
production of, passive income (including cash and cash equivalents). Generally, “passive income” includes interest,
dividends, rents, royalties and certain gains. For purposes of the above calculations, a non-U.S. corporation that directly or
indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of
the assets of the other corporation and received directly its proportionate share of the income of the other corporation. The Company
believes that it was not a PFIC for U.S. federal income tax purposes for its 2017 taxable year. However, because the Company’s
PFIC status is an annual determination that can be made only after the end of each taxable year and will depend on the composition
of its income and assets for each such year, there can be no assurance that the Company will not be a PFIC for the current or any
other taxable year. The Company may become a PFIC for any future taxable year if its financial income exceeds its gross loss or
constitutes 75% or more of its gross profit for such year.



If the Company were
a PFIC for any taxable year during which a U.S. Holder held common shares or ADSs, gain recognized by a U.S. Holder on a sale or
other disposition (including, under certain circumstances, a pledge) of the common shares or ADSs would be allocated ratably over
the U.S. Holder’s holding period for the common shares or ADSs. The amounts allocated to the taxable year of the sale or
other disposition and to any year before the Company became a PFIC would be taxed as ordinary income. The amount allocated to each
other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that
taxable year, and an interest charge would be imposed on the tax on the amount allocated to that taxable year. Further, to the
extent that any distribution received by a U.S. Holder on its common shares or ADSs exceeds 125% of the average of the annual distributions
on common shares or ADSs received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter,
that distribution would be subject to taxation in the same manner as gain, described immediately above. Certain elections may be
available that would result in alternative treatments (such as mark-to-market treatment) of the common shares or ADSs. If we are
a PFIC for any taxable year during which a U.S. Holder owned our shares, the U.S. Holder will generally be required to file Internal
Revenue Service Form 8621 with their annual U.S. federal income tax returns, subject to certain exceptions. You should consult
your tax adviser to determine whether any of these elections would be available and, if so, what the consequences of the alternative
treatments would be in your particular circumstances.



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Information Reporting
and Backup Withholding



Payments of dividends
and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are
subject to information reporting and may be subject to backup withholding unless (1) you are a corporation or other exempt recipient
or (2) in the case of backup withholding, you provide a correct taxpayer identification number and certify that you are not subject
to backup withholding.



The amount of any
backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle
you to a refund, provided that the required information is timely furnished to the Internal Revenue Service.



Certain U.S. Holders
who are individuals (and certain specified entities) may be required to report information relating to their ownership of securities
of a non-U.S. person, subject to certain exceptions including an exception for securities held in certain accounts maintained by
U.S. financial institutions, such as our ADSs. You should consult your tax adviser regarding the effect, if any, of these rules
on your ownership and disposition of common shares or ADSs.



U.S. HOLDERS OF OUR
COMMON SHARES OR ADSs SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE BRAZILIAN, U.S. FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES
OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON SHARES OR ADSs BASED UPON THEIR PARTICULAR CIRCUMSTANCES.



| | F. | Dividends and Paying Agents
| | -- | ---------------------------



Not applicable.



| | G. | Statement by Experts
| | -- | --------------------



Not applicable.



| | H. | Documents on Display
| | -- | --------------------



Statements contained
in this annual report as to the contents of any contract or other document referred to are not necessarily complete, and each
of these statements is qualified in all respects by reference to the full text of such contract or other document filed as an
exhibit hereto. A copy of the complete annual report including the exhibits and schedules filed herewith may be inspected without
charge at the public reference facilities maintained by the SEC at Room 1024, 100 F Street, N.E., Washington, D.C. 20549. Copies
of such materials may be obtained by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549,
at prescribed rates. In addition the SEC maintains a website that contains information filed electronically with the SEC, which
can be accessed over the Internet at http://www.sec.gov.



We are subject to
the information and periodic reporting requirements of the Securities Exchange Act and, in accordance therewith, file periodic
reports and other information with the SEC. However, as a foreign private issuer, we are exempt from the rules under the Securities
Exchange Act relating to the furnishing and content of proxy statements and relating to short-swing profits reporting and liability.



We furnish to Citibank,
N.A., as depositary, copies of all reports we are required to file with the SEC under the Securities Exchange Act, including our
annual reports in English, containing a brief description of our operations and our audited annual consolidated financial statements
which are prepared in accordance with Brazilian GAAP and include a reconciliation to U.S. GAAP. In addition, we are required under
the deposit agreement to furnish the depositary with copies of English translations to the extent required under the rules of the
SEC of all notices of meetings of shareholders and other reports and communications that are generally made available to shareholders.
Under certain circumstances, the depositary will arrange for the mailing, at our expense, of these notices, other reports and communications
to all ADS holders.



We also file financial
statements and other periodic reports with the CVM, which are available to the public from CVM’s website at http://www.cvm.gov.br.



| | I. | Subsidiary Information
| | -- | ----------------------



Not applicable.



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ITEM 11. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK



We are exposed to
market risks arising from the normal course of our business. These market risks mainly involve the possibility that changes in
interest rates may impact the value of our financial liabilities. See “Item 3. Key Information—D. Risk Factors—Risks
Relating to Brazil.”



Interest rates



Our results of operations
and profitability are affected by changes in interest rates due to the impact that these changes have on our interest expenses
relating to our variable interest rate debt instruments and on our purchase and sale contracts and on our interest income generated
from our financial investments.



The table below provides
information about our significant interest rate-sensitive instruments (fixed and variable) as of December 31, 2018:



|                                                |  | As of December 31, 2018                           
|----------------------------------------------- |  | --------------------------------------------------
|                                                |  | Expected Maturity Date                            
|                                                |  | Total (3)                                         
|                                                |  | (in millions of reais, unless otherwise indicated)
|Liabilities:                                    |  |                                                   
|Loans, financing and debentures:                |  |                                                   
|Debentures                                      |  |                                                   
|Average interest rate                           |  |                                                   
|Loans and financing (working capital)           |  |                                                   
|Average interest rate                           |  |                                                   
|Loans and financing — SFH                       |  |                                                   
|Average interest rate                           |  |                                                   
|Total loans, financing and debentures           |  |                                                   
|Derivative financial instruments                |  |                                                   
|Real estate development obligations(2)          |  |                                                   
|Obligations for purchase of land                |  |                                                   
|Total                                           |  |                                                   
|Assets:                                         |  |                                                   
|Cash and cash equivalent                        |  |                                                   
|Marketable securities (current and non-current) |  |                                                   
|Receivables from clients                        |  |                                                   
|Receivables from clients (2)                    |  |                                                   
|Total client receivables                        |  |                                                   
|Total                                           |  |                                                   




| | (1) | See Notes 12 and 13 to our consolidated financial statements for information about the interest
rates on our loans, financing and debentures. As of December 31, 2018, the annualized index was 6.4% for CDI, 0% for TR, 3.84%
for INCC, 3.75% for IPCA and 7.55% for IGPM.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Includes commitments and receivables arising from units sold after January 1, 2004 for which balances
have not been recorded in our balance sheet—CFC Resolution No. 963.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | This amount relates to the Gafisa segment only, since Tenda’s results of operations have
been presented as discontinued operations in our consolidated financial statements as of December 31, 2016 and since Tenda was
spun-off on May 4, 2017.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We borrow funds at
different rates and linked to different indices in order to try to match the financing that we provide to some of our clients.
The mismatch between rates and terms on our funds borrowed and the financing we provide may adversely affect our cash flow. We
constantly monitor and evaluate the impact of indexation on our assets and liabilities. If we anticipate the possibility of an
interest rate mismatch between our assets and obligations, we may use derivative financial instruments in order to hedge against
the risk that arises from interest rate variations.



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Foreign Exchange
Rate



During 2018, we had
no derivative financial instruments with the objective of hedging against fluctuations in foreign exchange rates. As of December
31, 2018, we had no debt in foreign currency.



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ITEM 12. DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES



| | D. | American Depositary Shares
| | -- | --------------------------



Depositary Fees



We and the holders
and beneficial owners of our ADSs and the person depositing our common shares or surrendering ADSs for cancellation are responsible
for the following fees of the depositary:



|Service                                                                                                                                         | Rate                                                     | Paid
        By                                                                                                                                                                               
|----------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Issuance of ADSs upon deposit of Shares (excluding issuances as a result of distributions described in paragraph (4) below).                    | Up to US$5.00 per 100 ADSs (or fraction thereof) issued. | Person depositing our common shares or person receiving ADSs.                                                                                                                                 
|Delivery of common shares deposited under our deposit agreement against surrender of ADSs.                                                      | Up to US$5.00 per 100 ADSs (or fraction thereof) issued. | Person surrendering ADSs for purpose of withdrawal of common shares deposited under our deposit agreement or person to whom common shares deposited under our deposit agreement are delivered.
|Distribution of cash dividends or other cash distributions (i.e., sale of rights and other entitlements).                                       | Up to US$2.00 per 100 ADSs (or fraction thereof) held.   | Person to whom distribution is made.                                                                                                                                                          
|Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs. | Up to US$2.00 per 100 ADSs (or fraction thereof) held.   | Person to whom distribution is made.                                                                                                                                                          
|Distribution of securities other than ADSs or rights to purchase additional ADSs (i.e., spin-off shares).                                       | Up to US$2.00 per 100 ADSs (or fraction thereof) held.   | Person to whom distribution is made.                                                                                                                                                          
|Depositary services                                                                                                                             | Up to US$4.00 per 100 ADSs (or fraction thereof) held.   | Person holding ADSs on applicable record date(s) established by the depositary.                                                                                                               
|Transfer of ADRs                                                                                                                                | US$1.50 per certificate presented for transfer.          | Person presenting certificate for transfer.                                                                                                                                                   



The depositary may
deduct applicable depositary fees from the funds being distributed in the case of cash distributions. For distributions other than
cash, the depositary will invoice the amount of the applicable depositary fees to the applicable holders.



Additional Charges



Holders and beneficial
owners of our ADSs and person depositing our common shares for deposit and person surrendering ADSs for cancellation and withdrawal
of our common shares will be required to pay the following charges:



| | · | taxes (including applicable interest and penalties) and other governmental charges;
| | - | -----------------------------------------------------------------------------------



| | · | such registration fees as may from time to time be in effect for the registration of our common
shares or other common shares deposited under our deposit agreement on the share register and applicable to transfers of our common
shares or other common shares deposited under our deposit agreement to or from the name of the custodian, the depositary or any
nominees upon the making of deposits and withdrawals, respectively;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | such cable, telex and facsimile transmission and delivery expenses as are expressly provided in
the deposit agreement to be at the expense of the person depositing or withdrawing our common shares or holders and beneficial
owners of ADSs;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the expenses and charges incurred by the depositary in the conversion of foreign currency;
| | - | ------------------------------------------------------------------------------------------



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| | · | such fees and expenses as are incurred by the depositary in connection with compliance with exchange
control regulations and other regulatory requirements applicable to our common shares, common shares deposited under our deposit
agreement, ADSs and ADRs; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the fees and expenses incurred by the depositary, the custodian or any nominee in connection with
the servicing or delivery of common shares deposited under our deposit agreement.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Direct and Indirect
Payments



Citibank N.A., located
at 388 Greenwich Ave., New York, NY 10013, as depositary, has agreed to reimburse certain of our reasonable expenses related to
our ADR program and incurred by us in connection with the program. As of December 31, 2018, we received from the depositary of
our ADSs US$80,000, which was used for general corporate purposes such as the payment of costs and expenses associated with (1)
the preparation and distribution of proxy materials, (2) the preparation and distribution of marketing materials and (3) consulting
and other services related to investor relations.



PART II



ITEM 13. DEFAULTS, DIVIDEND ARREARAGES
AND DELINQUENCIES



None.



ITEM 14. MATERIAL MODIFICATIONS TO
THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS



None.



ITEM 15. CONTROLS AND PROCEDURES



Our management has
identified material weaknesses in our internal control over financial reporting, which we describe in the “Management’s
Annual Report on Internal Control over Financial Reporting”. In addition, our management has analyzed these material weaknesses
and concluded that our consolidated financial statements fairly present, in all material respects, our financial condition, results
of operations and cash flows at and for the periods presented, and the impact of all facts known to our management to date has
been reflected in the consolidated financial statements.



(a) Evaluation of
Disclosure Controls and Procedures



Our management, including
our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures
as of December 31, 2018. Based upon our evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that
as a result of the material weaknesses in our internal control over financial reporting described below, as of December 31, 2018
our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including
our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.



(b) Management’s
Annual Report on Internal Control over Financial Reporting



The management of
the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule
13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as a process designed by, or under the supervision
of, the Company’s Chief Executive Officer and Chief Financial Officer and effected by the Company’s Board of Directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting, and the preparation
of financial statements for external purposes in conformity with Brazilian GAAP, including the reconciliation to U.S. GAAP in accordance
with Item 18 of Form 20-F.



Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations
of effectiveness to future periods are subject to the risk that the



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controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Material Weaknesses in Internal Control over Financial Reporting



A material weakness is a deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s
annual or interim consolidated financial statements will not be prevented or detected on a timely basis. During our assessment
of internal control over financial reporting as of December 31, 2018, we identified the material weaknesses described below.



Internal Audit function: Monitoring
controls, as the Company did not maintain at year-end an internal audit function enough to monitor control activities
and to execute timely the management’s self-assessment over internal control in order to evaluate the effectiveness of ICFR as
required by Section 404 of the Sarbanes-Oxley Act of 2002.



Loan and Financing agreements:
Monitoring controls, as the Company breached certain contractual terms in loan and financing agreements because the Company's controls
did not designed to prevent and detect situations such that the management should have obtained from lenders their consent before
some situations have happened such: modification in the Company's controlling shareholders and disposal of some receivables previously
already given provided as guarantee to financial institutions. These events cause the possibility of acceleration of some debts.



The accuracy and completeness of
information about contingent liabilities: Monitoring controls, as the Company did not maintain controls to ensure the accuracy
and completeness of information about contingent liabilities. Specifically, the Company did not design or implement controls necessary
to monitor the effectiveness controls relating to compliance with Company policies and procedures for evaluating the measure provisions
related with the existent claims against the Company. A substantial portion of judicial and administrative law proceedings were
under responsibility of outsourced legal lawyers for which we would not have done enough provisions.



Information Technology (“IT”):
Monitoring controls, as the Company did not maintain controls related to operation of information technology (“IT”)
general controls in the areas of access security, program change management and computer operations (“IT General Controls”).
The deficiencies in IT General Controls also resulted in a conclusion that manual controls that rely on data produced by and maintained
within these affected IT system applications and automated controls within these affected IT system applications were ineffective.



The material weaknesses did not result in any identified misstatements
in the current period consolidated financial statements, nor in any restatements of consolidated financial statements previously
reported by the Company, and there were no changes in previously released financial results. We have begun to develop remediation
plans for these material weaknesses which are described below under “Remediation Efforts”.



Remediation Efforts



Our management has been actively engaged in the design and implementation
of remediation efforts to address the identified material weakness, as well as other identified areas of risk.



The remediation efforts outlined below, which are in the process
of implementation, are intended to address both the identified material weakness and related areas. The design and implementation
of these and other remedial efforts are the responsibility of our management.



Internal Audit function: The management reinforces its
commitment to maintain an internal audit area by contracting a new manager for the area in February 2019, and in parallel a number
of steps have been taken in order to restructure the area, increasing governance staffing for Internal Controls, Risks Management,
Compliance and Internal Audit areas and resources in accordance with program benchmarking. The Internal Audit area remains as responsible
for an independent and objective evaluation of processes, risks management, check compliance with policies and procedures and verification
of controls effectiveness and efficiency.



Loan and Financing agreements:
Focusing on improving its procedures on restrictive clauses in financing contracts and on mitigating similar situations, the management
informs that it will reinforce several procedures, such as: (i) Directives stipulated in the contrac will be regularly
monitored and checked with control reports (ii) On a regular basis the position of the financing agreements will be presented in
an internal committee in order to evaluate their position and define strategies for future actions.



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The accuracy and completeness of
information about contingent liabilities: the management hired the services of a specialized company to assist in the management
of its legal processes to reconcile any discrepant information. This movement also includes the orientation of all service provider
offices, including new ones that have assumed substantial portfolios, in order to reinforce the need for all actions accompanied
by them to be evaluated in a timely manner in order to corroborate the integrity of the data used for the evaluation of their contingencies.



Information Technology (“IT”): Our management
is concentrating its efforts on the redesign of the general information technology environment controls and the business processes
of the ERP system in order to meet its current restructuring process, but also believes that we present a structured model of Governance
and Risk tools in operation. We are implementing the following additional measures in response to user management and access rights:



| | · | Improved automated rules related to access management;
| | - | ------------------------------------------------------



| | · | Strengthening our internal controls on access to critical ERP functions and segregation of duties in ERP transactions through
measures developed by management. The objective is to improve these activities together with the responsible managers in each macroprocess
of our business; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Enhancement of our compensatory controls related to segregation of duties in ERP transactions and to the expansion of the set
of monitors and their respective automated reports already developed and used to identify, monitor and treat any conflict that
materializes, expanding them where there is a risk and the occurrence of technically justifiable conflicts.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(c) Attestation
Report of Independent Registered Public Accounting Firm



The effectiveness
of internal control over financial reporting as of December 31, 2018, has been audited by BDO RCS Auditores Independentes SS an
independent registered public accounting firm, as stated in its report which is included under Item 18 in this annual report on
Form 20-F on pages F-3 and F-4.



(d) Changes in Internal
Control over Financial Reporting



The remediation activities
described above are changes in internal control over financial reporting during the year ended December 31, 2018 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



ITEM 16. RESERVED



ITEM 16A. AUDIT COMMITTEE FINANCIAL
EXPERT



For the purposes of
the Sarbanes-Oxley Act of 2002, our directors established an Audit Committee that convenes as often as it determines is appropriate
to carry out its responsibilities, but at least quarterly. This committee has responsibility for planning and reviewing our annual
and quarterly reports and accounts with the involvement of our auditors in that process, focusing particularly on compliance with
legal requirements and accounting standards, and ensuring that an effective system of internal financial controls is maintained.
The ultimate responsibility for reviewing and approving our annual and quarterly reports and accounts remains with our directors.



The Audit Committee
convened 7 times in 2018. The Audit Committee currently comprises 3 members, one of whom is an independent director of our company,
and the other two are independent members. Our board of directors has determined that 3 are each independent for the purpose of
Rule 10A-3 of the Securities Exchange Act. Our board of directors has determined that Gilberto Braga is an audit committee financial
expert within the meaning of the regulations promulgated by the Securities and Exchange Commission.



ITEM 16B. CODE OF BUSINESS CONDUCT
AND ETHICS



On July 10, 2007,
we adopted a Code of Business Conduct and Ethics (The Code) that applies to our chief executive officer, chief financial officer,
principal accounting officer and persons performing similar functions, as well as to our directors, other officers and employees.
The objective of this code is (1) to reduce the subjectivity of personal interpretations of ethical principles; (2) to be a formal
and institutional benchmark for the professional conduct of the employees, including the ethical handling of actual or apparent
conflicts of interests, becoming a standard for the internal and external relationship of the Company with its shareholders, clients,
employees, partners, suppliers, service providers, labor unions, competitors, society, government and the communities in which
we operate; and (3) to ensure that the daily concerns with efficiency, competitiveness and profitability do not override ethical
behavior.



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The Code is regularly
reviewed and updated, in order to address international and local requirements regarding ethics on business, conflict of interests,
disclosure of information and anti-corruption procedures.



The Code can be obtained
from our website (www.gafisa.com.br) or free of charge by requesting a copy from our Investor Relations Department at the following
address: Av. Pres. Juscelino Kubitschek, No. 1830, Block 2, 3rd Floor, 04543-900 – São Paulo, SP – Brazil, telephone
55-11-3025-9242, fax 55-11-3025-9348 and e-mail ri@gafisa.com.br.



In July 2007, we established
a “whistleblower channel” in order to receive “complaints,” by any person regarding any “unethical
conduct” and “accounting, internal accounting controls, or auditing matters”. The complaints can be submitted
confidentially and anonymously at the whistleblower’s discretion. The “whistleblower channel” can be accessed
through our intranet, website, specific phone number or a letter that may be forwarded to our headquarters to the attention of
our Ethics Committee and/or Audit Committee. Since its establishment, 782 issues were reported through our “whistleblower
channel”, all of which related to personal conduct and information leaks and, therefore, without any financial impact on
our results of operations.



In January 2014, we
established a compliance and ethics program in order to help prevent, detect, rectify and report potential misconduct, including
violations of the Foreign Corrupt Practices Act and Brazilian anti-corruption legislation (pursuant to Brazilian Law No. 12,846).
This program comprises extensive risk assessment of our operations, ongoing training and advice to employees, incentives and disciplinary
measures, and third party due diligence.



ITEM 16C. PRINCIPAL ACCOUNTANT FEES
AND SERVICES



The relationship with
our independent auditors in respect to the contracting of services unrelated to the external audit is based on principles that
preserve the independence of the auditor. Our board of directors approves our financial statements, the performance by our auditors
of audit and permissible non-audit services, and associated fees, supported by our Audit Committee.



The following table
describes the total amount billed to us by BDO RCS Auditores Independentes SS (“BDO”), PricewaterhouseCoopers (“PwC”)
and KPMG Auditores Independentes (“KPMG”) for services performed in 2018 and 2017, and the remuneration for these services
in each year.



|                       |  | 2018                    |       | 2017
|---------------------- |  | ----------------------- | ----- | ----
|                       |  | (in thousands of reais)
|Audit fees (1)         |  |                         | 3,234 |     
|Audit related fees (2) |  |                         | —     |     
|Tax fees (3)           |  |                         | —     |     
|Total                  |  |                         | 3,234 |     




| | (1) | “Audit fees” are the aggregate fees billed by BDO, PwC and KPMG for the audit of our
consolidated and annual financial statements including the audit of internal control over financial reporting, reviews of interim
financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | There were no “audit related fees” billed by BDO, PwC and KPMG during 2018 or 2017.
| | --- | -----------------------------------------------------------------------------------



| | (3) | There were no “Tax fees” billed by BDO, PwC and KPMG during 2018 or 2017.
| | --- | -------------------------------------------------------------------------



Audit Committee
Pre-Approval Policies and Procedures



Our board of directors
has established pre-approval policies and procedures for the engagement of registered public accounting firm for audit and non-audit
services. Under such pre-approval policies and procedures, our board of directors reviews the scope of the services to be provided
by each registered public accounting firm to be engaged in order to ensure that there are no independence issues and the services
are not prohibited services as defined by Sarbanes-Oxley Act of 2002.



ITEM 16D. EXEMPTIONS FROM THE LISTING
STANDARDS FOR AUDIT COMMITTEES



None.



137


Table of Contents


ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER
AND AFFILIATED PURCHASERS



None.



ITEM 16F. CHANGE IN REGISTRANT’S
CERTIFYING ACCOUNTANT



On March 9, 2018,
Gafisa disclosed the replacement of KPMG Auditores Independentes public accountants as its independent registered public accounting
firm, following CVM requirements to replace independent accounting firms no longer than five years, effective on April 28, 2018.



The reports of KPMG
Auditores Independentes on the consolidated financial statements for the past two fiscal years contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle.



During the two most recent fiscal years,
there have been no disagreements with KPMG Auditores Independentes on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of KPMG Auditores
Independentes would have caused them to make reference thereto in their reports on the financial statements for such years.



During the two most recent fiscal years,
there have been no reportable events (as defined in Item 16(a)(1)(v) of this annual report).



Gafisa requested that KPMG Auditores Independentes
furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. That letter is included
as Exhibit 15.1 to this annual report.



New independent registered public accounting firm



Gafisa engaged BDO
RCS Auditores Independentes SS public accountants as its new independent registered public accounting firm as of December 3, 2018.
During the two most recent fiscal years and through December 3, 2018, Gafisa has not consulted with BDO regarding either (i) the
application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that
might be rendered on Gafisa's financial statements, and neither a written report was provided to Gafisa or oral advice was provided
that BDO concluded was an important factor considered by Gafisa in reaching a decision as to the accounting, auditing or financial
reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv)
of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in
Item 304(a)(I)(v) of Regulation S-K.



ITEM 16G. CORPORATE GOVERNANCE



See “Item 6.
Directors, Senior Management and Employees—C. Board Practices.”



ITEM 16H. MINE SAFETY DISCLOSURE



Not applicable.



138


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PART III



ITEM 17. FINANCIAL STATEMENTS



We have responded
to Item 18, in lieu of reporting to this Item.



ITEM 18. FINANCIAL STATEMENTS



See our audited consolidated
financial statements beginning on page F-1.



ITEM 19. EXHIBITS



We are filing the
following documents as part of this Annual Report Form 20-F:





1.1.  Bylaws of Gafisa S.A., as amended (English), which is incorporated by reference to Exhibit 1.1 to our annual report on Form 20-F for the year ended December 31, 2010, filed with the Securities and Exchange Commission on July 5, 2012.



2.1.  Deposit Agreement dated March 21, 2007, among Gafisa S.A., Citibank, N.A., as depositary, and the Holders and Beneficial Owners from time to time of American Depositary Shares issued thereunder, which is incorporated by reference to Exhibit 99(a) to our registration statement on Form F-6 filed with the Securities and Exchange Commission on February 22, 2007.



4.1.  Merger of shares agreement dated November 9, 2009 between Gafisa S.A. and Construtora Tenda S.A., which is incorporated by reference to Exhibit 2.1 to our registration statement on Form F-4 filed with the Securities and Exchange Commission on November 13, 2009.



8.1.  List of Subsidiaries*



11.1.  Code of Business Conduct and Ethics (English), which is incorporated by reference to Exhibit 11. 1 to our annual report on Form 20-F for the year ended December 31, 2007 filed with the Securities and Exchange Commission on June 18, 2008.



12.1.  Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer*



12.2.  Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer*



13.1.  Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer*



13.2.  Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer*



15.1   Letter from KPMG*












* Filed herewith.







139


Table of Contents


SIGNATURES



Pursuant to the requirements
of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all requirements for filing on Form
20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.



| | GAFISA S.A. |                
| | ----------- | ---------------
| |             |                
| |             |                
| | By:         | /s/ Saulo Nunes
| |             | Name:          
| |             | Title:         
| |             |                
| |             |                

| | By: | /s/ Andre Luis Ackermann |                        
| | --- | ------------------------ | -----------------------
| |     | Name:                    | Andre Luis Ackermann   
| |     | Title:                   | Chief Financial Officer



Date: November 11, 2019






Table of Contents
















| | Gafisa
S.A.



Consolidated
Financial Statements



December
31, 2018 and report of independent
registered public accounting firm
| | ---------------------------------------------------------------------------------------------------------------------------------




















Table of Contents








Gafisa S.A.



Financial Statements



December 31, 2018





Table of contents









|Management’s Annual Report on Internal Controls over Financial Reporting | F-1 
|------------------------------------------------------------------------ | ----
|Report of Independent Registered Public Accounting Firm                  | F-3 
|Report of Independent Registered Public Accounting Firm (KPMG)           | F-6 
|Consolidated balance sheets                                              | F-7 
|Consolidated statements of profit or loss                                | F-9 
|Consolidated statements of comprehensive income (loss)                   | F-10
|Consolidated statements of changes in equity                             | F-11
|Consolidated statements of cash flows                                    | F-12
|Consolidated statements of value added                                   | F-13
|Notes to the consolidated financial statements                           | F-14












Table of Contents


Management’s Annual Report on Internal Controls over
Financial Reporting



The management of the
Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule
13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as a process designed by, or under the supervision
of, the Company’s Chief Executive Officer and Chief Financial Officer and effected by the Company’s Board of Directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting, and the preparation
of financial statements for external purposes in conformity with Brazilian GAAP, including the reconciliation to U.S. GAAP in accordance
with Item 18 of Form 20-F.



Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations
of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.



Material Weaknesses in Internal Control over Financial Reporting



A material weakness is a deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s
annual or interim consolidated financial statements will not be prevented or detected on a timely basis. During our assessment
of internal control over financial reporting as of December 31, 2018, we identified the material weaknesses described below.



Internal Audit function: Monitoring
controls, as the Company did not maintain at year-end an internal audit function enough to monitor control activities
and to execute timely the management’s self-assessment over internal control in order to evaluate the effectiveness of ICFR as
required by Section 404 of the Sarbanes-Oxley Act of 2002.



Loan and Financing agreements:
Monitoring controls, as the Company breached certain contractual terms in loan and financing agreements because the Company's controls
did not designed to prevent and detect situations such that the management should have obtained from lenders their consent before
some situations have happened such: modification in the Company's controlling shareholders and disposal of some receivables previously
already given provided as guarantee to financial institutions. These events cause the possibility of acceleration of some debts.



The accuracy and completeness of
information about contingent liabilities: Monitoring controls, as the Company did not maintain controls to ensure the accuracy
and completeness of information about contingent liabilities. Specifically, the Company did not design or implement controls necessary
to monitor the effectiveness controls relating to compliance with Company policies and procedures for evaluating the measure provisions
related with the existent claims against the Company. A substantial portion of judicial and administrative law proceedings were
under responsibility of outsourced legal lawyers for which we would not have done enough provisions.



Information Technology (“IT”):
Monitoring controls, as the Company did not maintain controls related to operation of information technology (“IT”)
general controls in the areas of access security, program change management and computer operations (“IT General Controls”).
The deficiencies in IT General Controls also resulted in a conclusion that manual controls that rely on data produced by and maintained
within these affected IT system applications and automated controls within these affected IT system applications were ineffective.



The material weaknesses did not result in any identified misstatements
in the current period consolidated financial statements, nor in any restatements of consolidated financial statements previously
reported by the Company, and there were no changes in previously released financial results. We have begun to develop remediation
plans for these material weaknesses which are described below under “Remediation Efforts”.





F-1


Table of Contents




Remediation Efforts



Our management has been actively engaged in the design and implementation
of remediation efforts to address the identified material weakness, as well as other identified areas of risk.



The remediation efforts outlined below, which are in the process
of implementation, are intended to address both the identified material weakness and related areas. The design and implementation
of these and other remedial efforts are the responsibility of our management.



Internal Audit function: The management reinforces its
commitment to maintain an internal audit area by contracting a new manager for the area in February 2019, and in parallel a number
of steps have been taken in order to restructure the area, increasing governance staffing for Internal Controls, Risks Management,
Compliance and Internal Audit areas and resources in accordance with program benchmarking. The Internal Audit area remains as responsible
for an independent and objective evaluation of processes, risks management, check compliance with policies and procedures and verification
of controls effectiveness and efficiency.



Loan and Financing agreements:
Focusing on improving its procedures on restrictive clauses in financing contracts and on mitigating similar situations, the management
informs that it will reinforce several procedures, such as: (i) Directives stipulated in the contrac will be regularly
monitored and checked with control reports (ii) On a regular basis the position of the financing agreements will be presented in
an internal committee in order to evaluate their position and define strategies for future actions



The accuracy and completeness of
information about contingent liabilities: the management hired the services of a specialized company to assist in the management
of its legal processes to reconcile any discrepant information. This movement also includes the orientation of all service provider
offices, including new ones that have assumed substantial portfolios, in order to reinforce the need for all actions accompanied
by them to be evaluated in a timely manner in order to corroborate the integrity of the data used for the evaluation of their contingencies



Information Technology (“IT”): Our management
is concentrating its efforts on the redesign of the general information technology environment controls and the business processes
of the ERP system in order to meet its current restructuring process, but also believes that we present a structured model of Governance
and Risk tools in operation. We are implementing the following additional measures in response to user management and access rights:



| | · | Improved automated rules related to access management;
| | - | ------------------------------------------------------



| | · | Strengthening our internal controls on access to critical ERP functions
and segregation of duties in ERP transactions through measures developed by management. The objective is to improve these activities
together with the responsible managers in each macroprocess of our business; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Enhancement of our compensatory controls related to segregation of
duties in ERP transactions and to the expansion of the set of monitors and their respective automated reports already developed
and used to identify, monitor and treat any conflict that materializes, expanding them where there is a risk and the occurrence
of technically justifiable conflicts
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



São Paulo, Brazil



October 29, 2019







|By: | /s/ Saulo Nunes                    | 
|--- | ---------------------------------- | 
|    | Name: Saulo Nunes                  | 
|    | Title: Principal Executive Officer | 









|By: | /s/ Andre Luis Ackermann       | 
|--- | ------------------------------ | 
|    | Name: Andre Luis Ackermann     | 
|    | Title: Chief Financial Officer | 



F-2


Table of Contents






Report of Independent Registered Public
Accounting Firm



To Stockholders and Board of Directors
of Gafisa S.A.



Opinion on Internal Control over Financial
Reporting



We have audited Gafisa S.A. and subsidiaries
(the “Company”) internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO criteria”). In our opinion, the Company did not maintain, in all material respects, effective
internal control over financial reporting as of December 31, 2018, based on the COSO criteria.



We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance
sheet of the Company and subsidiaries as of December 31, 2018, the related consolidated statements of profit and loss and comprehensive
income (loss), changes in equity, and cash flows for the year ended December 31, 2018, and the related notes (collectively referred
to as “the financial statements”) and our report dated October 29, 2019 expressed an unqualified opinion on those consolidated
financial statements.



Basis for Opinion



The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audit of internal control
over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.



A material weakness is a deficiency, or
a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely
basis. The material weaknesses described below have been identified and included in management assessment:



| | · | Failure to maintain at year-end an
internal audit function robust enough to monitor control activities and to execute timely the management’s self-assessment
over internal control in order to evaluate the effectiveness of ICFR as required by Section 404 of the Sarbanes-Oxley Act
of 2002.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-3


Table of Contents






| | · | Failure to maintain certain contractual
terms in loan and financing agreements because the Company's controls did not design to prevent and detect situations such that
the management should have obtained from lenders their consent before some situations have happened such: modification in the Company's
controlling shareholders and disposal of some receivables previously already given provided as guarantee to financial institutions.
These events cause the possibility of acceleration of some debts.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Failure to maintain controls to ensure
the accuracy and completeness of information about contingent liabilities. Specifically, the Company did not design or implement
controls to monitor compliance with Company policies and procedures for evaluating provisions related to existent claims against
the Company. A substantial portion of judicial and administrative law proceedings were under responsibility of outsourced legal
lawyers for which we would not have done enough provisions.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Failure to maintain controls related to operation of information technology
(“IT”) general controls in the areas of access security, program change management and computer operations (“IT
General Controls”). The deficiencies in IT General Controls also resulted in a conclusion that manual controls that rely
on data produced by and maintained within these affected IT system applications and automated controls within these affected IT
system applications were ineffective.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These material weaknesses were considered
in determining the nature, timing, and extent of audit tests applied in our audit of the 2018 financial statements, and this report
does not affect our report on those financial statements.



Definition and Limitations of Internal
Control over Financial Reporting



A company’s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.



Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.







São Paulo, Brazil





October 29, 2019



/s/ BDO RCS Auditores Independentes
SS



F-4


Table of Contents






Report of Independent Registered Public
Accounting Firm



To Stockholders and Board of Directors
of Gafisa S.A.



Opinion on the Consolidated Financial
Statements



We have audited the accompanying consolidated
balance sheet of Gafisa S.A. (the “Company”) and subsidiaries as of December 31, 2018, the related consolidated statements
of profit and loss and comprehensive income (loss), changes in equity, and cash flows for the year ended December 31, 2018, and
the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December
31, 2018, and the results of their operations and their cash flows for the year ended December 31, 2018, in conformity with Brazilian
accounting practices, applicable to Brazilian real estate development entities, registered with the Brazilian Securities Commission
(“CVM”).



We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated October
29, 2019 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.



Change in Accounting Principle



We also have audited the adjustments to
the 2017 and 2016 financial statements to retrospectively apply the change in accounting for recognition of the provision for cancelled
contracts at the time of the adoption of Ofício-Circular/CVM/SNC/SEP/ 02/2018, which provides for the revenue recognition
in contracts for purchase and sale of real estate unit not yet completed in the Brazilian publicly-held companies of the real estate
development sector, as described in Note 3.1. In our opinion, such adjustments are appropriate and have been properly applied.
We were not engaged to audit, review, or apply any procedures to the 2017 and 2016 financial statements of the Company other than
with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2017 and 2016
financial statements taken as a whole.



Differences from U.S. Generally Accepted Accounting Principles



Brazilian accounting practices, applicable
to Brazilian real estate development entities, registered with the Brazilian Securities Commission (CVM), vary in certain significant
respects from U.S. generally accepted accounting principles. Information relating to the nature and effect of such differences
is presented in Note 33 to the consolidated financial statements.



Basis for Opinion



These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.



We have served as the Company's auditor
since 2018.





São Paulo, Brazil



October 29, 2019



/s/ BDO RCS Auditores Independentes
SS



F-5


Table of Contents




Report of Independent Registered Public
Accounting Firm



To the Stockholders and Board of Directors
Gafisa S.A.:



Opinion on the Consolidated Financial Statements



We have audited, before the effects of the adjustments to retrospectively
apply the change in accounting described in Note 3.1, the consolidated balance sheet of Gafisa S.A , and subsidiaries (the Company)
as of December 31, 2017and 2016 and the related consolidated statements of profit or loss, comprehensive income (loss), cash
flows, changes in equity and value added for the years ended December 31, 2017 and 2016 and the related notes, collectively, the
consolidated financial statements. The 2017 and 2016 consolidated financial statements before the effects of the adjustments described
in Note3.1 are not presented herein. In our opinion, the consolidated financial statements, before the effects of the adjustments
to retrospectively apply the change in accounting described in Note 3.1, present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years
ended December 31, 2017 and 2016, in conformity with accounting practices adopted in Brazil applicable to Real Estate entities.



We were not engaged to
audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting
described in Note 3.1 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments
are appropriate and have been properly applied. Those adjustments were audited by other auditors.



Basis for Opinion



These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. Our audits of the consolidated financial
statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our audits provides a reasonable basis for our opinion.



We have served as the Company’s auditor from 2013 to 2018.



São Paulo, Brazil
October 29, 2019



/s/ KPMG Auditores Independentes









F-6


Table of Contents




Gafisa S.A.



Consolidated balance sheets



As of December 31, 2018 and 2017



(In thousand of Brazilian Reais)



|                                  |  | Notes  |  | 2018 |           | 2017       |  | 01/01/2017
|--------------------------------- |  | ------ |  | ---- | --------- | ---------- |  | ----------
|                                  |  |        |  |      |           | (Restated)
|Current assets                    |  |        |  |      |           |            |  |           
|Cash and cash equivalents         |  | 4.1    |  |      | 32,304    |            |  |           
|Short-term investments            |  | 4.2    |  |      | 104,856   |            |  |           
|Trade accounts receivable         |  | 5      |  |      | 467,992   |            |  |           
|Properties for sale               |  | 6      |  |      | 890,460   |            |  |           
|Receivables from related parties  |  | 21.1   |  |      | 64,660    |            |  |           
|Derivatives financial instruments |  | 20.i.b |  |      | -         |            |  |           
|Prepaid expenses                  |  | -      |  |      | 2,668     |            |  |           
|Land for sale                     |  | 8.1    |  |      | 90,588    |            |  |           
|Assets held for sale              |  | -      |  |      | -         |            |  |           
|Other assets                      |  | 7      |  |      | 42,283    |            |  |           
|Total current assets              |  |        |  |      | 1,695,811 |            |  |           
|                                  |  |        |  |      |           |            |  |           
|Non-current assets                |  |        |  |      |           |            |  |           
|Trade accounts receivable         |  | 5      |  |      | 174,017   |            |  |           
|Properties for sale               |  | 6      |  |      | 198,941   |            |  |           
|Receivables from related parties  |  | 21.1   |  |      | 28,409    |            |  |           
|Derivatives financial instruments |  | -      |  |      | -         |            |  |           
|Other assets                      |  | 7      |  |      | 95,194    |            |  |           
|                                  |  |        |  |      | 496,561   |            |  |           
|                                  |  |        |  |      |           |            |  |           
|Investments                       |  | 9      |  |      | 302,065   |            |  |           
|Property and equipment            |  | 10     |  |      | 20,073    |            |  |           
|Intangible assets                 |  | 11     |  |      | 11,770    |            |  |           
|                                  |  |        |  |      | 333,908   |            |  |           
|                                  |  |        |  |      |           |            |  |           
|Total non-current assets          |  |        |  |      | 830,469   |            |  |           
|Total assets                      |  |        |  |      | 2,526,280 |            |  |           



The accompanying notes are an integral part of these financial
statements.





F-7


Table of Contents






Gafisa S.A.



Consolidated balance sheets



As of December 31, 2018 and 2017



(In thousand of Brazilian Reais)





|                                                                |  | Notes |  | 2018 |            | 2017       |  | 01/01/2017
|--------------------------------------------------------------- |  | ----- |  | ---- | ---------- | ---------- |  | ----------
|                                                                |  |       |  |      |            | (Restated)
|Current liabilities                                             |  |       |  |      |            |            |  |           
|Loans and financing                                             |  | 12    |  |      | 285,612    |            |  |           
|Debentures                                                      |  | 13    |  |      | 62,783     |            |  |           
|Payables for purchase of properties and advances from customers |  | 17    |  |      | 113,355    |            |  |           
|Payables for goods and service suppliers                        |  | -     |  |      | 119,847    |            |  |           
|Taxes and contribuitions                                        |  | -     |  |      | 57,276     |            |  |           
|Salaries, payroll charges and profit sharing                    |  | -     |  |      | 6,780      |            |  |           
|Provision for legal claims and commitments                      |  | 16    |  |      | 138,201    |            |  |           
|Obligations assumed on the assignment  of receivables           |  | 14    |  |      | 25,046     |            |  |           
|Payables to related parties                                     |  | 21.1  |  |      | 56,164     |            |  |           
|Derivatives financial instruments                               |  | -     |  |      | -          |            |  |           
|Other payables                                                  |  | 15    |  |      | 173,951    |            |  |           
|Liabilities related to assets of discontinued operations        |  | -     |  |      | -          |            |  |           
|Total current liabilities                                       |  |       |  |      | 1,039,015  |            |  |           
|                                                                |  |       |  |      |            |            |  |           
|Non-current liabilities                                         |  |       |  |      |            |            |  |           
|Loans and financing                                             |  | 12    |  |      | 338,135    |            |  |           
|Debentures                                                      |  | 13    |  |      | 202,883    |            |  |           
|Payables for purchase of properties and advances from customers |  | 17    |  |      | 196,076    |            |  |           
|Deferred income tax and social contributions                    |  | 19    |  |      | 49,372     |            |  |           
|Provision for legal claims and commitments                      |  | 16    |  |      | 155,608    |            |  |           
|Obligations assumed on the assignment  of receivables           |  | 14    |  |      | 32,140     |            |  |           
|Other payables                                                  |  | 15    |  |      | 19,860     |            |  |           
|Total non-current liabilities                                   |  |       |  |      | 994,074    |            |  |           
|                                                                |  |       |  |      |            |            |  |           
|Equity                                                          |  |       |  |      |            |            |  |           
|Capital                                                         |  | 18.1  |  |      | 2,521,319  |            |  |           
|Treasury shares                                                 |  | 18.1  |  |      | (58,950    | )          |  |           
|Capital reserves and reserve for granting stock options         |  | -     |  |      | 337,351    |            |  |           
|Accumulated losses                                              |  | 18.2  |  |      | (2,308,403 | )          |  |           
|                                                                |  |       |  |      | 491,317    |            |  |           
|Non-controlling interests                                       |  |       |  |      | 1,874      |            |  |           
|Total equity                                                    |  |       |  |      | 493,191    |            |  |           
|Total Liabilities and equity                                    |  |       |  |      | 2,526,280  |            |  |           



The accompanying notes are an integral part of these financial
statements.





F-8


Table of Contents






Gafisa S.A.



Consolidated statement of profit or loss



Years ended December 31, 2018, 2017 and 2016



(In thousand of Brazilian Reais, except if stated otherwise)



|                                                                                 |  | Notes |  | 2018 |          | 2017       |  | 2016      
|-------------------------------------------------------------------------------- |  | ----- |  | ---- | -------- | ---------- |  | ----------
|                                                                                 |  |       |  |      |          | (Restated) |  | (Restated)
|Continuing operations                                                            |  |       |  |      |          |            |  |           
|Net operating revenue                                                            |  | 22    |  |      | 960,891  |            |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Operating costs                                                                  |  |       |  |      |          |            |  |           
|Real estate development and sales of properties                                  |  | 23    |  |      | (846,169 | )          |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Gross profit (loss)                                                              |  |       |  |      | 114,722  |            |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Operating (expenses) income                                                      |  |       |  |      |          |            |  |           
|Selling expenses                                                                 |  | 23    |  |      | (84,431  | )          |  |           
|General and administrative expenses                                              |  | 23    |  |      | (78,379  | )          |  |           
|Income from equity method investments                                            |  | 9     |  |      | (15,483  | )          |  |           
|Other income (expenses), net                                                     |  | 23    |  |      | (298,935 | )          |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Loss before financial income and expenses and income tax and social contribution |  |       |  |      | (362,506 | )          |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Financial expense                                                                |  | 24    |  |      | (100,074 | )          |  |           
|Financial income                                                                 |  | 24    |  |      | 19,553   |            |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Loss before income tax and social contribution                                   |  |       |  |      | (443,027 | )          |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Current income tax and social contribution                                       |  |       |  |      | (3,349   | )          |  |           
|Deferred income tax and social contribution                                      |  |       |  |      | 25,100   |            |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Total income tax and social contribution                                         |  | 19.i  |  |      | 21,751   |            |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Net loss from continuing operations                                              |  |       |  |      | (421,276 | )          |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Net income (loss) from discontinued operations                                   |  | 8.2   |  |      | -        |            |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Net loss for the year                                                            |  |       |  |      | (421,276 | )          |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|(-) Attributable to:                                                             |  |       |  |      |          |            |  |           
|Non-controlling interests                                                        |  |       |  |      | (1,750   | )          |  |           
|Owners of the parent                                                             |  |       |  |      | (419,526 | )          |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Weighted average number of shares (in thousands)                                 |  | 27    |  |      | 41,147   |            |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Basic earnings (loss) per thousand shares - In Reais                             |  | 27    |  |      | (10.196  | )          |  |           
|From continuing operations                                                       |  |       |  |      | (10.196  | )          |  |           
|From discontinued operations                                                     |  |       |  |      | -        |            |  |           
|                                                                                 |  |       |  |      |          |            |  |           
|Diluted earnings (loss) per thousand shares - In Reais                           |  | 27    |  |      | (10.196  | )          |  |           
|From continuing operations                                                       |  |       |  |      | (10.196  | )          |  |           
|From discontinued operations                                                     |  |       |  |      | -        |            |  |           
|                                                                                 |  |       |  |      |          |            |  |           

The accompanying notes are an integral part of these financial
statements.







F-9


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Gafisa S.A.



Consolidated statement of comprehensive income (loss)



Years ended December 31, 2018, 2017 and 2016



(In thousand of Brazilian Reais, except if stated otherwise)



|                                                    |  |      |          |     
|--------------------------------------------------- |  | ---- | -------- | ----
|                                                    |  | 2018 |          | 2017
|                                                    |  |      |          |     
|Net loss for the year                               |  |      | (421,276 | )   
|                                                    |  |      |          |     
|Total comprehensive loss for the year, net of taxes |  |      | (421,276 | )   
|                                                    |  |      |          |     
|Attributable to:                                    |  |      |          |     
|Owners of the parent                                |  |      | (419,526 | )   
|Non-controlling interests                           |  |      | (1,750   | )   
|                                                    |  |      |          |     

The accompanying notes are an integral part
of these financial statements.





F-10


Table of Contents








Gafisa S.A.



Consolidated statement of changes in equity



Years ended December 31, 2018, 2017 and 2016



(In thousand of Brazilian Reais)







|                                         |       | Attributed
    to Owners of the Parent |                     | 
|---------------------------------------- | ----- | -------------------------------------- | ------------------- | 
|                                         |       |                                        |                     | 
|                                         | Notes | Capital                                | Treasury
    shares | 
|Balances at December 31, 2015            |       | 2,740,662                              | (25,980)            | 
|Inicial adoption CPC 47 and 48           | 3.1   | -                                      | -                   | 
|Balances at January 01, 2016 (Restated)  |       | 2,740,662                              | (25,980)            | 
|                                         |       |                                        |                     | 
|Capital increase                         |       | -                                      | -                   | 
|Stock option plan                        | 18.3  | -                                      | -                   | 
|Treasury shares acquired                 | 18.1  | -                                      | (8,693)             | 
|Treasury shares sold                     | 18.1  | -                                      | 2,149               | 
|(Loss) profit for the year               | -     | -                                      | -                   | 
|Absorption:                              | 18.2  |                                        |                     | 
|Legal reserve                            |       | -                                      | -                   | 
|Reserve for investments                  |       | -                                      | -                   | 
|Dividends                                |       | -                                      | -                   | 
|                                         |       |                                        |                     | 
|Balances at December 31, 2016 (Restated) |       | 2,740,662                              | (32,524)            | 
|                                         |       |                                        |                     | 
|Capital decrease                         | 18.1  | (219,510)                              | -                   | 
|Stock option plan                        | 18.3  | -                                      | -                   | 
|Treasury shares sold                     | 18.1  | -                                      | 3,435               | 
|Write-off discontinued operations (a)    | -     | -                                      | -                   | 
|Net loss for the year                    | -     | -                                      | -                   | 
|                                         |       |                                        |                     | 
|Balances at December 31, 2017 (Restated) |       | 2,521,152                              | (29,089)            | 
|                                         |       |                                        |                     | 
|Capital increase                         | 18.1  | 167                                    | -                   | 
|Stock option plan                        | 18.3  | -                                      | -                   | 
|Treasury shares sold                     | 18.1  | -                                      | 2,351               | 
|Share repurchase program                 | 18.1  | -                                      | (32,212)            | 
|Reserve constituition                    | -     | -                                      | -                   | 
|Net loss for the year                    | -     | -                                      | -                   | 
|                                         |       |                                        |                     | 
|Balances at December 31,
        2018    |       | 2,521,319                              | (58,950)            | 



| | (a) | Amount regarding the write-off
                                         of the debt balance of non-controlling interests related to Construtora Tenda S.A, in
                                         view of the spin-off of the Companies (Notes 1 and 8.2),
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The accompanying notes are an integral part
of these financial statements.





F-11


Table of Contents








Gafisa S.A.



Consolidated cash flow statement



Years ended December 31, 2018, 2017 and 2016



(In thousand of Brazilian Reais)





|                                                                                        |  | 2018 |            | 2017 |  | 2016      
|--------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ----------
|Operating activities                                                                    |  |      |            |      |  | (Restated)
|                                                                                        |  |      |            |     
|Profit (loss) before income tax and social contribution                                 |  |      | (443,027   | )    |  |           
|Expenses/(income) not affecting cash and cash equivalents:                              |  |      |            |      |  |           
|Depreciation and amortization (Notes 10 and 11)                                         |  |      | 21,290     |      |  |           
|Stock option expense (Note 18.3)                                                        |  |      | 1,927      |      |  |           
|Unrealized interests and charges, net                                                   |  |      | 11,156     |      |  |           
|Warranty provision (Note 15)                                                            |  |      | (4,130     | )    |  |           
|Provision for legal claims and commitments (Note 16)                                    |  |      | 172,432    |      |  |           
|Provision for profit sharing (Note 25 (iii))                                            |  |      | (14,750    | )    |  |           
|Allowance for expected credit losses and cancelled contracts (Note 5)                   |  |      | (41,827    | )    |  |           
|Provision for realization of non-financial assets:                                      |  |      |            |      |  |           
|Properties and land for sale (Note 6 and 8)                                             |  |      | (74,689    | )    |  |           
|Income from equity method investments (Note 9)                                          |  |      | 15,483     |      |  |           
|Financial instruments (Note 20)                                                         |  |      | (763       | )    |  |           
|Provision for penalties due to delay in construction works (Note 15)                    |  |      | -          |      |  |           
|Write-off of property and equipment and intangible assets, net (Notes 10 and 11)        |  |      | -          |      |  |           
|Write-off of goodwill from remeasurement of investment in associate (Note 9)            |  |      | 112,800    |      |  |           
|Write-off of goodwill on acquisition of subsidiary (Note 9)                             |  |      | -          |      |  |           
|Impairment loss (Note 8.2)                                                              |  |      |            |      |  |           
|                                                                                        |  |      |            |      |  |           
|Decrease/(increase) in operating assets                                                 |  |      |            |      |  |           
|Trade accounts receivable                                                               |  |      | (95,740    | )    |  |           
|Properties for sale and land available for sale                                         |  |      | 367,864    |      |  |           
|Other assets                                                                            |  |      | (15,880    | )    |  |           
|Prepaid expenses                                                                        |  |      | 2,867      |      |  |           
|                                                                                        |  |      |            |      |  |           
|Increase/(decrease) in operating liabilities                                            |  |      |            |      |  |           
|Payables for purchase of properties and advances from customers                         |  |      | 597        |      |  |           
|Taxes and contributions                                                                 |  |      | 10,846     |      |  |           
|Payables for goods and service suppliers                                                |  |      | 32,732     |      |  |           
|Salaries, payroll charges and profit sharing                                            |  |      | (6,459     | )    |  |           
|Other payables                                                                          |  |      | (3,434     | )    |  |           
|Transactions with related parties                                                       |  |      | (14,497    | )    |  |           
|Paid taxes                                                                              |  |      | (3,348     | )    |  |           
|Cash from (used) in operating activities related to discontinued operations             |  |      | -          |      |  |           
|Cash and cash equivalents from operating activities                                     |  |      | 31,450     |      |  |           
|                                                                                        |  |      |            |      |  |           
|Investment activities                                                                   |  |      |            |      |  |           
|Acquisition of property and equipment, and intangible assets (Notes 10 and 11)          |  |      | (12,511    | )    |  |           
|Increase in short-term investments                                                      |  |      | (1,090,796 | )    |  |           
|Redemption of short-term investments                                                    |  |      | 1,104,875  |      |  |           
|Investments                                                                             |  |      | (4,629     | )    |  |           
|Transaction costs related to the transaction of spin-off of Gafisa and Tenda (Note 8.2) |  |      | -          |      |  |           
|Proceeds from the exercise of preemptive rights                                         |  |      | -          |      |  |           
|Proceeds from the refund for Tenda’s capital                                            |  |      | -          |      |  |           
|Cash from investing activities related to discontinued operations                       |  |      | -          |      |  |           
|Cash from investing activities                                                          |  |      | (3,061     | )    |  |           
|                                                                                        |  |      |            |      |  |           
|Financing activities                                                                    |  |      |            |      |  |           
|Increase in loans, financing and debentures                                             |  |      | 412,768    |      |  |           
|Payment of loans, financing and debentures - principal                                  |  |      | (528,252   | )    |  |           
|Payment of loans, financing and debentures - interest                                   |  |      | (111,157   | )    |  |           
|Assignment of receivables                                                               |  |      | -          |      |  |           
|Payables to venture partners                                                            |  |      | -          |      |  |           
|Paid dividends                                                                          |  |      | -          |      |  |           
|Loan transactions with related parties                                                  |  |      | (1,289     | )    |  |           
|Repurchase of and proceeds from treasury shares (Note 18.1)                             |  |      | (47,448    | )    |  |           
|Capital increase                                                                        |  |      | 167        |      |  |           
|Subscription and payment of common shares                                               |  |      | 250,599    |      |  |           
|Cash from (used in) the financing activities related to discontinued operations         |  |      | -          |      |  |           
|Cash and cash equivalents used in financing activities                                  |  |      | (24,612    | )    |  |           
|                                                                                        |  |      |            |      |  |           
|(-) Net change in cash and cash equivalents related to discontinued operations          |  |      | -          |      |  |           
|                                                                                        |  |      |            |      |  |           
|Net increase/(decrease) in cash and cash equivalents                                    |  |      | 3,777      |      |  |           
|                                                                                        |  |      |            |      |  |           
|Cash and cash equivalents                                                               |  |      |            |      |  |           
|At the beginning of the year                                                            |  |      | 28,527     |      |  |           
|(-) Cash and cash equivalents at the end of the year from disposal group held for sale  |  |      |            |      |  |           
|At the end of the year                                                                  |  |      | 32,304     |      |  |           
|                                                                                        |  |      |            |      |  |           
|Net increase (decrease) in cash and cash equivalents                                    |  |      | 3,777      |      |  |           







The accompanying notes are
an integral part of these financial statements.





F-12


Table of Contents












Gafisa S.A.



Consolidated   added value sstatement



Years ended December 31, 2018, 2017 and 2016



(In thousand of Brazilian Reais)





|                                                                                  |  | 2018 |            | 2017       |  | 2016      
|--------------------------------------------------------------------------------- |  | ---- | ---------- | ---------- |  | ----------
|                                                                                  |  |      |            | (Restated) |  | (Restated)
|                                                                                  |  |      |            |            |  |           
|Revenues                                                                          |  |      | 1,048,145  |            |  |           
|Real estate development and sales                                                 |  |      | 1,006,317  |            |  |           
|Reversal (recognition) of allowance for doubtful accounts and cancelled contracts |  |      | 41,828     |            |  |           
|Inputs acquired from third parties (including taxes on purchases)                 |  |      | (1,075,054 | )          |  |           
|Operating costs - Real estate development and sales                               |  |      | (733,265   | )          |  |           
|Materials, energy, outsourced labor and other                                     |  |      | (228,989   | )          |  |           
|Profit or loss of discontinued operations                                         |  |      | -          |            |  |           
|Loss on realization of investment measured at fair value                          |  |      | (112,800   | )          |  |           
|                                                                                  |  |      |            |            |  |           
|Gross value added                                                                 |  |      | (26,909    | )          |  |           
|                                                                                  |  |      |            |            |  |           
|Depreciation and amortization                                                     |  |      | (21,290    | )          |  |           
|                                                                                  |  |      |            |            |  |           
|Net value added produced by the entity                                            |  |      | (48,199    | )          |  |           
|                                                                                  |  |      |            |            |  |           
|Value added received on transfer                                                  |  |      | 4,070      |            |  |           
|Income from equity method investments                                             |  |      | (15,483    | )          |  |           
|Financial income                                                                  |  |      | 19,553     |            |  |           
|                                                                                  |  |      |            |            |  |           
|Total value added to be distributed                                               |  |      | (44,129    | )          |  |           
|                                                                                  |  |      |            |            |  |           
|Value added distribution                                                          |  |      | (44,129    | )          |  |           
|Personnel and payroll charges                                                     |  |      | 75,300     |            |  |           
|Taxes and contributions                                                           |  |      | 81,339     |            |  |           
|Interest and rents                                                                |  |      | 218,758    |            |  |           
|Retained earnings attributable to noncontrolling interests                        |  |      | 1,750      |            |  |           
|Incurred losses                                                                   |  |      | (421,276   | )          |  |           



The accompanying notes are an integral part
of these financial statements.



F-13


Table of Contents




Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 1. | Operations
| | -- | ----------



Gafisa
S.A. ("Gafisa" or "Company") is a publicly traded company with registered office at Avenida das Nações
Unidas, 8.501, 19th floor, in the city and state of São Paulo, Brazil, and began its operations in 1997 with
the objectives of: (i) promoting and managing all forms of real estate ventures on its own behalf or for third parties (in the
latter case, as construction company or proxy); (ii) selling and purchasing real estate properties; (iii) providing civil construction
and civil engineering services; (iv) developing and implementing marketing strategies related to its own and third party real
estate ventures; and (v) investing in other companies who share similar objectives.



The
Company has stocks traded at B3 S.A. – Brasil, Bolsa, Balcão (former BM&FBovespa), reporting its information
to the Brazilian Securities and Exchange Commission (CVM) and the U.S. Securities and Exchange Commission (SEC).



On
November 26, 2018, the Board of Directors approved the delisting of shares on the New York Stock Exchange (NYSE), aimed to perform
the migration of the American Depositary Receipts (ADR) Program from Level 3 to Level 1, and the cancellation of the registry
with the SEC. On December 7, 2018, Form 25 was filed with the SEC, with copy to the NYSE, for voluntary delisting of the American
Depositary Shares (ADSs), represented by the ADRs of the NYSE. The ADSs were delisted on the NYSE on December 17, 2018, and are
currently traded Over the Counter (OTC).



The
Company enters into real estate development projects with third parties through specific purpose partnerships (“Sociedades
de Propósito Específico” or “SPEs”) or through the formation of consortia and condominiums. Subsidiaries
significantly share the managerial and operating structures, and corporate, managerial and operating costs with the Company. The
SPEs, condominiums and consortia operate solely in the real estate industry and are linked to specific ventures.



| | 1.1 | Capital increase
| | --- | ----------------



On
February 28, 2018, the Board of Directors partially ratified the capital increase approved at the Extraordinary Shareholders’
Meeting held on December 20, 2017, considering the subscription and contribution of 16,717,752 new common shares, at a price per
share of R$15.00, of which R$0.01 allocated to capital, and R$14.99 allocated to capital reserve, totaling R$167 and R$250,599,
respectively. The capital increase is included in the Company’s plans for reinforcing cash availability, strengthening its
capital structure in view of the current indebtedness level, as well as making viable the Company’s strategic and operational
positioning for a new cycle of the real estate market.



| | 1.2 | Change in shareholding
| | --- | ----------------------



On
September 25, 2018, an Extraordinary Shareholders’ Meeting was held, called at the request of its shareholder GWI Asset
Management S.A., in which the following main resolutions were taken: (i) the removal from office, by majority of votes, of all
members of the Board of Directors, and (ii) the election, through the multiple voting process, of new members. Immediately thereafter,
at the Board of Directors’ meeting on September 28, 2018, the following items were resolved as part of the turnaround process
and streamlining of the corporate structure of the Company: (i) the removals from office of the Chief Executive Officer, Chief
Financial and Investor Relations Officer, and Chief Operating Officer, and the election of new statutory officers; (ii) adoption
of new measures for approving the change of the Company’s registered office; (iii) shutdown of the branch located in Rio
de Janeiro, and (iv) approval of the Company’s share repurchase program (Note 18.1).







F-14


Table of Contents




Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 1. | Operations --Continued
| | -- | ----------------------



| | 1.2 | Change in shareholding--Continued
| | --- | ---------------------------------



On
February 14, 2019, 14,600,000 shares held by the group of its majority shareholder, GWI Asset Management S.A., corresponding to
33.67% stake in the Company, were auctioned. As a result of this auction, Planner Corretora de Valores S.A., by means of the investment
funds it manages, started to hold 8,000,000 common shares, corresponding to 18.45% of total common shares issued by the Company
(Note 32(iii)).



| | 2. | Presentation of financial statements and summary of significant
accounting policies
| | -- | -----------------------------------------------------------------------------------



| | 2.1. | Basis of presentation and preparation of consolidated
financial statements
| | ---- | --------------------------------------------------------------------------



The
consolidated financial statements were authorized for issue by the Company’s Board of Directors on October 29,
2019.



The
consolidated financial statements of the Company have been prepared and are being presented according to the accounting practices
adopted in Brazil, including the pronouncements issued by the CPC, approved by the Brazilian Securities and Exchange Commission
(CVM) (“Brazilian GAAP” or “BR GAAP”).



Brazilian
GAAP, differs from International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”) in certain respects, including the fact that under Brazilian GAAP the application of percentage
of completion accounting by real estate companies is applied under more circumstances than are permitted by IFRS, including interpretations
on the accounting treatment for cancelations. This application of Brazilian GAAP is commonly referred to in Brazil as IFRS applicable
to real estate development entities in Brazil, registered with the CVM. The aspects related to the transfer of control in the
sale of real estate units follow the understanding expressed by the CVM in Circular Letter/CVM/SNC/SEP 02/2018 about the application
of Technical Pronouncement CPC 47 – Revenue from contracts with customers (IFRS 15), regarding revenue recognition, and
the respective costs and expenses arising from real estate development operations by reference to the stage of completion (percentage
of completion method), including the accounting treatment for cancelations. Accordingly, for the purpose of its annual filing
with the United States Securities and Exchange Commission, the accompanying consolidated financial statements prepared in accordance
with BR GAAP have been reconciled to US GAAP as presented in Note 33 to these financial statements. US GAAP condensed consolidated
balance sheets have been included in Note 33 (d)(i) for 2018, 2017 and 2016 US GAAP consolidated statement of profit or loss and
comprehensive income (loss) for the years ended December 31, 2018, 2017 and 2016 have been included in Note 33 (d)(ii) and Note
33 (d)(iii), respectively.





F-15


Table of Contents




Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)







| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.1. | Basis of presentation and preparation of consolidated
financial statements --Continued
| | ---- | --------------------------------------------------------------------------------------



The
consolidated financial statements have been prepared on a going concern basis. Management makes an assessment of the Company’s
ability to continue as going concern when preparing the consolidated financial statements.



| | 2.1.1. | Consolidated financial
statements
| | ------ | ---------------------------------



The
consolidated financial statements of the Company include the financial statements of Gafisa and its direct and indirect subsidiaries.
The Company controls an entity when it is exposed to, or has right to variable returns arising from its involvement with the entity
and has the ability to affect those returns through the power that it exerts over the entity. The existence and the potential
effects of voting rights, which are currently exercisable or convertible, are taken into account when evaluating whether the Company
controls another entity. The financial statements of subsidiaries are included in the consolidated financial statements from the
date the control on which the control commences until the date on which control ceases.



The
accounting practices have been applied consistently by all subsidiaries in the consolidated financial statements. The subsidiaries
have the same fiscal year as the Company.



| | 2.1.2. | Functional and presentation
currency
| | ------ | ------------------------------------



The
functional and presentation currency of the Company is Brazilian Real.



F-16


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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.1. | Basis of presentation and preparation of consolidated
financial statements --Continued
| | ---- | --------------------------------------------------------------------------------------



| | 2.1.3. | Statement of Cash
Flows
| | ------ | -----------------------



In
view of the disclosure of the discontinued operations related to Tenda, and in line with CPC 03 (R-2) – Statement of Cash
Flows and CPC 31 - Non-current Assets Held for Sale and Discontinued Operations, the information on operating, financing and investing
activities related to discontinued operations are presented in separated lines in the Statement of Cash Flows of the Company for
the years ended December 31, 2017 and 2016.



| | 2.2. | Summary of significant accounting policies
| | ---- | ------------------------------------------



| | 2.2.1. | Accounting judgments,
estimates and assumptions
| | ------ | -----------------------------------------------



Accounting estimates and judgments
are evaluated on an ongoing basis based on historical experience and other factors, including expectations on future events, considered
reasonable under the circumstances.



The preparation of the consolidated financial statements
of the Company requires Management to make judgments, estimates and assumptions that affect the reported amounts of revenue, expenses,
assets and liabilities, as well as the disclosure of contingent liabilities, at the reporting date.



Assets and liabilities subject to estimates and assumptions
include the provision for impairment of asset, transactions with share-based payment, provision for legal claims, fair value of
financial instruments, measurement of the estimated cost of construction, deferred tax assets, among others.



The main assumptions related to sources of uncertainty
over future estimates and other important sources of uncertainty over estimates at the reporting date, which may result in different
amounts upon settlement are discussed below:



F-17


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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.1. | Accounting judgments,
estimates and assumptions --Continued
| | ------ | -----------------------------------------------------------



| | a) | Impairment loss of non-financial assets
| | -- | ---------------------------------------



An
impairment loss exists when the asset’s carrying amount exceeds its recoverable amount, which is the higher of an asset’s
fair value less costs to sell and its value in use.



The
calculation of the fair value less cost to sell is based on available information on sale transactions of similar assets or market
prices less additional costs of disposal. The calculation of the value in use is based on the discounted cash flow model.



Cash
flows are derived on the budget for the following five years, and do not include uncommitted restructuring activities or future
significant investments that will improve the asset basis of the cash-generating unit being tested. The recoverable amount is
sensitive to the discount rate used under the discounted cash flow method, the estimated future cash inflows, and to the growth
rate used for purposes of extrapolation.



Indefinite
life intangible assets and goodwill attributable to future economic benefit are tested at least annually, and/or when circumstances
indicate a decrease in the carrying value. The main assumptions used for determining the recoverable amount of cash-generating
units are detailed in Note 9.



| | b) | Share-based payment transactions
| | -- | --------------------------------



The Company measures the cost
of transactions with employees to be settled with shares based on the fair value of equity instruments on the grant date. For cash-settled
share-based transactions, the liability is required to be remeasured at the end of each reporting period through the settlement
date, recognizing in profit or loss possible changes in fair value, which requires revaluation of the estimates used at the end
of each reporting period. The estimate of the fair value of share-based payments requires the determination of the most adequate
pricing model to grant equity instruments, which depends on the grant terms and conditions.



It also requires the determination
of the most adequate data for the pricing model, including the expected option life, volatility and dividend income, and the corresponding
assumptions. The assumptions and models used for estimating the fair value of share-based payments are disclosed in Note 18.3.



F-18


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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant
accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.1. | Accounting judgments,
estimates and assumptions --Continued
| | ------ | -----------------------------------------------------------



| | c) | Provision for legal claims and commitments
| | -- | ------------------------------------------



The
Company recognizes a provision for tax, labor and civil claims (Note 16). The provision is recognized when an unfavorable decision
is awarded. . Provisions are reviewed and adjusted to take into account the changes in circumstances, such as applicable statutes
of limitations, findings of tax inspections, or additional exposures found based on new court issues or decisions.



There
are uncertainties inherent in the interpretation of complex tax rules and in the value and timing of future taxable income. In
the ordinary course of business, the Company and its subsidiaries are subject to assessments, audits, legal claims and administrative
proceedings in civil, tax and labor matters.



| | d) | Allowance for expected credit losses
| | -- | ------------------------------------



The Company recognizes an allowance
for expected credit losses for all sale contracts of real estate units, and the amounts are accrued as contra-entry to the recognition
of the respective development revenue, based on data history of its current operations and estimates. Such analysis is individually
made by sale contract, in line with CPC 48 – Financial Instruments, item 5.5.17 (c).



Such estimates are annually reviewed
to consider any changes in circumstances and histories.



| | e) | Warranty provision
| | -- | ------------------



The measurement of the warranty
provision, to cover expenditures for repairing construction defects covered during the warranty period, is based on the estimate
that considers the history of incurred expenditures adjusted by the future expectation, which is regularly reviewed.



| | f) | Estimated cost of construction
| | -- | ------------------------------



Estimated costs, mainly comprising
the incurred and estimated costs for completing the construction works, are regularly reviewed, based on the progress of construction,
and any resulting adjustments are recognized in profit or loss of the Company.



F-19


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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant
accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.1. | Accounting judgments,
estimates and assumptions --Continued
| | ------ | -----------------------------------------------------------



| | g) | Realization of deferred income tax
| | -- | ----------------------------------



A deferred tax asset is recognized when it is probable
that a taxable profit will be available in subsequent years to offset the deferred tax asset, based on projections of results and
based on internal assumptions and future economic scenarios.



| | h) | Allowance for contract cancellation
| | -- | -----------------------------------



The Company recognizes an allowance
for contract cancellation when a cash inflow risk is identified. Contracts are monitored to identify the moment when these conditions
are mitigated.



While there is such risk, no revenue
or cost is recognized in profit or loss, and the amounts are only recorded in asset and liability accounts.



The other
provisions recognized in the Company are described in Note 2.2.22.



| | 2.2.2. | Recognition of revenue
and expenses
| | ------ | -----------------------------------



The
Company applied CPC 47 – Revenue from Contracts with Customers from January 1, 2018, on including the guidance contained
in Circular Letter CVM/SNC/SEP 02/2018, issued on December 12, 2018, which establishes the accounting procedures for recognition,
measurement and disclosure of certain types of transactions arising from contracts for purchase and sale of real estate unit not
yet completed in real estate development entities.



According
to CPC 47, the recognition of revenue from contracts with customers is based on transfer of control over promised goods or service,
which can be at a point in time or over time, according to the satisfaction or not of the “contractual performance
obligations”. Revenue is measured in an amount that reflects the consideration the entity expects to be entitled and is
based on a five-step model detailed as follows: 1) identification of contract; 2) identification of performance obligations; 3)
determination of transaction price; 4) allocation of transaction price to performance obligations; 5) revenue recognition.



The
Company records the accounting effects of contracts only when: (i) the parties have approved the contract; (ii) it can identify
each party’s rights and the established payment terms; (iii) the contract has commercial substance; and (iv) is probable
that it will collect the amount to which the Company is entitled.



F-20


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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.2. | Recognition of revenue
and expenses --Continued
| | ------ | -----------------------------------------------



| | (i) | Real estate development and sales
| | --- | ---------------------------------



| | (a) | For the sales of completed units, revenues are recognized
upon completion of the sale with transfer of control, regardless of the timing of cash receipt from the customer.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | For the construction phase of units sold, but not yet
completed:
| | --- | ----------------------------------------------------------------



| | · | The incurred cost (including cost of land,
and other directly related expenditures) that corresponds to the units sold is included in profit or loss. For the units not yet
sold, the incurred cost is included in properties for sale (Note 2.2.7);
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Sales revenues are appropriated to profit or loss, using the percentage-of-completion
method for each project, this percentage being measured in view of the incurred cost in relation to the total estimated cost of
the respective project;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Revenue recognized in excess of actual payments received from customers
is recorded as either a current or non-current asset in “Trade accounts receivable”. Any payment received in connection
with the sales of units that exceeds the amount of revenues recognized is recorded as “Payables for purchase of properties
and advances from customers";
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Interest and inflation-indexation charges
on accounts receivable from the time the units are sold and delivered, as well as the adjustment to present value of accounts receivable,
are included in “Real estate development, sale, barter transactions and construction services” when incurred, on a
pro rata basis using the accrual basis of accounting;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Financial charges on accounts payable for acquisition of land and those
directly associated with the financing of construction are capitalized and recorded in properties for sale and included in the
incurred cost of units under construction until their completion, and follow the same recognition criteria as the cost of real
estate development for units sold while under construction;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-21


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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.2. | Recognition of revenue
and expenses --Continued
| | ------ | -----------------------------------------------



| | (i) | Real estate development and sales --Continued
| | --- | ---------------------------------------------



| | · | The taxes levied and deferred on the difference between real estate
development revenues and the cumulative revenue subject to tax are calculated and recognized when this difference in revenues is
recognized; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Other expenses, including advertising and publicity, are recognized
in profit or loss when incurred.
| | - | ----------------------------------------------------------------------------------------------------



| | (ii) | Construction services
| | ---- | ---------------------



Revenues
from real estate services are recognized as services are rendered and tied to the construction management activities for third
parties and technical advisory services.



| | (iii) | Barter transactions
| | ----- | -------------------



Barter
transactions have the objective of receiving land from third parties that are settled with the delivery of real estate units or
transfer of portions of the revenue from the sale of real estate units of ventures. The value of the land acquired is determined
on fair value of the units to be delivered, as a component of “properties for sale”, with a corresponding entry to
“payables for purchase of properties and advances from customers”. Revenues and costs incurred from barter transactions
are included in profit or loss over the course of construction period of ventures, as previously described in item (i)(b).



| | 2.2.3. | Financial instruments
| | ------ | ---------------------



Financial
instruments are recognized from the date the Company becomes a party to the contractual provisions of financial instruments.



| | (a) | Financial assets
| | --- | ----------------



The
Company determines the classification of its financial assets upon initial recognition, when it becomes a party to the contractual
provisions of the instrument, based on the business model in which the asset is managed and its contractual cash flow characteristics.



Financial
assets are initially recognized at fair value, plus, in the case of investments not measured at fair value through profit or loss,
directly attributable transaction costs.



After
initial recognition, the Company’s financial instruments are measured as described below:



F-22


Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.3. | Financial instruments--Continued
| | ------ | --------------------------------



| | (a) | Financial assets--Continued
| | --- | ---------------------------



| | (i) | Financial instruments
at fair value through profit or loss
| | --- | ----------------------------------------------------------



A
financial instrument is classified at fair value through profit or loss whein it is held for trading, or designated as such upon
initial recognition.



Financial
instruments are designated at fair value through profit or loss if the Company manages these investments and makes purchase and
sale decisions based on their fair value in accordance with the documented investment strategy and risk management. After initial
recognition, related transaction costs are recognized in profit or loss when incurred.



Financial
instruments at fair value through profit or loss are measured at fair value, and their changes therein are recognized in profit
or loss.



In
the year ended December 31, 2018, the Company held derivative financial instruments with the objective of mitigating the risk
of its exposure to the volatility of indices and interest rates, recognized at fair value directly in profit or loss for the year.
In accordance with its treasury policies, the Company does not have or issue derivative financial instruments for purposes other
than to mitigate risk.



The
Company does not adopt the hedge accounting practice.



| | (ii) | Financial instruments
at amortized cost
| | ---- | ---------------------------------------



The
Company classifies financial assets as measured at amortized cost only if both criteria are met, thee asset is held within a business
model whose objective is to collect the contractual cash flows and the contractual terms give rise to cash flows, at specific
dates, which relate only to the payments of principal and interest.



Financial
assets measured as at amortized cost by the Company includes: cash and cash equivalents, certain short-term financial investments,
accounts receivable and other receivables.



Derecognition
of financial assets (write-off)



A
financial asset (or, as the case may be, a portion of a financial asset or portion of a group of similar financial assets) is derecognized
when:



| | · | The
rights to receive cash inflows of an asset expire;
| | - | ------------------------------------------------------



| | · | The
Company transfers its rights to receive cash inflows of an asset or assume an obligation to fully pay the cash inflows received,
without significant delay, to a third party because of a “transfer” agreement; and (a) the Company substantially transfers
the risks and rewards of the asset, or (b) the Company does not substantially transfer or retain all risks and rewards related
to the asset, but transfers the control over the asset.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-23


Table of Contents




Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.3. | Financial instruments
--Continued
| | ------ | ---------------------------------



| | (a) | Financial assets—Continued
| | --- | --------------------------



Derecognition
of financial assets (write-off)--Continued



When
the Company has transferred its rights to receive cash inflows of an asset, or signed an agreement to pass it on, and has not
substantially transferred or has retained all risks and rewards related to the asset, an asset is recognized to the extent of
the continuous involvement of the Company with the asset. In this case, the Company also recognizes a related liability. The transferred
asset and related liability are measured based on the rights and obligations that the Company has maintained.



The
continuous involvement by means of a guarantee on the transferred asset is measured at the lower of the original carrying value
of the asset and the highest consideration that may be required from the Company.



| | (b) | Financial liabilities
| | --- | ---------------------



Financial
liabilities are classified at initial recognition at amortized cost or measured at fair value through profit or loss.



Financial
liabilities at fair value through profit or loss include financial liabilities held for trading, and financial liabilities designated
upon initial recognition as fair value through profit or loss.



Loans
and financing



Subsequent
to initial recognition, loans and financing accruing interest are measured at amortized cost, using the effective interest rate
method. Gains and losses are recognized in statement of profit or loss, at the time liabilities are derecognized, as well as during
the amortization process using the effective interest rate method.



Derecognition
(write-off)



A
financial liability is derecognized when its contractual obligations are discharged, cancelled or expired.



When
an existing financial liability is substituted by another from the same creditor, under substantially different terms, or when
the terms of an existing liability are significantly modified, this substitution or change is treated as a derecognition of the
original liability and recognition of a new liability, the difference in between the carrying amount and the fair value of the
new liability is recognized in profit or loss.



F-24


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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.4. | Cash and cash equivalents
and short-term investments
| | ------ | ----------------------------------------------------



Cash
and cash equivalents substantially comprise demand deposits and bank certificates of deposit held under repurchase agreements,
denominated in Reais, with high market liquidity and contractual maturities of 90 days or less, and for which there are no penalties
or other restrictions for the immediate redemption thereof.



Cash
equivalents are classified as financial assets at fair value through profit or loss and are recorded at the original amounts plus
income earned, calculated on a “pro rata basis", which are equivalent to their market values, not having any impact
to be accounted for in the Company’s equity.



Short-term
investments include bank deposit certificates, federal government bonds, exclusive investment funds that have their underlying
assets fully consolidated and also restricted cash in guarantee to loans, which are classified at fair value through profit or
loss (Note 4.2).



| | 2.2.5. | Trade account receivable
| | ------ | ------------------------



These
are presented at present and net realizable values. The classification between current and non-current is made based on the expected
maturity of contract installments.



The
installments due are indexed based on the National Civil Construction Index (INCC) during the period of construction, and based
on the General Market Prices Index (IGP-M) and interest at 12% p.a., after the delivery of the units.



The
adjustment to present value is calculated between the contract signature date and the estimated date to transfer the completed
property keys to the buyer, using a discount rate represented by the average rate of the financing obtained by the Company, net
of inflation, as mentioned in Note 2.2.19.



Considering
that financing its customers is an important part of the Company operations, the reversal of the present value adjustment was
carried out as contra-entry to the group “Real estate development, sale, barter transactions and construction services”
revenue, consistently with interest incurred on the portion of receivables balance related to the period subsequent to the handover
of keys.



F-25


Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.6. | Mortgage-backed Securities
(CRIs) and Housing Loan Certificate (CCI)
| | ------ | --------------------------------------------------------------------



The
Company and its subsidiaries carry out the assignment and/or securitization of receivables related to completed projects and those
still under construction. This securitization is carried out through the issuance of the Housing Loan Certificate (“Cédula
de Crédito Imobiliário” or “CCI”), which is assigned to financial institutions. When there is
no right of recourse, this assignment is recorded as reduction of accounts receivable. When there is right of recourse against
the Company, the assigned receivable is maintained in the balance sheet and the funds from assignment are classified into the
account “Obligations assumed on assignment of receivable”, until receivables are settled by customers.



In
this situation, the transaction cost is recorded in “financial expenses” in the statement of profit or loss for the
year in which it is made.



When
there are financial guarantees, represented by the acquisition of subordinated CRI, they are recorded on the statement of financial
position as “short-term investments” at the realizable value, which is equivalent to fair value.



| | 2.2.7. | Properties for sale
| | ------ | -------------------



The
Company and its subsidiaries acquire land for future real estate developments, on payment conditions in current currency or through
barter transactions. Land acquired through barter transaction is stated at fair value of the units to be delivered, and the revenue
and cost are recognized according to the criteria described in Note 2.2.2 (iii).



Properties
are measured at the lower of construction cost, and net realizable value. In the case of real estate under construction, the portion
in inventories corresponds to the cost incurred for units that have not yet been sold. The incurred cost comprises construction
costs (materials, own or outsourced labor, and other related items), and legal expenses relating to the acquisition of land and
projects, land costs, and financial charges which relate to a project over the construction period.



The
classification of land between current and noncurrent assets is made by Management based on the expected period for launching
real estate ventures. Management periodically revises the estimates of real estate ventures launches.



F-26


Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.8. | Prepaid expenses
| | ------ | ----------------



These
are recognized in profit or loss as incurred using the accrual basis of accounting.



| | 2.2.9. | Land available for
sale
| | ------ | -----------------------



Land
available for sale is measured at the lower of the carrying value and the fair value less costs to sell, and is classified as
held for sale if its carrying value is to be recovered through a sale transaction of the land. This condition is considered fulfilled
only when the sale is highly probable, and the asset is available for immediate sale under its current condition. Management shall
commit to sell it within one year of the classification date.



| | 2.2.10. | Investments in associates
| | ------- | -------------------------



Investments
in associates are recorded using the equity method.



When
the Company's share of the losses of associates is equal to or higher than the amount invested, since the Company assumes obligations
and makes payments on behalf of these companies, the Company recognizes a provision at an amount considered appropriate to meet
the obligations of the associates (Note 9).



| | 2.2.11. | Property and equipment
| | ------- | ----------------------



Items
of property and equipment are measured at cost, less accumulated depreciation and/or any accumulated impairment losses, if applicable.



An
item of property and equipment is derecognized when no future economic benefits are expected from its use or disposal. The gain
or loss arising from derecognition of an asset (calculated as the difference between the net disposal proceeds and the carrying
value of the asset) is recognized in profit or loss upon derecognition.



Depreciation
is calculated based on the straight-line method considering the estimated useful lives of the assets (Note 10).



Expenditures
incurred in the construction of sales stands, display apartments and related furnishings are capitalized as property and equipment
of the Company and its subsidiaries. Depreciation of these assets commences upon launch of the development and is recorded over
the average term the stand is in use and is written-off when it is retired.



Property
and equipment are subject to periodic assessments of impairment.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.12. | Intangible assets
| | ------- | -----------------



| | (i) | Expenditures related to the acquisition and implementation
of computer systems and software licenses are recorded at acquisition cost, and amortized on straight-line basis over a period
of up to five years, and are subject to periodic assessments of impairment of assets.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The Company’s investments in subsidiaries include
goodwill when the acquisition cost exceeds the market value of net assets of the acquiree.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------



Impairment testing of goodwill
is performed at least annually, or whenever circumstances indicate an impairment loss.



| | 2.2.13. | Payables for purchase
of properties and advances from customer
| | ------- | --------------------------------------------------------------



Payables for purchase of properties
are recognized at the amounts corresponding to the contractual obligations assumed. Subsequently they are measured at amortized
cost, plus, when applicable, interest and charges proportional to the incurred period (“pro rata” basis), net of present
value adjustment.



The obligations related to barter
transactions of land in exchange for real estate units are stated at fair value of the units to be delivered.



| | 2.2.14. | Income tax and social
contribution on net income
| | ------- | ------------------------------------------------



| | (i) | Current income tax and social contribution
| | --- | ------------------------------------------



Current
tax is the expected tax payable or receivable/to be offset in relation to taxable profit for the year.



Income
taxes in Brazil comprise income tax (25%) and social contribution (9%), for entities on the standard profit regime, for which
the composite statutory rate is 34%. Deferred taxes for these entities are recognized on all temporary tax differences at the
reporting date between the tax bases of assets and liabilities, and their carrying values.



As
permitted by tax legislation, certain subsidiaries opted for the presumed profit regime, a method under which the taxable profit
is calculated as a percentage of gross sales. For these companies, the income tax is calculated on estimated profits at rate of
8% and 12% of gross revenues, respectively, on which the rates of the respective tax and contribution are levied.



F-28


Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.14. | Income tax and social
contribution on net income--Continued
| | ------- | -----------------------------------------------------------



| | (i) | Current income tax and social contribution --Continued
| | --- | ------------------------------------------------------



As
permitted by legislation, the development of certain ventures are subject to the “afetação” regime,
based on which the land and any other related right where a real estate will be developed, as well as other binding assets, rights
and obligations, are separated from the developer’s assets, and comprise the “patrimônio de afetação”
(detached assets), of the corresponding development and which real estate units will be delivered to the buyers. Its main objective
is to provide guarantees to the buyers’ rights in acquisition of units in construction. In addition, certain subsidiaries
made the irrevocable option for the Special Taxation Regime (RET), adopting the “patrimônio de afetação”,
according to which the income tax and social contribution are calculated at 1.92% on gross revenues (4% also levying PIS and COFINS
on revenues).



| | (ii) | Deferred income tax and social contribution
| | ---- | -------------------------------------------



Deferred
taxes are recognized in relation to tax losses and temporary differences between the carrying amount of assets and liabilities
for accounting purposes and the corresponding amounts used for tax purposes.



They
are recognized to the extent that it is probable that future taxable profit will be available to be used for offsetting deferred
tax assets, based on profit projections made using internal assumptions, and considering future economic scenarios that make it
possible their full or partial use, upon the recognition of a provision for the non-realization of the balance. The recognized
amounts are periodically reviewed, and the impacts of realization or settlement are reflected in compliance with tax legislation
provisions.



Deferred
tax on accumulated tax losses does not have an expiration date, however, they can only be offset against up to 30% of the taxable
profit for each year. Companies that opt for the presumed profit tax regime cannot offset tax losses for a period in subsequent
years.



Deferred
tax assets and liabilities are stated at net amount in the balance sheet when there is the legal right and intention to offset
them when determining the current taxes, related to the same legal entity and the same tax authority.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.15. | Other current and
non-current liabilities
| | ------- | -----------------------------------------



These
liabilities are stated at their known or estimated amounts, plus, when applicable, adjustment for charges and inflation-indexed
variations through the balance sheet date, which contra-entry is recorded in profit or loss. When applicable, current and noncurrent
liabilities are recorded at present value based on interest rates that reflect the term, currency and risk of each transaction.



| | 2.2.16. | Stock option plans
| | ------- | ------------------



As approved by its Board of Directors, the Company
offers executives and employees share-based compensation plans (“Stock Options”), as payments for services received.



The
fair value of options is determined on the grant date, considering that it is recognized as expense in profit or loss (as contra-entry
to equity), to the extent services are provided by employees and executives.



In
an equity-settled transaction, in which the plan is modified, a minimum expense is recognized corresponding to the expense that
would have been recorded if the terms have not been changed. An additional expense is recognized for any modification that increases
the total fair value of granted options, or that otherwise benefits the employee, measured on the modification date.



In
case of cancellation of a stock option plan, this is treated as if it had been vested on the cancellation date, and any unrecognized
plan expense is immediately recognized. However, if a new plan replaces the cancelled plan, and a substitute plan is designated
on the grant date, the cancelled plan and the new plan are treated as if they were a modification of the original plan, as previously
mentioned.



The
Company annually revises its estimates of the amount of options that shall be vested, considering the vesting conditions not related
to the market and the conditions based on length of service. The Company recognizes the impact of the revision of the initial
estimates, if any, in the statement of profit or loss, as contra-entry to equity.



| | 2.2.17. | Share-based payment
– Phantom Shares
| | ------- | ------------------------------------



The
Company has a cash-settled share-based payment plan (phantom shares) under fixed terms and conditions. There is no expectation
of the effective negotiation of shares, once there shall be no issue and/or delivery of shares for settling the plan.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.17. | Share-based payment
– Phantom Shares --Continued
| | ------- | ------------------------------------------------



These
amounts are recorded as a liability, with contra-entry in profit or loss for the year, based on the fair value of the phantom shares
granted, and during the vesting period. The fair value of this liability is remeasured and adjusted every reporting period, according
to the change in the fair value of the benefit granted and vesting.



| | 2.2.18. | Other employee benefits
| | ------- | -----------------------



The salaries and benefits granted
to the Company’s employees and executives include fixed compensation (salaries, social security contributions (INSS), Government
Severance Indemnity Fund for Employees (FGTS), vacation pay, and 13th monthly salary, among other) and variable compensation such
as profit sharing, bonus, and stock option-based payments. These benefits are recorded in profit or loss for the year, under the
account “General and administrative expenses”, as they are incurred.



The bonus system operates with
individual and corporate targets, structured based on the efficiency of corporate goals, followed by the business goals and, finally,
individual goals.



The Company and its subsidiaries
do not offer private pension or retirement plans.



| | 2.2.19. | Present value adjustment
– assets and liabilities
| | ------- | -------------------------------------------------



Assets and liabilities arising
from long or short-term transactions are adjusted to present value if significant.



In installment sales of not
completed units, real estate development entities adjust receivables by an inflation index, including the installment related to
the delivery of units, without accrual of interest, and shall be discounted to present value, as the agreed inflation rates do
not include interest.



Borrowing costs and other financing
costs directly attributable to the construction of real estate ventures are capitalized. Therefore, the reversal of the present
value adjustment of an obligation related to these items is included in the cost of real estate unit sold or in the inventories
of properties for sale, as the case may be, until the period of construction of the project is completed.



Accordingly, certain assets
and liabilities are adjusted to present value based on discount rates that reflect the best estimate of the value of the money
over time.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.19. | Present value adjustment
– assets and liabilities --Continued
| | ------- | -------------------------------------------------------------



The applied discount rate’s
underlying economic basis and assumption is the average rate of the financing and loans obtained by the Company, net of the inflationary
effect (Notes 5 and 12).



| | 2.2.20. | Debenture and public
offering costs
| | ------- | -----------------------------------



Transaction costs and premiums
on issuance of securities are accounted for as a direct reduction in the amount raised by the Company and are amortized over the
terms of the instrument and the net balance is classified as reduction in the respective transaction (Note 13).



| | 2.2.21. | Loans and financing
costs
| | ------- | -------------------------



Loans and financing costs which are directly attributable
to the development of assets for sale and land, are capitalized as part of the cost of that asset during the construction period,
which are recognized in profit or loss to the extent units are sold. All other loans and financing costs are expensed as incurred.
These costs comprise interest and other related costs incurred, including those for debt issuances.



| | 2.2.22. | Provisions
| | ------- | ----------



| | (i) | Provision for legal claims and commitments
| | --- | ------------------------------------------



The
Company is party to several lawsuits and administrative proceedings. Provisions are recognized for all demands related to lawsuits
which risk of loss is considered probable.



Contingent
liabilities for which losses are considered possible are only disclosed in a note to consolidated financial statements, and those
for which losses are considered remote are neither recognized nor disclosed.



Contingent
assets are recognized only when there are secured guarantees or favorable final and unappealable court decisions. Contingent assets
with probable favorable decisions are only disclosed in the notes. As of December 31, 2018 and 2017 there are no claims involving
contingent assets recorded in the consolidated balance sheets of the Company.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.22. | Provisions --Continued
| | ------- | ----------------------



| | (ii) | Allowance for expected credit losses
| | ---- | ------------------------------------



The Company annually reviews
its assumptions related to the recognition of an allowance for expected credit losses, taking into account the review of the histories
of its current operations and improvement of estimates.



The Company carries out a comprehensive
analysis of the contracts with customers in order to recognize an allowance for expected credit losses for all customers, based
on the assumptions set by the Company. This allowance is calculated based on the percentage-of-completion of the construction work,
a methodology adopted for recognizing profit or loss (Note 2.2.2).



| | (iii) | Provision for penalties due to delay in construction
work
| | ----- | ---------------------------------------------------------



As contractually provided, the Company has the practice
of provisioning the charges payable to eligible customers for projects whose delivery is delayed over 180 days, pursuant to the
respective contractual clause and history of payments.



| | (iv) | Warranty provision
| | ---- | ------------------



The Company and its subsidiaries
recognize a provision to cover expenditures for repairing construction defects covered during the warranty period, based on the
estimate that considers the history of incurred expenditures adjusted by the future expectation, except for the subsidiaries that
operate with outsourced companies, which are the direct guarantors of the construction services provided. The warranty period is
five years from the delivery of the venture.



| | (v) | Provision for impairment of non-financial assets
| | --- | ------------------------------------------------



When there is evidence of impairment of asset, and
the net carrying value exceeds the recoverable amount, a provision for impairment is recorded, adjusting the net carrying value
to the recoverable value. Goodwill and intangible assets with indefinite useful lives have the recovery of their net carrying amounts
tested annually, regardless whether there is any indication of impairment, by comparing to the net carrying value to the recoverable
amount measured by cash flows discounted to present value, using a discount rate before taxes, which reflects the weighted average
cost of capital of the Company.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.23. | Sales taxes
| | ------- | -----------



For
companies under the non-cumulative taxable profit regime, the PIS and COFINS contribution rates are 1.65% and 7.6%, respectively,
for companies under the taxable profit taxation regime, levied on gross revenue and discounting certain credits determined based
on incurred costs and expenses. For companies that opt for the presumed profit taxation regime, under the cumulative taxation
regime, the PIS and COFINS contribution rates are 0.65% and 3%, respectively, on gross revenue, without discounts of credits in
relation to incurred costs and expenses. In addition, certain subsidiaries made the irrevocable option for the Special Taxation
Regime (RET), adopting the “patrimonio de afetação”, according to which the PIS and COFINS are calculated
at 0.37% and 1.71%, respectively, on gross revenue.



| | 2.2.24. | Treasury shares
| | ------- | ---------------



Own
equity instruments that are repurchased (treasury shares) are recognized at cost and charged to equity. No gain or loss is recognized
in the statement of profit or loss upon purchase, sale, issue, or cancellation of the Company’s own equity instruments.



| | 2.2.25. | Interest on equity
and dividends
| | ------- | --------------------------------



The
portion of declared dividends and interest on equity are recorded as current liabilities in the heading “Dividends payable”.
Mandatory dividends are also recorded as current liabilities since it is a legal obligation provided for in the By-laws of the
Company.



| | 2.2.26. | Earnings (loss) per
share – basic and diluted
| | ------- | ---------------------------------------------



Basic
earnings (loss) per share are calculated by dividing the net income (loss) attributable (allocated) to common shareholders by
the weighted average number of common shares outstanding over the period.



Diluted
earnings per share are calculated in a similar manner, except that the weighted average number of shares outstanding are increased,
to include the additional shares that would be outstanding, in case the shares with dilutive potential attributable to stock option
had been issued over the respective periods, using the weighted average price of shares.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 2. | Presentation of financial statements and summary of significant
accounting policies --Continued
| | -- | -----------------------------------------------------------------------------------------------



| | 2.2. | Summary of significant accounting policies --Continued
| | ---- | ------------------------------------------------------



| | 2.2.27. | Non-current asset
held for sale and profit or loss from discontinued operations
| | ------- | -------------------------------------------------------------------------------



The Company classifies a disposal
group as held for sale if its carrying value is expected to be recovered by means of a sale transaction. In such case, the asset
or group of assets held for sale must be available for immediate sale on current conditions, subject to the usual and customary
terms for selling such assets held for sale and its sale must be highly probable.



For a sale to be considered
highly probable, Management must be committed to a plan to sell the asset, and have initiated a program for finding a buyer and
complete the plan at a price that is reasonable in relation to its current fair value. In addition, the sale must be expected to
be completed within one year of the classification date, unless events beyond the control of the Company change such period.



The asset held for sale is measured
at the lower of its carrying value and fair value less cost to sell. In case the carrying value exceeds its fair value, an impairment
loss is recognized in profit or loss for the year. Any reversal or gain shall only be recognized to the extent of such recognized
loss.



The assets and liabilities of
the group of assets held for sale are presented separately in the consolidated financial statements. The profit or loss of discontinued
operations is presented at a single amount in the statement of profit or loss, which included the total after-tax income of these
operations less any impairment-related loss. The net cash flows attributable to operating, investing and financing activities of
discontinued operations are presented in Note 8.2.



According to Note 8.2, the transaction
of spin-off transaction between Gafisa and Tenda was completed on May 4, 2017 with the effective delivery of the totality of shares
comprising Tenda’s capital in the respective processes of capital decrease and preemptive rights.







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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)











| | 3. | New standards, changes and interpretation of standards
issued and adopted from 2018, and not yet adopted
| | -- | --------------------------------------------------------------------------------------------------------



| | 3.1 | New standards, changes and interpretations of standards
issued and adopted from 2018
| | --- | ------------------------------------------------------------------------------------



The
following standards are in effect beginning on January 1, 2018:



| | (i) | IFRS 9 – Financial Instruments (CPC 48) includes,
among others, new models for classification and measurement of financial instruments, and measurement of prospective expected
credit losses for financial and contractual assets.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Based
on its evaluation, the Company concluded that the new classification requirements did not have a significant impact on the recognition
of financial assets measured at fair value.



Additionally,
according to CPC 48, expected losses are measured using one of the following bases: 12-month expected credit losses, and full
lifetime expected credit losses. Therefore, the Company carried out the measurement of the allowance regarding the expected credit
losses on contracts sold, which is recorded together with the recognition of the respective revenue.



(ii)
The IFRS 15 – Revenue from Contracts with Customers (CPC 47) introduces new requirements for measurement and timing of revenue
recognition. For the specific case of the real estate development sector, maintaining the POC revenue recognition method or adopting
the method of keys handover, for example, depends on the contractual analyses made by Management. Letter CVM/SNC/SEP/ 02/2018,
issued by CVM’s technical area, established accounting procedures for recognition, measurement and disclosure of certain
types of transactions arising from purchase and sale contracts of units not completed in the Brazilian real estate development
entities. Therefore, the Company measured the allowance for contracts with identification of the risks of cash inflows to the
entity.



For
comparability purposes, the balances as of December 31, 2017, December 31, 2016 and the opening balance as of January 1, 2016
were adjusted considering such changes in accounting practice. As required by CPC 23 – Accounting Policies, Changes in Accounting
Estimates and Errors, the retrospective effects of the adoption of CPCs 47 and 48 are demonstrated as follows:



|Statement of financial position |  | Originally reported balances |           | Impact from applying the CPCs 47 and 48 |  | Balances after applying the CPCs 47 and 48 as of 12/31/2017 |          | Originally reported balances |  | Impact from applying the CPCs 47 and 48 |           | Balances after applying the CPCs 47 and 48 as of 12/31/12016
|------------------------------- |  | ---------------------------- | --------- | --------------------------------------- |  | ----------------------------------------------------------- | -------- | ---------------------------- |  | --------------------------------------- | --------- | ------------------------------------------------------------
|                                |  |                              |           |                                         |  |                                                             |          |                              |  |                                        
|Assets                          |  |                              |           |                                         |  |                                                             |          |                              |  |                                         |           |                                                             
|Trade accounts receivable       |  |                              | 484,761   |                                         |  |                                                             | (109,875 | )                            |  |                                         | 374,886   |                                                             
|Properties for sale             |  |                              | 882,189   |                                         |  |                                                             | 120,537  |                              |  |                                         | 1,002,726 |                                                             
|Other current assets            |  |                              | 365,975   |                                         |  |                                                             | -        |                              |  |                                         | 365,975   |                                                             
|Total current assets            |  |                              | 1,732,925 |                                         |  |                                                             | 10,662   |                              |  |                                         | 1,743,587 |                                                             
|Total non-current assets        |  |                              | 1,145,213 |                                         |  |                                                             | (12,440  | )                            |  |                                         | 1,132,773 |                                                             
|Total Assets                    |  |                              | 2,878,138 |                                         |  |                                                             | (1,778   | )                            |  |                                         | 2,876,360 |                                                             
|                                |  |                              |           |                                         |  |                                                             |          |                              |  |                                         |           |                                                             
|Liabilities                     |  |                              |           |                                         |  |                                                             |          |                              |  |                                         |           |                                                             
|Total current liabilities       |  |                              | 1,213,686 |                                         |  |                                                             | 42,557   |                              |  |                                         | 1,256,243 |                                                             
|Total non-current liabilities   |  |                              | 905,048   |                                         |  |                                                             | -        |                              |  |                                         | 905,048   |                                                             
|Total equity                    |  |                              | 759,404   |                                         |  |                                                             | (44,335  | )                            |  |                                         | 715,069   |                                                             
|Total liabilities and equity    |  |                              | 2,878,138 |                                         |  |                                                             | (1,778   | )                            |  |                                         | 2,876,360 |                                                             
|                                |  |                              |           |                                         |  |                                                             |          |                              |  |                                         |           |                                                             

F-36


Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 3. | New standards, changes and interpretation of standards
issued and adopted from 2018, and not yet adopted --Continued
| | -- | --------------------------------------------------------------------------------------------------------------------



| | 3.1 | New standards, changes and interpretations of standards
issued and adopted from 2018--Continued
| | --- | -----------------------------------------------------------------------------------------------



|                                           |  |                              |          |                                         |  |                                                             |         |                             
|------------------------------------------ |  | ---------------------------- | -------- | --------------------------------------- |  | ----------------------------------------------------------- | ------- | ----------------------------
|Statement of profit or loss                |  | Originally reported balances |          | Impact from applying the CPCs 47 and 48 |  | Balances after applying the CPCs 47 and 48 as of 12/31/2017 |         | Originally reported balances
|                                           |  |                              |          |                                         |  |                                                             |         |                             
|Net operating revenue                      |  |                              | 608,823  |                                         |  |                                                             | 177,351 |                             
|Operating costs                            |  |                              | (818,751 | )                                       |  |                                                             | (87,735 | )                           
|Operating (expenses) / income              |  |                              | (654,216 | )                                       |  |                                                             | -       |                             
|Financial income (expense)                 |  |                              | (107,268 | )                                       |  |                                                             | -       |                             
|Income tax and social contribution         |  |                              | 23,100   |                                         |  |                                                             | -       |                             
|Profit from (loss on) continued operations |  |                              | (948,312 | )                                       |  |                                                             | 89,616  |                             
|Profit from discontinued operations        |  |                              | 98,175   |                                         |  |                                                             | -       |                             
|Non-controlling interests                  |  |                              | (281     | )                                       |  |                                                             | -       |                             
|Net profit (loss) for the year             |  |                              | (849,856 | )                                       |  |                                                             | 89,616  |                             
|                                           |  |                              |          |                                         |  |                                                             |         |                             
|Cash flow                                  |  |                              |          |                                         |  |                                                             |         |                             
|Operating activities                       |  |                              | 206,865  |                                         |  |                                                             | -       |                             
|Financing activities                       |  |                              | 445,448  |                                         |  |                                                             | -       |                             
|Investing activities                       |  |                              | (528,609 | )                                       |  |                                                             | -       |                             
|                                           |  |                              |          |                                         |  |                                                             |         |                             
|Statement of value added                   |  |                              |          |                                         |  |                                                             |         |                             
|Net value added produced by the entity     |  |                              | (276,907 | )                                       |  |                                                             | 102,056 |                             
|Value added received as transfer           |  |                              | (175,130 | )                                       |  |                                                             | (12,440 | )                           
|Total value added to be distributed        |  |                              | (452,037 | )                                       |  |                                                             | 89,616  |                             









|Statement of financial position |  | Originally reported balances |           | Impact from applying the CPCs 47 and 48 |  | Balances after applying the CPCs 47 and 48 as of 01/01/2016
|------------------------------- |  | ---------------------------- | --------- | --------------------------------------- |  | -----------------------------------------------------------
|Assets                          |  |                              |           |                                         |  |                                                            
|Trade accounts receivable       |  |                              | 1,395,273 |                                         |  |                                                            
|Properties for sale             |  |                              | 1,880,377 |                                         |  |                                                            
|Other current assets            |  |                              | 1,041,114 |                                         |  |                                                            
|Total current assets            |  |                              | 4,316,764 |                                         |  |                                                            
|Total non-current assets        |  |                              | 2,443,568 |                                         |  |                                                            
|Total Assets                    |  |                              | 6,760,332 |                                         |  |                                                            
|                                |  |                              |           |                                         |  |                                                            
|Liabilities                     |  |                              |           |                                         |  |                                                            
|Total current liabilities       |  |                              | 2,048,969 |                                         |  |                                                            
|Total non-current liabilities   |  |                              | 1,614,127 |                                         |  |                                                            
|Total equity                    |  |                              | 3,097,236 |                                         |  |                                                            
|Total liabilities and equity    |  |                              | 6,760,332 |                                         |  |                                                            









F-37


Table of Contents




Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)







| | 3. | New standards, changes and interpretation of standards
issued and adopted from 2018, and not yet adopted --Continued
| | -- | --------------------------------------------------------------------------------------------------------------------



| | 3.1 | New standards, changes and interpretations of standards
issued and adopted from 2018—Continued
| | --- | ----------------------------------------------------------------------------------------------



For
US GAAP purposes, based on the assessments undertaken, the adoption of the related standards, has changed the revenue recognition,
from over the time (PoC method) to a point in time, upon delivery of keys for each real estate unit as presented in Note 33 to
these financial statements. ASUs Topic 606 are effective for annual reporting periods beginning after December 15, 2017. As a
transition method, the Company has recognized the cumulative effect of initially applying this guidance as an adjustment to the
opening balance of retained earnings as of January 01, 2016 to all contracts at the date of initial application. The effects of
this adoption are demonstrated as follows:







|Statement of financial position                       |  | Originally reported
    balances as of 12/31/2017 |                                                                                        | Impact from applying
    ASUs Topic 606 |  | Balances after applying
    ASUs Topic 606 as of 12/31/2017 |                                                                              | Originally reported
    balances as of 12/31/2016 |  | Impact from applying
    ASUs Topic 606 |                                                                                                  | Balances after applying
    ASUs Topic 606 as of 12/31/2016
|----------------------------------------------------- |  | ------------------------------------------------- | -------------------------------------------------------------------------------------- | --------------------------------------- |  | ----------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------- |  | --------------------------------------- | ------------------------------------------------------------------------------------------------ | -----------------------------------------------------------
|Assets                                                |  |                                                   |                                                                                        |                                         |  |                                                             |                                                                              |                                                   |  |                                         |                                                                                                  |                                                            
|Trade accounts receivable of development and services |  |                                                   | 336,674                                                                                |                                         |  |                                                             | (194,805                                                                     | )                                                 |  |                                         | 141,869                                                                                          |                                                            
|Properties for sale                                   |  |                                                   | 1,102,487                                                                              |                                         |  |                                                             | 614,146                                                                      |                                                   |  |                                         | 1,716,633                                                                                        |                                                            
|Other current assets                                  |  |                                                   | 366,948                                                                                |                                         |  |                                                             | 5,780                                                                        |                                                   |  |                                         | 372,728                                                                                          |                                                            
|Total current assets                                  |  |                                                   | 1,806,109                                                                              |                                         |  |                                                             | 425,121                                                                      |                                                   |  |                                         | 2,231,230                                                                                        |                                                            
|Total non-current assets                              |  |                                                   | 1,079,615                                                                              |                                         |  |                                                             | (117,649                                                                     | )                                                 |  |                                         | 961,966                                                                                          |                                                            
|Total Assets                                          |  |                                                   | 2,885,724                                                                              |                                         |  |                                                             | 307,472                                                                      |                                                   |  |                                         | 3,193,196                                                                                        |                                                            
|                                                      |  |                                                   |                                                                                        |                                         |  |                                                             |                                                                              |                                                   |  |                                         |                                                                                                  |                                                            
|Liabilities                                           |  |                                                   |                                                                                        |                                         |  |                                                             |                                                                              |                                                   |  |                                         |                                                                                                  |                                                            
|Total current liabilities                             |  |                                                   | 1,319,623                                                                              |                                         |  |                                                             | 473,141                                                                      |                                                   |  |                                         | 1,792,764                                                                                        |                                                            
|Total non-current liabilities                         |  |                                                   | 905,046                                                                                |                                         |  |                                                             | 1                                                                            |                                                   |  |                                         | 905,047                                                                                          |                                                            
|Total equity                                          |  |                                                   | 661,055                                                                                |                                         |  |                                                             | (165,670                                                                     | )                                                 |  |                                         | 495,385                                                                                          |                                                            
|Total liabilities and equity                          |  |                                                   | 2,885,724                                                                              |                                         |  |                                                             | 307,472                                                                      |                                                   |  |                                         | 3,193,196                                                                                        |                                                            
|                                                      |  |                                                   |                                                                                        |                                         |  |                                                             |                                                                              |                                                   |  |                                         |                                                                                                  |                                                            
|Statement
    of profit or loss                       |  |                                                   | Originally
                                         reported balances as of 12/31/2017 |                                         |  |                                                             | Impact
                                         from applying ASUs Topic 606 |                                                   |  |                                         | Balances
                                         after applying ASUs Topic 606 as of 12/31/2017 |                                                            
|Net operating revenue                                 |  |                                                   | 750,616                                                                                |                                         |  |                                                             | 352,596                                                                      |                                                   |  |                                         | 1,103,212                                                                                        |                                                            
|Operating costs                                       |  |                                                   | (916,211                                                                               | )                                       |  |                                                             | (193,111                                                                     | )                                                 |  |                                         | (1,109,322                                                                                       | )                                                          
|Operating (expenses) / income                         |  |                                                   | (449,353                                                                               | )                                       |  |                                                             | -                                                                            |                                                   |  |                                         | (449,353                                                                                         | )                                                          
|Financial income (expense)                            |  |                                                   | (105,091                                                                               | )                                       |  |                                                             | (1,932                                                                       | )                                                 |  |                                         | (107,023                                                                                         | )                                                          
|Income tax and social contribution                    |  |                                                   | 56,075                                                                                 |                                         |  |                                                             | (3,582                                                                       | )                                                 |  |                                         | 52,493                                                                                           |                                                            
|Income from equity method investments                 |  |                                                   | (130,165                                                                               | )                                       |  |                                                             | (46,752                                                                      | )                                                 |  |                                         | (176,917                                                                                         | )                                                          
|Profit from (loss on) continued operations            |  |                                                   | (794,129                                                                               | )                                       |  |                                                             | 107,219                                                                      |                                                   |  |                                         | (686,910                                                                                         | )                                                          
|Profit from discontinued operations                   |  |                                                   | 64,796                                                                                 |                                         |  |                                                             | -                                                                            |                                                   |  |                                         | 64,796                                                                                           |                                                            
|Non-controlling interests                             |  |                                                   | 2,732                                                                                  |                                         |  |                                                             | (3,013                                                                       | )                                                 |  |                                         | (281                                                                                             | )                                                          
|Net profit (loss) for the year                        |  |                                                   | (732,065                                                                               | )                                       |  |                                                             | 110,232                                                                      |                                                   |  |                                         | (621,833                                                                                         | )                                                          
|                                                      |  |                                                   |                                                                                        |                                         |  |                                                             |                                                                              |                                                   |  |                                         |                                                                                                  |                                                            



|Statement
    of financial position |  |  | Originally
                                         reported balances |  |  |  | Impact
                                         from applying ASUs Topic 606 |   |  |  | Balances
                                         after applying ASUs Topic 606 as of 01/01/2016 |  |  |  |  |  |  |  |  |  |  |  |  | 
|----------------------------------- |  |  | --------------------------------------------------------------------- |  |  |  | ---------------------------------------------------------------------------- | - |  |  | ------------------------------------------------------------------------------------------------ |  |  |  |  |  |  |  |  |  |  |  |  | 
|Assets                              |  |  |                                                                       |  |  |  |                                                                              |   |  |  |                                                                                                  |  |  |  |  |  |  |  |  |  |  |  |  | 
|Total current assets                |  |  | 4,876,159                                                             |  |  |  | 641,343                                                                      |   |  |  | 5,517,502                                                                                        |  |  |  |  |  |  |  |  |  |  |  |  | 
|Total non-current assets            |  |  | 1,812,689                                                             |  |  |  | (278,525                                                                     | ) |  |  | 1,534,164                                                                                        |  |  |  |  |  |  |  |  |  |  |  |  | 
|Total Assets                        |  |  | 6,688,848                                                             |  |  |  | 362,818                                                                      |   |  |  | 7,051,666                                                                                        |  |  |  |  |  |  |  |  |  |  |  |  | 
|                                    |  |  |                                                                       |  |  |  |                                                                              |   |  |  |                                                                                                  |  |  |  |  |  |  |  |  |  |  |  |  | 
|Liabilities                         |  |  |                                                                       |  |  |  |                                                                              |   |  |  |                                                                                                  |  |  |  |  |  |  |  |  |  |  |  |  | 
|Total current liabilities           |  |  | 2,486,947                                                             |  |  |  | 292,899                                                                      |   |  |  | 2,779,846                                                                                        |  |  |  |  |  |  |  |  |  |  |  |  | 
|Total non-current liabilities       |  |  | 1,497,019                                                             |  |  |  | 818,875                                                                      |   |  |  | 2,315,894                                                                                        |  |  |  |  |  |  |  |  |  |  |  |  | 
|Total equity                        |  |  | 2,704,882                                                             |  |  |  | (748,956                                                                     | ) |  |  | 1,955,926                                                                                        |  |  |  |  |  |  |  |  |  |  |  |  | 
|Total liabilities and equity        |  |  | 6,688,848                                                             |  |  |  | 362,818                                                                      |   |  |  | 7,051,666                                                                                        |  |  |  |  |  |  |  |  |  |  |  |  | 







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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)







| | 3. | New standards, changes and interpretation of standards
issued and adopted from 2018, and not yet adopted --Continued
| | -- | --------------------------------------------------------------------------------------------------------------------



| | 3.2 | New standards, changes and interpretations of standards
issued and adopted from 2018
| | --- | ------------------------------------------------------------------------------------



| | · | IFRS
16 – Leases
| | - | ----------------



This
standard replaces the previous lease standard, IAS 17/CPC 06 (R1) – Leases, and related interpretation, and establishes
the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, that is,
the customers (lessees) and providers (lessors). Lessees are required to recognize a lease liability reflecting the future lease
payments and a “right-of-use assets” for practically all lease contracts, except certain short-term leases and contracts
of low-value assets. For lessors, the criteria for recognition and measurement of leases in the financial statements are substantially
maintained. This standard is effective beginning on January 1, 2019.



Based
on available information, the Company estimates that right-of-use assets and lease liabilities will be recognized in the amount
of R$4,990 as of January 1, 2019.



| | · | Other
amendments not yet adopted
| | - | --------------------------------



The
following standard amendments and interpretations shall not have a significant impact on the Consolidated Financial Statements
of the Company:



| | (i) | IFRIC 23/ICPC 22 Uncertainty over Income Tax Treatments
| | --- | -------------------------------------------------------



| | (ii) | Prepayment Features with Negative Compensation (Amendments
to IFRS 9)
| | ---- | ---------------------------------------------------------------------



| | (iii) | Investments in Associates and Joint Ventures
| | ----- | --------------------------------------------



| | (iv) | (Amendments to CPC 18(R2) / IAS 28)
| | ---- | -----------------------------------



| | (v) | Amendments to Plan Amendment, Curtailment or Settlement
(Amendments to CPC 33 / IAS 19)
| | --- | ---------------------------------------------------------------------------------------



| | (vi) | Annual improvements to IFRS Standards 2015-2017 cycle
– several standards
| | ---- | -------------------------------------------------------------------------



| | (vii) | Amendments to references to the conceptual framework in
the IFRS
| | ----- | ----------------------------------------------------------------



| | (viii) | IFRS 17 Insurance Contracts.
| | ------ | ----------------------------



There
is no other standard, changes to standards or interpretation issued and not yet adopted that could, on the Management’s
opinion, have significant impact arising from their adoption on its financial statements.



F-39


Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 4. | Cash and cash equivalents and short-term investments
| | -- | ----------------------------------------------------



| | 4.1. | Cash
                                         and cash equivalents
| | ---- | ------------------------------------------------------------------



|                                                                 |  |     
|---------------------------------------------------------------- |  | ----
|                                                                 |  | 2018
|                                                                 |  |     
|Cash and banks                                                   |  |     
|Government bonds (LFT)                                           |  |     
|Total cash and cash equivalents  (Note 20.i.d, 20.ii.a e 20.iii) |  |     







| | 4.2. | Short-term
                                         investments
| | ---- | ---------------------------------------------------------------



|                                                              |  |     
|------------------------------------------------------------- |  | ----
|                                                              |  | 2018
|                                                              |  |     
|Fixed-income funds (a)                                        |  |     
|Government bonds (LFT) (b)                                    |  |     
|Equity securities(e)                                          |  |     
|Securities purchased under resale agreements (b)              |  |     
|Bank certificates of deposit (c)                              |  |     
|Restricted cash in guarantee to loans                         |  |     
|Restricted credits (d)                                        |  |     
|                                                              |  |     
|Total short-term investments  (Note 20.i.d, 20.ii.a e 20.iii) |  |     
|                                                              |  |     







| | (a) | Exclusive and open-end funds whose purpose is to invest
in financial assets and/or fixed-income investment modalities that follow the fluctuations in interest rates in the interbank
deposit market (CDI), by investing its funds mostly in investment fund shares and/or investment funds comprising investment fund
shares.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | (b) | On January 12, 2018 the Company discontinued Fundo Square,
settling the LFT transactions and the securities linked to Fundo Like. As of December 31, 2018, the IOF-exempt securities purchased
under resale agreement include earned interests of 73% of Interbank Deposit Certificates (CDI).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | As of December 31, 2018, Bank Certificates of Deposit
(CDBs) include interest earned through the statement of financial position’s reporting date, ranging from 90% to 101.2%
(from 90% to 100.8% as of December 31, 2017) of Interbank Deposit Certificates (CDI).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | Restricted credits are represented by onlending of the
funds from associate credit (“crédito associativo”), a type of government real estate financing, which
are in process of approval at the Caixa Econômica Federal (a Federally owned Brazilian bank used for real estate financing
purpose). These approvals are made to the extent the contracts signed with customers at the financial institutions are regularized,
which the Company expect to be in up to 90 days.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) | Equity securities are represented by investments in the
shares of companies listed on Novo Mercado of B3, and which make up the IBrX index. These transactions were settled in
the period ended February 8, 2019, and reported a gain of R$2,846.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | Trade accounts receivable
| | -- | -------------------------



|                                                          |  |     
|--------------------------------------------------------- |  | ----
|                                                          |  | 2018
|                                                          |  |     
|Real estate development and sales                         |  |     
|( - ) Allowance for expected credit losses                |  |     
|( - ) Allowance for cancelled contracts                   |  |     
|( - ) Present value adjustments                           |  |     
|Services and construction and other receivables           |  |     
|                                                          |  |     
|Total trade accounts receivable (Note 20.i.d and 20.ii.a) |  |     
|                                                          |  |     
|Current                                                   |  |     
|Non-current                                               |  |     
|                                                          |  |     

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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 5. | Trade accounts receivable --Continued
| | -- | -------------------------------------



The
current and non-current portions have the following maturities:



|                                                                       |  |     
|---------------------------------------------------------------------- |  | ----
|Maturity                                                               |  | 2018
|                                                                       |  |     
|Overdue:                                                               |  |     
|Up to 90 days                                                          |  |     
|From 91 to 180 days                                                    |  |     
|Over 180 days                                                          |  |     
|                                                                       |  |     
|                                                                       |  |     
|Maturities:                                                            |  |     
|2018                                                                   |  |     
|2019                                                                   |  |     
|2020                                                                   |  |     
|2021                                                                   |  |     
|2022                                                                   |  |     
|2023 onwards                                                           |  |     
|                                                                       |  |     
|                                                                       |  |     
|( - ) Present value adjustment                                         |  |     
|( - ) Allowance for expected credit losses and cancelled contracts (a) |  |     
|                                                                       |  |     
|                                                                       |  |     





| | (a) | Allowance related to
the cancellations of sales contracts recognized as revenue overtime during the construction phase.
| | --- | -----------------------------------------------------------------------------------------------------------------------



The
balance of accounts receivable from units sold and not yet completed is not fully reflected in the financial statements. Its recording
is limited to the portion of the recognized revenues net of the amounts already received, according to the accounting practice
mentioned in Note 2.2.2(i)(b).



As
of December 31, 2018, the amount received from customers in excess of the recognized revenues totaled R$28,956 (R$63,748 in 2017)
in the consolidated statements, and are classified in the heading “Payables for purchase of properties and advances from
customers " (Note 17). Additionally, as of December 31, 2018, the amount related
to contract assets totaled R$270,085 (R$351,806 in 2017).



Accounts
receivable from completed real estate units financed by the Company are in general subject to IGP-M variation plus annual interest
of 12%, with revenue being recorded in profit or loss in the account “Revenue from real estate development and sale, barter
transactions and construction services". The interest amounts recognized in the consolidated statements of profit and loss
for the year ended December 31, 2018 totaled R$6,676 (R$9,866 in 2017).



The
balances of allowance for expected credit losses are considered sufficient by the Company’s management to cover the estimate
of future losses on realization of the accounts receivable.



During
the years ended December 31, 2018 and 2017, the changes in the allowance for expected credit losses are summarized as follows:



F-41


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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 5. | Trade accounts receivable --Continued
| | -- | -------------------------------------









|                                                          |  | Receivables |          | Properties
for sale (Note 6)
|--------------------------------------------------------- |  | ----------- | -------- | ----------------------------
|                                                          |  |             |          |                             
|Balance at December 31, 2016                              |  |             | (19,315  | )                           
|First-time adoption CPC 47 and 48 as of 1.1.2017 (Note 3) |  |             | (310,802 | )                           
|Additions (Note 22)                                       |  |             | (18,860  | )                           
|Write-offs / Reversals (Note 22)                          |  |             | 206,144  |                             
|Balance at December 31, 2017                              |  |             | (142,833 | )                           
|Additions (Note 22)                                       |  |             | (2,653   | )                           
|Write-offs / Reversals (Note 22)                          |  |             | 44,480   |                             
|Balance at December 31, 2018                              |  |             | (101,006 | )                           



The
present value adjustment recognized in revenue from real estate development for the year ended December 31, 2018
totaled R$4,504 (reversal of R$11,928 in 2017)in the consolidated financial statements.



Receivables
from units not yet completed were measured at present value using a discount rate determined according to the criteria described
in Note 2.2.2. The discount rate applied by the Company and its subsidiaries was 7.19% for the
year 2018 (6.55% in 2017),net of Civil Construction National Index (INCC).



The
Company entered into the following Housing Loan Certificate (CCI) transactions, which are aimed at the assignment by the assignor
to the assignee of a portfolio comprising select residential and business real estate receivables performed and to be performed
arising out of Gafisa and its subsidiaries. The assigned portfolios, discounted to present value, are recorded under the heading
“obligations assumed on the assignment of receivables”.



|       | Transaction date | Assigned portfolio | Portfolio discounted to present value | Transaction
balance
        (Note 14)
|------ | ---------------- | ------------------ | ------------------------------------- | -------------------------------------
|2018   | 2017            
|       |                  |                    |                                       |                                      
|(i)    | Jun 27, 2011     | 203,915            | 171,694                               | 882                                  
|(ii)   | Dec 22, 2011     | 72,384             | 60,097                                | 372                                  
|(iii)  | Jul 6, 2012      | 18,207             | 13,917                                | 10                                   
|(iv)   | Nov 14, 2012     | 181,981            | 149,025                               | 2,547                                
|(v)    | Dec 27, 2012     | 72,021             | 61,647                                | 3,151                                
|(vi)   | Nov 29, 2013     | 24,149             | 19,564                                | 1,877                                
|(vii)  | Nov 25, 2014     | 15,200             | 12,434                                | 1,895                                
|(viii) | Dec 3, 2015      | 32,192             | 24,469                                | 7,797                                
|(ix)   | Feb 19, 2016     | 27,954             | 27,334                                | 9,645                                
|(x)    | May 09, 2016     | 17,827             | 17,504                                | 6,790                                
|(xi)   | Aug 19, 2016 (a) | 15,418             | 14,943                                | 3,075                                
|(xii)  | Dec 21, 2016     | 21,102             | 19,532                                | 7,441                                
|(xiii) | Mar 29, 2017     | 23,748             | 22,993                                | 11,704                               
|       |                  |                    |                                       | 57,186                               





| | (a) | The consolidated balance
of the transaction as of December 31, 2018 and 2017 (Note 14) does not include the jointly-controlled entities, which are accounted
for using the equity method, according to CPCs 18(R2) and 19(R2).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Transaction
(i) was entered into with Banco BTG Pactual S.A. (Note 14).



Transactions
(ii) and (iii) were entered into with Polo Multisetorial Fundo de Investimento em Direitos Creditórios (Note 14).



Transactions
(iv), (v), (vi) and (vii) were entered into with Polo Multisetorial Fundo de Investimento em Direitos Creditórios Não
Padronizados (Note 14).



Transactions
(viii), (ix), (x), (xi), (xii) and (xiii) were entered into with Polo Capital Securitizadora S.A. (Note 14).



In
the transactions above, the Company and its subsidiaries are jointly responsible until the time of the transfer of the collateral
to the securitization company.



For
the items (i) to (iii) and (viii) to (xiii)above, the Company was engaged to perform,
among other duties, the management of the receipt of receivables, the assignment’s underlying assets, collection of defaulting
customers, among other, according to the criteria of each investor, being paid for these services.





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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 5. | Trade accounts receivable --Continued
| | -- | -------------------------------------



The
difference between the face value of the portfolio of receivables and the amount discounted to present value was recorded in profit
or loss for the year in the account “Discount related to Securitization Transaction” under financial expenses.



| | 6. | Properties for sale
| | -- | -------------------



|                                                                                              |  |     
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  | 2018
|                                                                                              |  |     
|Land                                                                                          |  |     
|( - ) Write-down to net realizable value of land                                              |  |     
|( - ) Adjustment to present value                                                             |  |     
|Property under construction (Note 29)                                                         |  |     
|Completed units                                                                               |  |     
|( - ) Write-down to net realizable value of properties under construction and completed units |  |     
|Allowance for cancelled contracts                                                             |  |     
|                                                                                              |  |     
|Total properties for sale                                                                     |  |     
|                                                                                              |  |     
|Current portion                                                                               |  |     
|Non-current portion                                                                           |  |     



In
the years ended December 31, 2018 and 2017,the change in the write-down to net realizable
value of land and properties under construction and completed units is summarized as follows:



|                                                          |  | 
|--------------------------------------------------------- |  | 
|Balance at December 31, 2016                              |  | 
|Reclassification to land available for sale (Note 8.1)    |  | 
|Additions:                                                |  | 
|Land (Note 23)                                            |  | 
|Property under construction and completed units (Note 23) |  | 
|Write-offs                                                |  | 
|Balance at December 31, 2017                              |  | 
|Reclassification from land available for sale (Note 8.1)  |  | 
|Reclassification to land available for sale (Note 8.1)    |  | 
|Additions:                                                |  | 
|Land (Note 23)                                            |  | 
|Property under construction and completed units (Note 23) |  | 
|Write-offs (a)                                            |  | 
|                                                          |  | 
|Balance at December 31, 2018                              |  | 



| | (a) | The amount of write-offs refers to the respective units
sold in the period.
| | --- | ---------------------------------------------------------------------------



The
amount of properties for sale offered as guarantee for financial liabilities is described in Note 12.



As
disclosed in Note 12, the balance of capitalized financial charges as of December 31,2018 amounts R$223,807 (R$301,025 in 2017).



| | 7. | Other assets
| | -- | ------------



|                                                   |  |     
|-------------------------------------------------- |  | ----
|                                                   |  | 2018
|                                                   |  |     
|Advances to suppliers                              |  |     
|Recoverable taxes (IRRF, PIS, COFINS, among other) |  |     
|Judicial deposit (Note 16.a)                       |  |     
|Total other assets                                 |  |     
|                                                   |  |     
|Current portion                                    |  |     
|Non-current portion                                |  |     

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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 8. | Non-current assets held for sale
| | -- | --------------------------------



| | 8.1 | Land available for sale
| | --- | -----------------------



The
Company, in line with its strategic direction, opted to sell land not included in the Business Plan in effect. Therefore, it devised
a specific plan for the sale of such land. The carrying value of such land, adjusted to fair value less costs to sell, after the
test for impairment, is as follows:



|                                                   |  | Cost |          | Provision for impairment |  | Net balance
|-------------------------------------------------- |  | ---- | -------- | ------------------------ |  | -----------
|                                                   |  |      |          |                          |  |            
|Balance at December 31, 2016                       |  |      | 12,236   |                          |  |            
|Reclassification of properties for sale (Note 6)   |  |      | 62,343   |                          |  |            
|Additions                                          |  |      | 158,979  |                          |  |            
|Reversal/Write-offs                                |  |      | (36      | )                        |  |            
|Balance at December 31, 2017                       |  |      | 233,522  |                          |  |            
|Reclassification from properties for sale (Note 6) |  |      | 58,795   |                          |  |            
|Reclassification to properties for sale (Note 6)   |  |      | (40,262  | )                        |  |            
|Additions                                          |  |      | 25,349   |                          |  |            
|Reversal/Write-offs (a)                            |  |      | (127,916 | )                        |  |            
|Balance at December 31, 2018                       |  |      | 149,488  |                          |  |            



| | (a) | The amount of write-offs over the period mainly refers to the sale of land in June 2018, located in the city of Salvador, Bahia,
through the SPEs Manhattan Residencial 02 and Manhattan Comercial 02, for the amount of R$28,500, of which R$12,060 receivable
in 24 months, and the remaining balance of R$16,440 was settled on July 24, 2018.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8.2 | Non-current asset held for sale and profit or loss of
discontinued operations
| | --- | -----------------------------------------------------------------------------



|                                                    |  | 2018 |   | 2017 |  | 2016
|--------------------------------------------------- |  | ---- | - | ---- |  | ----
|                                                    |  |      |   |      |  |     
|Reversal of impairment loss (i)                     |  |      | - |      |  |     
|Portion related to payable for sale of shares (iii) |  |      | - |      |  |     
|Transaction costs                                   |  |      | - |      |  |     
|Impairment loss on Tenda’s profit or loss           |  |      | - |      |  |     
|Tenda’s profit or loss for the period (ii)          |  |      | - |      |  |     
|Profit or loss of discontinued operations           |  |      | - |      |  |     





| | (i) | The measurement of non-current asset held for sale at the lower of
its carrying value and the fair value less cost to sell. For the period ended May 4, 2017, the fair value of discontinued operations
was adjusted, considering the weighted average price per share for exercising preemptive rights at R$12.12 (R$8.13 per share as
of December 31, 2016).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Amounts of assets held for sale, liabilities related to assets held for sale, and profit or loss of discontinued operations,
net of the eliminations related to intercompany transactions, for the period ended May 04, 2017.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Amount of R$107,720 related to the obligation to sell
50% of Construtora Tenda S.A.’s shares for the price of R$8.13 per share, settled on May 4, 2017, reflected in the profit
or loss of discontinued operations, in order to reflect the difference between the fair value of the group of assets held for
sale and the effective selling price.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







F-44


Table of Contents




Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)









| | 8. | Non-current assets held for sale --Continued
| | -- | --------------------------------------------







| | 8.2 | Non-current asset held for sale and profit or loss of
discontinued operations --Continued
| | --- | -----------------------------------------------------------------------------------------



As
of May 4, 2017,the Company’s Management carried out the remeasurement of the fair
value of the disposal group held for sale, related to Construtora Tenda S.A. The basis for measurement
used (i) the price of R$8.13 per share, related to the transaction settled on May 4, 2017, and (ii) the weighted average price
per share of the exercise of preemptive rights traded over the period between March 17 and 31, 2017, calculated at R$3.99 per
share. The resulting price of R$12.12 per share indicated, at that time, a valuation of Construtora Tenda S.A. in the amount of
R$754,460.



The
main lines of the statements of profit or loss and cash flows of the subsidiary Tenda are as follows:



|Statement of profit
    or loss           |  | Period
    ended 05/04/2017 | 2016      |  |  | Cash
    flow        | Period
    ended 05/04/2017 | 2016      | 
|----------------------------------------- |  | --------------------------- | --------- |  |  | -------------------- | --------------------------- | --------- | 
|                                          |  |                             |           |  |  |                      |                             |           | 
|Net operating
    revenue                 |  | 404,737                     | 1,052,710 |  |  | Operating activities | 51,959                      | 137,055   | 
|Operating
    costs                       |  | (269,144)                   | (729,705) |  |  | Investing activities | 48,663                      | 4,997     | 
|Operating expenses,
    net               |  | (104,310)                   | (216,973) |  |  | Financing activities | 24,089                      | (135,291) | 
|Depreciation and
    amortization         |  | (5,723)                     | (12,298)  |  |  |                      |                             |           | 
|Income from equity
    method investments |  | 269                         | (5,456)   |  |  |                      |                             |           | 
|Financial income
    (expenses)           |  | 101                         | (20,043)  |  |  |                      |                             |           | 
|Income tax and
    social contribution    |  | (4,519)                     | (20,966)  |  |  |                      |                             |           | 
|                                          |  | 21,411                      | 47,269    |  |  |                      |                             |           | 
|Non-controlling
    interests             |  | (1,369)                     | (9,381)   |  |  |                      |                             |           | 
|Net income
    for the year               |  | 22,780                      | 56,650    |  |  |                      |                             |           | 

|
|
|
|

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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 9. | Investments in associates and jointly-controlled investees
| | -- | ----------------------------------------------------------



| | (i) | Information on associates
and jointly-controlled investees
| | --- | ----------------------------------------------------------



|                                                                    |           |                             |                  |                       |                                                    |                                |             |                                           |           |           |           |         
|------------------------------------------------------------------- | --------- | --------------------------- | ---------------- | --------------------- | -------------------------------------------------- | ------------------------------ | ----------- | ----------------------------------------- | --------- | --------- | --------- | --------
|                                                                    |           | Interest
    in capital - % | Total
    assets | Total
    liabilities | Equity
    and advance for future capital increase | Profit
    (loss) for the year | Investments | Income
    from equity method investments
|Jointly-controlled
    investees:                                   |           | 2018                        | 2017             | 2018                  | 2018                                               | 2018                           | 2017        |                                           | 2018      | 2017      | 2018      | 2017    
|                                                                    |           |                             |                  |                       |                                                    |                                |             |                                           |           |           |           |         
|                                                                    |           |                             |                  |                       |                                                    |                                |             |                                           |           |           |           |         
|Gafisa E Ivo Rizzo SPE-47 Emp. Imob. Ltda.                          | -         | 80%                         | 80%              | 20,785                | 886                                                | 19,899                         | 32,393      |                                           | (52)      | 5         | 13,432    | 25,914  
|Parque Arvores Empr. Imob. Ltda.                                    | (a)       | 50%                         | 50%              | 34,784                | 3,631                                              | 31,153                         | 30,616      |                                           | 755       | 4,001     | 15,577    | 15,308  
|Sitio Jatiuca Emp. Imob. SPE Ltda                                   | -         | 50%                         | 50%              | 32,367                | 2,954                                              | 29,413                         | 28,143      |                                           | 1,270     | (10,041)  | 14,707    | 14,072  
|Varandas Grand Park Emp. Imob. Spe Ltda.                            | (a)       | 50%                         | 50%              | 53,366                | 28,377                                             | 24,989                         | 19,858      |                                           | 2,685     | (5,970)   | 12,495    | 9,929   
|Gafisa SPE-116 Emp. Imob. Ltda.                                     | -         | 50%                         | 50%              | 31,488                | 8,951                                              | 22,537                         | 116,085     |                                           | (20,972)  | (4,709)   | 11,268    | 58,043  
|FIT 13 SPE Empreendimentos Imobiliários
    Ltda.                   | -         | 50%                         | 50%              | 21,906                | 2,200                                              | 19,706                         | 20,885      |                                           | 5         | (7)       | 9,853     | 10,442  
|Atins Emp. Imob.s Ltda.                                             | -         | 50%                         | 50%              | 24,644                | 6,916                                              | 17,728                         | 18,998      |                                           | (1,269)   | 797       | 8,864     | 9,499   
|Performance Gafisa General Severiano Ltda                           | -         | 50%                         | 50%              | 11,709                | 10                                                 | 11,700                         | 11,371      |                                           | 204       | (33)      | 5,850     | 5,686   
|Other (*)                                                           | (a)       |                             |                  | 126,816               | 70,472                                             | 56,343                         | 84,738      |                                           | (9,431)   | (9,501)   | 40,449    | 44,966  
|Subtotal Jointly-controlled
    investees                           |           |                             |                  | 357,865               | 124,397                                            | 233,468                        | 363,087     |                                           | (26,805)  | (25,458)  | 132,495   | 193,859 
|                                                                    |           |                             |                  |                       |                                                    |                                |             |                                           |           |           |           |         
|Associates:                                                         |           |                             |                  |                       |                                                    |                                |             |                                           |           |           |           |         
|Alphaville Urbanismo S.A.                                           | (d)       | 30%                         | 30%              | 1,883,471             | 2,820,839                                          | (937,369)                      | (141,290)   |                                           | (755,032) | (764,142) | -         | -       
|Citta Ville SPE Emp. Imob. Ltda.                                    | -         | 50%                         | 50%              | 17,146                | 2,680                                              | 14,466                         | 12,555      |                                           | 2,235     | (4,102)   | 7,233     | 6,277   
|Other (*)                                                           |           |                             |                  | 1,150                 | 17                                                 | 1,133                          | 1,119       |                                           | 14        | 20        | 1,237     | 5,090   
|Indirect jointly-controlled
    investees Gafisa                    |           |                             |                  | 1,901,767             | 2,823,536                                          | (921,770)                      | (127,616)   |                                           | (752,783) | (768,224) | 8,470     | 11,367  
|                                                                    |           |                             |                  |                       |                                                    |                                |             |                                           |           |           |           |         
|                                                                    | 2,259,632 | 2,947,933                   | (688,302)        | 235,471               |                                                    | (779,588)                      | (793,682)   | 140,965                                   | 205,226   | (14,285)  | (203,472) | (49,284)
|                                                                    |           |                             |                  |                       |                                                    |                                |             |                                           |           |           |           |         
|                                                                    |           |                             |                  |                       |                                                    |                                |             |                                           |           |           |           |         
|Goodwill based
    on inventory surplus                             | -         |                             |                  |                       |                                                    |                                |             |                                           |           |           | -         | -       
|Goodwill from remeasurement
    of investment in associate          | (b)       |                             |                  |                       |                                                    |                                |             |                                           |           |           | 161,100   | 273,900 
|                                                                    |           |                             |                  |                       |                                                    |                                |             |                                           |           |           |           |         
|Total investments                                                   |           |                             |                  |                       |                                                    |                                |             |                                           |           |           | 302,065   | 479,126 
|(*)
    Includes companies with investment balances below R$ 5,000. |           |                             |                  |                       |                                                    |                                |             |                                           |           |           |          

|                                                   |                             |                  |                       |                                                    |                                  |             |                                           |         |         |         |        
|-------------------------------------------------- | --------------------------- | ---------------- | --------------------- | -------------------------------------------------- | -------------------------------- | ----------- | ----------------------------------------- | ------- | ------- | ------- | -------
|                                                   | Interest
    in capital - % | Total
    assets | Total
    liabilities | Equity
    and advance for future capital increase | Profit
    (loss) for the period | Investments | Income
    from equity method investments
|Provision
    for net capital deficiency (c)       | 2018                        | 2017             | 2018                  | 2018                                               | 2018                             | 2017        |                                           | 2018    | 2017    | 2018    | 2017   
|                                                   |                             |                  |                       |                                                    |                                  |             |                                           |         |         |         |        
|Reserva Das Palmeiras Incorp. SPE Ltda.            | 100%                        | 100%             | 135                   | 3,734                                              | (3,598)                          | 1,597       |                                           | (5,196) | -       | -       | -      
|Manhattan Square Emp. Im. Res. 01 SPE Ltda         | 50%                         | 50%              | 3,149                 | 7,373                                              | (4,224)                          | (2,481)     |                                           | (1,395) | (3,214) | (2,113) | (1,240)
|Manhattan Square Emp. Im. Com. 01 SPE Ltda         | 50%                         | 50%              | 3,925                 | 6,173                                              | (2,247)                          | (1,573)     |                                           | (232)   | (2,267) | (1,124) | (787)  
|Gafisa SPE 69 Emp. Imob. Ltda.                     | 100%                        | 100%             | -                     | 1,013                                              | (1,013)                          | (519)       |                                           | (494)   | (519)   | -       | -      
|Other (*)                                          |                             |                  | 634                   | 1,852                                              | (1,220)                          | (1,734)     |                                           | (1,475) | (260)   | (298)   | (36)   
|Total provision
    for net capital deficiency (c) |                             |                  | 7,843                 | 20,145                                             | (12,302)                         | (4,710)     | -                                         | (8,792) | (6,260) | (3,535) | (2,063)
|                                                   |                             |                  |                       |                                                    |                                  |             |                                           |         |         |         |        
|Total Income from
    equity method investments    |                             |                  |                       |                                                    |                                  |             |                                           |         |         |         |        



(*)
Includes companies with investment balances below R$ 5,000).





F-46


Table of Contents




Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)







| | 9. | Investments in associates and jointly-controlled investees
--Continued
| | -- | ----------------------------------------------------------------------



| | (a) | The Company recorded
expense of R$791 in Income from equity method investments for the period ended December 31, 2018 related to the recognition, by
jointly-controlled entities, of prior year adjustments, in accordance with the ICPC09 (R2) - Individual, Separate and Consolidated
Financial Statements and the Equity Method of Accounting.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Amount related to the
goodwill arising from the remeasurement of the portion of the remaining investment of 30% in the associate AUSA, in the amount
of R$161,100 (R$273,900 in 2017), arising from the sale of control over the entity. As of December 31, 2018, the impairment test,
which is performed annually based on the estimate of future economic benefit, or when circumstances indicate impairment of carrying
value, identified the need for recognizing an impairment provision for loss on realization of R$112,800 (R$127,429 in 2017). The
main assumptions adopted for determining the recoverable amount of the remaining investment of AUSA are detailed in this Note.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | The provision for net
capital deficiency is recorded in the heading “Other payables” (Note 15).
| | --- | -----------------------------------------------------------------------------------------------



| | (d) | In view of the net capital
deficiency of AUSA, and in line with CPC 18 (R2) – Investment in Associates, Subsidiaries and Joint Ventures, the Company
discontinued the recognition of its interest in future losses after reducing to zero the carrying amount of the 30% interest.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Information on significant
investees
| | ---- | ------------------------------------





|                                        |  | Significant investee:     |           |                              |  | Other investees:
|--------------------------------------- |  | ------------------------- | --------- | ---------------------------- |  | ----------------
|                                        |  | Alphaville Urbanismo S.A. |           | Jointly-controlled investees |  |                 
|                                        |  | 2018                      |           | 2017                         |  | 2016            
|                                        |  |                           |           |                              |  |                 
|                                        |  |                           |           |                              |  |                 
|Cash and cash equivalents               |  |                           | 11,282    |                              |  |                 
|Current assets                          |  |                           | 974,853   |                              |  |                 
|Non-current assets                      |  |                           | 908,617   |                              |  |                 
|Current liabilities                     |  |                           | 549,884   |                              |  |                 
|Non-current liabilities                 |  |                           | 2,255,091 |                              |  |                 
|                                        |  |                           |           |                              |  |                 
|Net revenue                             |  |                           | 68,629    |                              |  |                 
|Operating costs                         |  |                           | (189,917  | )                            |  |                 
|Depreciation and Amortization           |  |                           | (13,469   | )                            |  |                 
|Financial income (expenses)             |  |                           | (366,627  | )                            |  |                 
|Income tax and social contribution      |  |                           | (6,388    | )                            |  |                 
|Profit (loss) from Continued Operations |  |                           | (755,032  | )                            |  |                 







| | (iii) | Change in investments
| | ----- | ---------------------







|Balance at December 31, 2017 (restated)                               |  | 479,126  
|--------------------------------------------------------------------- |  | ---------
|Income from equity method investments (a)                             |  | (14,285) 
|Capital contribution (decrease)                                       |  | 2,415    
|Dividends receivable                                                  |  | (8,031)  
|Assignment of shares (b)                                              |  | (28,289) 
|Loss on realization of investment measured at fair value (Note 9.i.b) |  | (112,800)
|Other investments                                                     |  | (16,071) 
|Balance at December 31, 2018                                          |  | 302,065  





| | (a) | The change in income
from equity method investments recorded in profit or loss for the year, for the amount shown in item 9(i), substantially refers
to the realization of loss on investee, which was already recognized in the Company, without effect on the consolidated statements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | In October 2018, the
shares of Gafisa SPE-116, a jointly-controlled entity, were assigned to Gafisa SPE-137, which is fully controlled by the Company,
in the amount of R$ 28,289.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-47


Table of Contents




Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)







| | 9. | Investments in associates and jointly-controlled investees--Continued
| | -- | ---------------------------------------------------------------------



The
Company evaluated the recovery of the carrying value of goodwill using the “value in use” concept, applying discounted
cash flow models of the cash-generating units. The process for determining the value in use involves the use of assumptions, judgments
and estimates relating to cash flows, such as growth rate of revenues, costs and expenses, estimates of investment and future
working capital, and discount rates. The assumptions relating to projections of growth, cash flow and future cash flows are based
on the Company’s business plan, approved by the Management, as well as on comparable market data, and represent the Management’s
best estimate of the economic conditions that will prevail during the economic life of the different cash-generating units, group
of assets that provides the generation of cash flows. The future cash flows were discounted based on the rate representative of
the cost of capital. The evaluation of the value in use is made for a twenty-year period, consistently with economic valuation
techniques and performed evaluations, and after such period, considering the perpetuity of assumptions in view of the ability
to continue as going concern. The main assumptions used in the estimate of value in use are the following: (a) revenue –
revenues were projected for the period between 2019 and 2038, considering projection of launches and growth in sales, construction
progress and client base of the different cash-generating units, considering the inflation adjustments to trade accounts receivable
and provided services; (b) Operating costs and expenses – costs and expenses were projected in line with historical performance,
as well as the historical growth of revenues; (c) discount rate at 15.30% in nominal terms,(d) calculation of perpetuity considering
a growth of 3.8% p.a. equivalent to the long-term inflation estimate projected by the Brazilian Central Bank, and (e) going concern
assumption, in line with the Company’s business plan. The key assumptions were based on the historical performance of business
units, and on reasonable macroeconomic assumptions, and supported by the financial market projections.



In
the year ended December 31, 2018, the impairment test for goodwill performed by the Company resulted in the need of recognizing
a provision for impairment loss in the amount of R$112,800, related to the goodwill remeasurement of investment in the associate
AUSA (R$127,429 in 2017).



| | 10. | Property and equipment
| | --- | ----------------------



|                                         |  |      |         |         
|---------------------------------------- |  | ---- | ------- | --------
|Type                                     |  | 2017 |         | Addition
|Cost                                     |  |      |         |         
|Hardware                                 |  |      | 12,139  |         
|Leasehold improvements and installations |  |      | 9,065   |         
|Furniture and fixtures                   |  |      | 1,188   |         
|Machinery and equipment                  |  |      | 2,640   |         
|Sales stands                             |  |      | 21,139  |         
|                                         |  |      | 46,171  |         
|                                         |  |      |         |         
|Accumulated depreciation                 |  |      |         |         
|Hardware                                 |  |      | (3,701  | )       
|Leasehold improvements and installations |  |      | (5,470  | )       
|Furniture and fixtures                   |  |      | (913    | )       
|Machinery and equipment                  |  |      | (1,872  | )       
|Sales stands                             |  |      | (11,873 | )       
|                                         |  |      | (23,829 | )       
|                                         |  |      |         |         
|Total property and equipment             |  |      | 22,342  |         

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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 10. | Property and equipment --Continued
| | --- | ----------------------------------



The
following useful lives and rates are used for calculating depreciation:



|                                         | Useful life | Annual depreciation rate - %
|---------------------------------------- | ----------- | ----------------------------
|Leasehold improvements and installations | 4 years     | 25                          
|Furniture and fixture                    | 10 years    | 10                          
|Hardware                                 | 5 years     | 20                          
|Machinery and equipment                  | 10 years    | 10                          
|Sales stands                             | 1 year      | 100                         



The
residual value, useful life, and depreciation methods are reviewed at the end of each year; no change having been made in relation
to the information for the prior year.



Property
and equipment are subject to periodic analysis of impairment. As of December 31, 2018 and 2017 there was no indication of impairment
of property and equipment.



| | 11. | Intangible assets
| | --- | -----------------



|                        |  |         |         |         
|----------------------- |  | ------- | ------- | --------
|                        |  | 2017    |         |         
|                        |  | Balance |         | Addition
|                        |  |         |         |         
|Software – Cost         |  |         | 79,257  |         
|Software – Depreciation |  |         | (61,569 | )       
|Other                   |  |         | 592     |         
|Total intangible assets |  |         | 18,280  |         







Other
intangible assets comprise expenditures on the acquisition and implementation of information systems and software licenses, amortized
over the average term of five years (20% per year).



As
of December 31, 2018, the test of recovery of the intangible assets of the Company resulted in the need for recognition of a provision
for loss on realization (impairment) in the amount of R$4,962 (R$710 in 2017), related to the Company’s software.





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Table of Contents




Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)







| | 12. | Loans and financing
| | --- | -------------------



|                                                           |                                     |         |                                                              |        
|---------------------------------------------------------- | ----------------------------------- | ------- | ------------------------------------------------------------ | -------
|Type                                                       | Maturity                            |         | Annual interest rate                                         | 2018   
|                                                           |                                     |         |                                                              |        
|National Housing System - SFH /SFI (i)                     | April 2019 to July 2021             |         | 8.30% to 14.30% + TR
        
        12.87% and 143% of CDI | 528,140
|Certificate of Bank Credit -
        CCB (ii)              | January 2021 to August
        2021 |         | 135% do CDI
        
        2.5%/ 3%/ 3.70%/ 4.25%+CDI      | 95,607 
|                                                           |                                     |         |                                                              |        
|Total loans and financing(Note 20.i.d, 20.ii.a and 20.iii) | 623,747                             | 897,185
|                                                           |                                     |         |                                                              |        
|Current                                                    |                                     |         |                                                              | 213,395
|Current – reclassification for breach of covenant (iii)    |                                     |         | 72,217                                                       | 39,000 
|Current portion                                            |                                     |         |                                                              | 285,612
|Non-current portion                                        |                                     |         |                                                              | 338,135



| | (i) | The SFH financing is used for covering costs related to
the development of real estate ventures of the Company and its subsidiaries, and backed by secured guarantee by the first-grade
mortgage of real estate ventures and the fiduciary assignment or pledge of receivables.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | In the year ended December 31, 2018, the Company made
payments in the total amount of R$123,039, of which R$111,168 related to principal and R$11,871 related to the interest payable.
Additionally, during the year, the Company entered into three CCB transaction in the amount of R$40,000, with final maturity on
August 2021.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Of this amount, R$24,282 refer to the breach of the covenant
of a CCB transaction, settled in February 2019 (Note 32(iv)), and R$47,935 refer to the reclassification of debt due to the need
for re-establishment of guarantees.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Rates



·CDI -Interbank
Deposit Certificate;



·TR -Referential
Rate.



The
current and non-current portions have the following maturities:



|         |  |        
|-------- |  | -------
|Maturity |  | 2018   
|         |  |        
|2018     |  | -      
|2019     |  | 285,612
|2020     |  | 216,618
|2021     |  | 121,517
|         |  |        
|         |  | 623,747



In
line with the conditions to the commitment to the subscription of investors (Note 1), the Company renegotiated with creditors
the postponement of the due date of debts in the amount of R$456,316 from 2018 and 2019 to 2020 and 2021, on suspensive condition
until the ratification of the capital increase in February 2018. The Company and its subsidiaries have restrictive covenants under
certain loans and financing that limit their ability to perform certain actions, such as the issuance of debt, and that could
require the early maturity or refinancing of loans if the Company does not fulfill certain restrictive convents. The Company analyzed
the debt contracts and, besides the above-described situations (item (iii)), it did not identify any impact on cross restrictive
covenants.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 12. | Loans and financing --Continued
| | --- | -------------------------------



The
Company’s management, who signs these Financial Statements, determined that the Company assigned to third parties, in the
years 2016 and 2017, real estate receivables from real estate sales.



These
real estate receivables served as guarantee to certain bank financing contracts that the Company had entered into between 2012
and 2014. In view of the assignments of real estate receivables in 2016 and 2017 to third parties, the Company’s management,
who signs these Financial Statements, is negotiating with the financial institution, as requested by the latter, the immediate
regularization of its obligations.



The
ratios and minimum and maximum amounts required under restrictive covenants for loan and financing transactions are as follows:



|                                                                                                                                                                                                     | 2018       | 2017      
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ----------
|                                                                                                                                                                                                     |            |           
|                                                                                                                                                                                                     |            |           
|Loans and financing                                                                                                                                                                                  |            |           
|Net debt cannot exceed 100% of equity plus noncontrolling interests (a)                                                                                                                              | 152.53%    | 126.08%   
|Total accounts receivable(1) plus inventory required to be below zero or 2.0 times over venture debt(2)                                                                                              | 4.51 times | 3.62 times
|Total accounts receivable(1) plus inventory of completed units required to be below zero or 2.0 times over net debt less venture debt(2)                                                             | 7.09 times | 7.51 times
|Total debt, less venture debt, less cash and cash equivalents and short-term investments(3), cannot exceed 75% of equity plus non-controlling interests                                              | 45.44%     | 29.54%    
|Total receivables(1) plus unappropriated income plus total inventories of completed units required to be 1.5 time over the net debt plus payable for purchase of properties plus unappropriated cost | 1.81 time  | 1.93 time 
|Total accounts receivable(1)plus total inventories required to be below zero or 2.0 times over net debt                                                                                              | 3.17 times | 2.77 times
|                                                                                                                                                                                                     |            |           

| | (1) | Total receivables, whenever mentioned, refers to the amount
reflected in the Statement of Financial Position plus the amount not shown in the Statement of Financial Position.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Venture debt and secured guarantee debt refer to SFH debts,
defined as the sum of all disbursed borrowing contracts which funds were provided by the SFH.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Cash and cash equivalents and short-term investments refer
to cash and cash equivalents and marketable securities.
| | --- | ------------------------------------------------------------------------------------------------------------------



| | (a) | For the periods ended
December 31, 2018 and 2017, the covenant limit is 100%, according to the waiver obtained from the creditor.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------



Financial
expenses of loans, financing and debentures (Note 13) are capitalized at the cost of each venture and land, according to the use
of funds, and recognized in profit or loss for the year, according to the criteria for revenue recognition. The capitalization
rate used in the determination of costs of loans eligible to capitalization was 11.55% as of December 31, 2018 (11.52% in 2017).



The
following table shows the summary of financial expenses and charges and the capitalized portion in the line item properties for
sale.



|                                                     |           |          
|---------------------------------------------------- | --------- | ---------
|                                                     | 2018      | 2017     
|                                                     |           |          
|Total financial expendes for the year                | 104,066   | 178,137  
|Capitalized financial expenses (Note 30)             | (35,686)  | (74,310) 
|Subtotal  (Note 24)                                  | 68,380    | 103,827  
|                                                     |           |          
|Financial charges included in “Properties for sale”: |           |          
|                                                     |           |          
|Opening balance                                      | 301,025   | 343,231  
|Capitalized financial expenses                       | 35,686    | 74,310   
|Expenses recognized in profit or loss (Note 23)      | (112,904) | (116,516)
|                                                     |           |          
|Closing balance (Note 6)                             | 223,807   | 301,025  



The
amount of properties for sale offered as guarantee for loans, financing and debentures is R$552,752 (R$796,800 in 2017).



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 13. | Debentures
| | --- | ----------



|                                                          |                |                 |                |        
|--------------------------------------------------------- | -------------- | --------------- | -------------- | -------
|Program/placement                                         | Principal - R$ | Annual interest | Final maturity | 2018   
|                                                          |                |                 |                |        
|Ninth placement (i)                                       | -              | CDI + 3.00%     | January 2021   | -      
|Tenth placement (ii)                                      | 36,667         | IPCA + 8.37%    | January 2021   | 49,299 
|Eleventh placement – 1st series A (iii)                   | 70,305         | CDI + 5.25%     | February 2020  | 69,831 
|Twelfth placement (iv) (a)                                | 66,668         | CDI + 3.75%     | July 2020      | 65,714 
|Thirteenth placement (v) (b)                              | 80,793         | CDI + 3.00%     | June 2022      | 80,822 
|Total debentures (Note 20.i.d, 20.ii.a, 20.iii and 30.ii) | 265,666        | 207,713        
|                                                          |                |                 |                |        
|Current portion                                           |                |                 |                | 62,783 
|Non-current portion                                       |                |                 |                | 202,883



| | (a) | On May 21, 2018, the Company approved the 12th Private
Placement of Non-convertible Debentures, with general guarantee, in sole series in the total amount of R$76,000, with final maturity
in July 2020. The proceeds from the placement will be used in the development of select real estate ventures and their guarantees
are represented by the conditional sale of real estate receivables and the purchase of completion bond related to a specific venture.
The face value of the Placement will accrue interest corresponding to the cumulative variation of Interbank Deposit (DI) plus
a surcharge equivalent to 3.75% p.a..
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | On July 3, 2018, the Company approved the 13th Private
Placement of Non-convertible Debentures, with general guarantee, in sole series in the total amount of R$90,000, with final maturity
in June 2022. The proceeds from the placement will be used in the development of select real estate ventures and their guarantees
are represented by the conditional sale of real estate receivables. The face value of the Placement will accrue interest corresponding
to the cumulative variation of Interbank Deposit (DI) plus a surcharge equivalent to 3%p.a..
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
the year ended December 31, 2018, the Company made the following payments:



|      | Face Value placement | Interest payable | Total amortization
|----- | -------------------- | ---------------- | ------------------
|(i)   | 50,195               | 2,054            | 52,249            
|(ii)  | 18,333               | 9,129            | 27,462            
|(iii) | 17,505               | 9,123            | 26,628            
|(iv)  | 9,332                | 3,737            | 13,069            
|(v)   | 9,207                | 3,533            | 12,740            
|      | 104,572              | 27,576           | 132,148           



The
current and non-current portions have the following maturities:



| |          |        
| | -------- | -------
| | Maturity | 2018   
| |          |        
| | 2018     | -      
| | 2019     | 62,783 
| | 2020     | 157,700
| | 2021     | 43,391 
| | 2022     | 1,792  
| |          | 265,666



In
line with the conditions to the investor’s subscription commitment, the Company renegotiated with creditors the postponement
of debt maturities from 2018 and 2019 to 2020 and 2021, which was ratified with the Board of Directors’ approval of the
capital increase on February 28, 2018 (Note 18.1).





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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)







| | 13. | Debentures--Continued
| | --- | ---------------------



The
Company is compliant with the restrictive covenants of debentures at the reporting date of these financial statements. The ratios
and minimum and maximum amounts required under such restrictive covenants are as follows:



|                                                                                                                                                         | 2018         | 2017       
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | -----------
|                                                                                                                                                         |              |            
|Ninth placement                                                                                                                                          |              |            
|Total
    account receivable(1) plus inventory required to be below zero or 2.0 times over net debt                                                      | Debt settled | 2.77 times 
|Net debt cannot exceed 100% of equity plus noncontrolling interests                                                                                      | Debt settled | 126.08%    
|                                                                                                                                                         |              |            
|Tenth placement                                                                                                                                          |              |            
|Total
    account receivable(1)plus inventory required to be below zero or 2.0 times over net debt less venture debt(2)                                  | 10.63 times  | 11.83 times
|Total debt less venture debt(2), less cash and cash equivalents and short-term investments(3), cannot exceed 75% of equity plus noncontrolling interests | 45.44%       | 29.54%     











| | (1) | Total receivables, whenever mentioned, refers to the amount
reflected in the Statement of Financial Position plus the amount not shown in the Statement of Financial Position.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Venture debt and secured guarantee debt refer to SFH debts,
defined as the sum of all disbursed borrowing contracts which funds were provided by SFH.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Cash and cash equivalents and short-term investments refer
to cash and cash equivalents and marketable securities.
| | --- | ------------------------------------------------------------------------------------------------------------------



| | 14. | Obligations assumed on assignment of receivables
| | --- | ------------------------------------------------



The
transactions of assignment of the receivable portfolio are as follows:



|                                                                                                  |       
|------------------------------------------------------------------------------------------------- | ------
|                                                                                                  | 2018  
|                                                                                                  |       
|Obligation CCI June/2011 - Note 5(i)                                                              | 882   
|Obligation CCI December/2011 - Note 5(ii)                                                         | 372   
|Obligation CCI July/2012 - Note 5(iii)                                                            | 10    
|Obligation CCI November/2012 - Note 5(iv)                                                         | 2,547 
|Obligation CCI December/2012 - Note 5(v)                                                          | 3,151 
|Obligation CCI November/2013 - Note 5(vi)                                                         | 1,877 
|Obligation CCI November/2014 - Note 5(vii)                                                        | 1,895 
|Obligation CCI December/2015 - Note 5(viii)                                                       | 7,797 
|Obligation CCI February/2016 - Note 5(ix)                                                         | 9,645 
|Obligation CCI May/2016 - Note 5(x)                                                               | 6,790 
|Obligation CCI August/2016 - Note 5(xi)                                                           | 3,075 
|Obligation CCI December/2016 - Note 5(xii)                                                        | 7,441 
|Obligation CCI March/2017 - Note 5(xiii)                                                          | 11,704
|Obligation FIDC                                                                                   | -     
|Total obligations assumed on assignment of receivables
        
        (Note 20.i.d and 20.ii.a) | 57,186
|                                                                                                  |       
|Current portion                                                                                   | 25,046
|Non-current potion                                                                                | 32,140



The
current and non-current portions have the following maturities:



|             |  | Consolidated
|------------ |  | ------------
|Maturity     |  | 2018        
|             |  |             
|2018         |  | -           
|2019         |  | 25,046      
|2020         |  | 12,381      
|2021         |  | 7,791       
|2022         |  | 3,092       
|2023 onwards |  | 8,876       
|             |  | 57,186      



Regarding
the above transactions,the assignor is required to fully formalize the guarantee instruments
of receivables in favor of the assignee. Until it is fully fulfilled, these amounts will be classified into a separate account
in current and non-current liabilities.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 14. | Obligations assumed on assignment of receivables --Continued
| | --- | ------------------------------------------------------------



Transaction
(i) was entered into with Banco BTG Pactual S.A. at rates of 11.48% plus INCC for receivables of units not delivered, and IGP-M
or IPCA for the period after the certificate of occupancy.



Transactions
(ii) and (iii) were entered into with Polo Multisetorial Fundo de Investimento em Direitos Creditórios at rates that range
between 11.25% and 11.50%, plus INCC for receivables of units not delivered, and IGP-M or IPCA for the period after the certificate
of occupancy.



Transactions
(iv), (v), (vi) and (vii) were entered into with Polo Multisetorial Fundo de Investimento em Direitos Creditórios Não
Padronizados at rates that range between 10.50% and 11.48%, plus INCC for receivables of units not delivered, and IGP-M or IPCA
for the period after the certificate of occupancy.



Transactions
(viii), (ix), (x), (xi), (xii) and (xiii) were entered into with Polo Capital Securitizadora S.A.at rates of 12.00%, plus INCC
for receivables of units not delivered, and IGP-M or IPCA for the period after the certificate of occupancy.



| | 15. | Other payables
| | --- | --------------



|                                                                        |        
|----------------------------------------------------------------------- | -------
|                                                                        | 2018   
|                                                                        |        
|Cancelled contract payable and allowance for cancelled contracts        | 89,461 
|Warranty provision                                                      | 21,940 
|Deferred sales taxes (PIS and COFINS)                                   | 9,622  
|Provision for net capital deficiency (Note 9.i.c)                       | 3,535  
|Long-term suppliers(Note 20.i.d)                                        | 14,734 
|Forward transactions – Share Repurchase Program (Note 20.ii and 20.iii) | 38,879 
|Share-based payment - Phantom Shares (Note 18.4)                        | 4,602  
|Other liabilities                                                       | 11,038 
|Total other payables                                                    | 193,811
|                                                                        |        
|Current portion                                                         | 173,951
|Non-current portion                                                     | 19,860 



| | 16. | Provisions for legal claims and commitments
| | --- | -------------------------------------------



The
Company and its subsidiaries are parties to lawsuits and administrative proceedings at various courts and government agencies
that arise from the ordinary course of business, involving tax, labor, civil, and other matters. Management, based on information
provided by its legal counsel and analysis of the pending claims and, with respect to the labor claims, based on past experience
regarding the amounts claimed, recognized a provision in an amount considered sufficient to cover the estimated losses on pending
decisions. The Company does not expect any reimbursement in connection with these claims.



In
the years ended December 31, 2018 and 2017, the changes in the provision are summarized as follows:



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 16. | Provisions for legal claims and commitments --Continued
| | --- | -------------------------------------------------------



|                                                | Civil lawsuits | Tax proceedings | Labor claims | Total   
|----------------------------------------------- | -------------- | --------------- | ------------ | --------
|Balance at December 31, 2016                    | 98,179         | 3,124           | 61,655       | 162,958 
|Additional provision (Note 23)                  | 89,704         | -               | 18,144       | 107,848 
|Payment and reversal of provision not used      | (49,247)       | (2,365)         | (20,817)     | (72,429)
|Balance at December 31, 2017                    | 138,636        | 759             | 58,982       | 198,377 
|Additional provision (Note 23) (i)              | 150,140        | 8               | 22,284       | 172,432 
|Payment and reversal of provision not used (ii) | (53,294)       | (130)           | (23,576)     | (77,000)
|Balance at December 31, 2018                    | 235,482        | 637             | 57,690       | 293,809 
|                                                |                |                 |              |         
|Current portion                                 | 116,835        | 637             | 20,729       | 138,201 
|Non-current portion                             | 118,647        | -               | 36,961       | 155,608 



| | (i) | Of this amount: (a)
R$ 23,306 refer to the provision related to the lawsuit seeking damages, in view of the rescission of a contract for purchase
of land, which decision was awarded in 2015; (b) R$ 23,240 refer to the provision for the fine imposed in March 2017, in view
of the supposed fail to repair the common area of a venture located in Rio de Janeiro; (c) R$33,688 refer to the settlement of
final and unappealable court decision awarded in April 2018, (d) R$15,000 refer to the provision related to two arbitration cases,
and (e) R$26,747 refer to provision related to the lawsuit filed by condominium.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Of this amount, R$15,000
refer to the payment in connection with two arbitration cases, and R$5,700 refer to payment of lawsuit related to construction
defects of venture which initial responsibility rested with a former shareholder of the Company.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Civil lawsuits, tax proceedings and labor claims
| | --- | ------------------------------------------------



As
of December 31, 2018, the Company and its subsidiaries have deposited in court the amount of R$106,793 (R$83,523 in 2017) (Note
7).



|                |  |        
|--------------- |  | -------
|                |  | 2018   
|                |  |        
|Civil lawsuits  |  | 48,992 
|Tax proceedings |  | 40,031 
|Labor claims    |  | 17,770 
|Total (Note 7)  |  | 106,793



| | (i) | As of December 31, 2018, the provisions related to civil
lawsuits include R$21,274 (R$23,980 in 2017) related to lawsuits in which the Company is included in the defendant side to be
liable for in and out of court debts which original debtor is a former shareholder of the Company, Cimob Companhia Imobiliária
(“Cimob”), or involve other companies of the same economic group of Cimob. In these lawsuits, the plaintiff argues
that the Company should be liable for Cimob’s debts, because in its understanding the requirements for piercing of the corporate
veil of Cimob to reach the Company (business succession, merger of assets and/or formation of a same economic group involving
the Company and the Cimob Group). In addition, there is judicial deposit in the amount of R$16,361 (R$16,818 in 2017) related
to such lawsuits.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
Company does not agree with the statement of facts based on which it has been included in these lawsuits and continues to dispute
in court its liability for the debts of a third company, as well as the amount charged by the plaintiffs. The Company has already
obtained both favorable and unfavorable decisions in lawsuits related to this matter, reason why it is not possible to estimate
a uniform outcome for these lawsuits. The Company also aims by filing a lawsuit against Cimob and its former and current parent
companies the recognition that it should not be liable for the debts of that company, as well as indemnity of the amounts already
paid by the Company in lawsuits relating to the charge of debts owed by Cimob.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 16. | Provisions for legal claims and commitments --Continued
| | --- | -------------------------------------------------------



| | (ii) | Environmental risk
| | ---- | ------------------



Considering
the diversity of environmental legislation in the federal, state and municipal levels, which may restrict or impede the development
of real estate ventures, the Company analyzes all environmental risks, including the possible existence of hazardous or toxic
materials, residues, vegetation and proximity of the land to permanent preservation areas, in order to mitigate risks in the development
of ventures, during the process of land acquisition for future ventures.



In
addition, the environmental legislation establishes criminal, civil and administrative sanctions to individuals and legal entities
for activities considered as environmental infringements or offense. The penalties include the stop of development activities,
loss of tax benefits, confinement and fines. The lawsuits in dispute by the Company in civil court are considered by the legal
counsel as possible loss in the amount of R$18,324 (R$3,440 in 2017).



| | (iii) | The Company requested an Arbitration Procedure to the Center for Arbitration and Mediation of the
Chamber of Commerce Brazil-Canada, on July 31, 2018,  against Yogo Participações e Empreendimentos Imobiliários
S.A. (“Yogo”); Polo Real Estate Fundo de Investimentos e Participações, and Polo Capital Real Estate
Gestão de Recursos Ltda. as shareholders of Yogo; and Comasa – Construtora Almeidade Martins Ltda., in view of the
breach of contractual obligations. As of December 31, 2018, the arbitration is in initial stage, no decision being awarded yet.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Lawsuits in which likelihood of loss is rated as possible
| | ---- | ---------------------------------------------------------



As
of December 31, 2018, the Company and its subsidiaries are aware of other claims, and civil, labor and tax risks. Based on the
history of probable processes and the specific analysis of main claims, the measurement of the claims with likelihood of loss
considered possible amounted to R$319,902 (R$357,089 in 2017), based on average past outcomes adjusted to current estimates, for
which the Company’s Management believes it is not necessary to recognize a provision for occasional losses. The change in
the period was caused by change in the volume of lawsuits with diluted amounts, and review of the involved amounts.

| |                 |  |        
| | --------------- |  | -------
| |                 |  | 2018   
| |                 |  |        
| | Civil lawsuits  |  | 197,142
| | Tax proceedings |  | 94,541 
| | Labor claims    |  | 28,219 
| |                 |  | 319,902







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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)







| | 16. | Provisions for legal claims and commitments --Continued
| | --- | -------------------------------------------------------



| | (b) | Payables related
to the completion of real estate ventures
| | --- | ----------------------------------------------------------



The
Company commits to complete units sold and to comply with the laws regulating the civil construction sector, including obtaining
licenses from the proper authorities, and compliance with the terms for starting and delivering the ventures, being subject to
legal and contractual penalties. As of December 31, 2018, the Company and its subsidiaries have restricted cash in guarantee to
loans, which will be released to the extent the guarantee ratios described in Note 4.2 are met, which include land and receivables
pledged in guarantee of 120% of the debt outstanding.



| | (c) | Other commitments
| | --- | -----------------



In
addition to the commitments mentioned in Notes 6, 12 and 13, the Company currently has commitments related to the rental of a
commercial property where its facilities are located, at a monthly cost of R$383 (including rent, condominium fees, and IPTU),
indexed to the IGP-M/FGV change. Additionally, in line with Note 32(i), related to the move of the Company’s registered
office expected to occur up to April 2019, the monthly cost will be R$88, indexed to the IGP-M/FGV change, and the contract expires
in January 2024. The estimate of minimum future rent payments of this new contract for commercial property (cancellable leases)
totals R$5,347, considering the above-mentioned contract expiration, as follows.



|                    | Consolidated
|------------------- | ------------
|Estimate of payment | 2018        
|                    |             
|2019                | 590         
|2020                | 1,095       
|2021                | 1,139       
|2022                | 1,184       
|2023 onwards        | 1,339       
|                    | 5,347       



| | 17. | Payables for purchase of properties and advances from customers
| | --- | ---------------------------------------------------------------



|                                                                                                |                               |         
|----------------------------------------------------------------------------------------------- | ----------------------------- | --------
|                                                                                                | Maturity                      | 2018    
|                                                                                                |                               |         
|Payables for purchase of properties                                                             | January 2018 to November 2022 | 137,170 
|Present value adjustment                                                                        |                               | (15,075)
|Advances from customers                                                                         |                               |         
|Development and sales (Note 5)                                                                  |                               | 12,069  
|Barter transaction - Land(Note30 (i))                                                           |                               | 175,267 
|                                                                                                |                               |         
|Total payables for purchase of properties and advance from customers (Notes 20.i.d and 20.ii.a) |                               | 309,431 
|                                                                                                |                               |         
|Current portion                                                                                 |                               | 113,355 
|Non-current portion                                                                             |                               | 196,076 



The
current and non-current portions have the following maturities:



|Maturity     |  | 2018    | 2017   
|------------ |  | ------- | -------
|             |  |         |        
|2018         |  | -       | 156,457
|2019         |  | 113,354 | 67,632 
|2020         |  | 85,504  | 40,987 
|2021         |  | 50,954  | 19,553 
|2022         |  | 58,696  | 24,205 
|2023 onwards |  | 923     | -      
|             |  | 309,431 | 308,834



As
of December 31, 2018, the amount related to contract liabilities totaled R$187,336 (R$200,985 in 2017).





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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 18. | Equity
| | --- | ------



| | 18.1. | Capital
| | ----- | -------



On
February 28, 2018, the Board of Directors partially ratified the capital increase approved at the Extraordinary Shareholders’
Meeting held on December 20, 2017, considering the subscription and contribution of 16,717,752 new common shares at a price per
share of R$15.00, of which R$0.01 allocated to capital, and R$14.99 allocated to capital reserve, totaling R$167 and R$250,599,
respectively.



Therefore,
as of December 31, 2018, the Company's authorized and paid-in capital amounts to R$2,521,319 (R$2,521,152 in 2017), represented
by 43,727,589 (28,040,162 in 2017) registered common shares, with no par value, of which 3,943,420 (938,044 in 2017) where held
in treasury.



According
to the Company’s Articles of Incorporation, capital may be increased without need of making amendment to it, upon resolution
of the Board of Directors, which shall set the conditions for issuance within the limit of 71,031,876 (seventy one million, thirty
one thousand, eight hundred and seventy six) common shares.



On
September 28, 2018, the Company approved the opening of the Share Repurchase Program. The acquired shares will be held in treasury,
and may be cancelled, disposed of and/or used later on, up to the limit of 3,516,970 common shares. The maximum period for share
acquisition will be 12 (twelve) months, beginning on October 1, 2018 and ending on October 1, 2019.



The
Company transferred 17,319 share (112,203 in 2017), in the total amount of R$530 (R$3,435 in 2017) related to the exercise of
options under the stock option plan of common shares by the beneficiaries, for which it received the total amount of R$418 (R$818
in 2017), and disposed 59,480 shares, for which it received the total amount of R$714.



|                     | Treasury
    shares |                            |                              
|-------------------- | ------------------- | -------------------------- | -----------------------------
|                     | Type                | GFSA3                      | R$                           
|Acquisition
    date | Number
    (i)      | Weighted
    average price | %
    - on shares outstanding
|2001                 | 11/20/2001          | 44,462                     | 38.9319                      
|                     |                     |                            |                              
|2013                 | Acquisitions        | 1,372,096                  | 51.9927                      
|                     |                     |                            |                              
|2014                 | Acquisitions        | 3,243,947                  | 35.5323                      
|2014                 | Transfers           | (405,205)                  | 43.3928                      
|2014                 | Cancellations       | (2,039,086)                | 44.9677                      
|                     |                     |                            |                              
|2015                 | Acquisitions        | 884,470                    | 27.3124                      
|2015                 | Transfers           | (90,622)                   | 33.3473                      
|2015                 | Cancellations       | (2,225,020)                | 33.3543                      
|                     |                     |                            |                              
|2016                 | Acquisitions        | 334,020                    | 26.0254                      
|2016                 | Transfers           | (68,814)                   | 31.2290                      
|                     |                     |                            |                              
|2017                 | Transfers           | (112,203)                  | 30.6320                      
|                     |                     |                            |                              
|2018                 | Acquisitions        | 13,221,300                 | 13.4953                      
|2018                 | Transfers           | (17,319)                   | 30.6022                      
|2018                 | Cancellations       | (1,030,326)                | -                            
|2018                 | Disposal            | (9,168,280)                | 16.1463                      
|                     |                     | 3,943,420                  | 14.9490                      
|                     |                     |                            |                              

| | (*) | Market value calculated based on the closing share price
on December 31, 2018 at R$16.90 in 2018(R$20.46 in 2017) not considering the effect of occasional volatilities.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | Amount shown adjusted by the reverse split of shares at
the ratio of 13.483023074 to 1, performed on March 23, 2017.
| | --- | --------------------------------------------------------------------------------------------------------------------



The
Company holds shares in treasury acquired in 2001 in order to guarantee the performance of lawsuits(Note 16(a)(i)).



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 18. | Equity --Continued
| | --- | ------------------



| | 18.1. | Capital --Continued
| | ----- | -------------------



The
change in the number of outstanding shares is as follows:



|                                                               | Common shares - In thousands
|-------------------------------------------------------------- | ----------------------------
|Outstanding shares as of December 31, 2016 adjusted            | 26,779                      
|Transfer related to the stock option plan                      | 81                          
|Change in shares held by the management members of the Company | 112                         
|Outstanding shares as of December 31, 2017                     | 26,972                      
|Subscription of shares                                         | 16,718                      
|Transfer related to the stock option plan                      | 17                          
|Repurchase of shares                                           | (13,221)                    
|Disposal of shares                                             | 9,168                       
|Cancellation of treasury shares                                | (1,030)                     
|Change in shares held by the management members of the Company | (25)                        
|Outstanding shares as of December 31, 2018                     | 38,599                      
|                                                               |                             
|Weighted average shares outstanding (Note 27)                  | 41,147                      



| | 18.2. | Allocation of profit (loss) for the year
| | ----- | ----------------------------------------



According
to the Company’s Articles of Incorporation, profit for the year is allocated as follows, after deduction for any accumulated
losses and provision for income taxes: (i) 5% to legal reserve, reaching up to 20% of paid-in capital, or when the legal reserve
balance plus capital reserves is in excess of 30% of capital; (ii) 25% of the remaining balance to pay mandatory dividends; and
(iii) amount not in excess of 71.25% to set up the Reserve for Investments, with the purpose of financing the expansion of the
operations of the Company and its subsidiaries.



The
Board of Directors, by resolution at the Annual Shareholders’ Meeting, shall examine the accounts and financial statements
related to the fiscal year 2018.



In
view of the accumulated losses as of December 31, 2018, the allocation of profit or loss for the year is not applicable.



|Balance of accumulated losses for 2016            | (861,761)  
|------------------------------------------------- | -----------
|Initial adoption CPC 47-48                        | (133,951)  
|Balance of accumulated losses for 2016 (restated) | (995,712)  
|Capital reduction and treasury shares sold        | (110,337)  
|Net loss for 2017                                 | (760,240)  
|Balance of accumulated losses for 2017 (restated) | (1,866,289)
|Net loss for 2018                                 | (419,526)  
|Share repurchase program and treasury shares sold | (22,588)   
|Balance of accumulated losses for 2018            | (2,308,403)
|                                                  |            

| | 18.3. | Stock option plan
| | ----- | -----------------



Expenses
for granting stocks are recorded under the account “General and administrative expenses” (Note 23) and showed the
following effects on profit or loss in the years ended December 31, 2018 and 2017:



|                                      | 2018  | 2017 
|------------------------------------- | ----- | -----
|                                      |       |      
|Equity-settled stock option plans (i) | 1,304 | 3,500
|Phantom Shares (Note 18.4)            | 623   | 1,464
|Total option grant expenses (Note 23) | 1,927 | 4,964



| | (i) | In the year ended December
31, 2018, the amount of R$2,104 was reversed because the options of beneficiaries were cancelled for forfeiture.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------





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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 18. | Equity --Continued
| | --- | ------------------



| | 18.3. | Stock option plan --Continued
| | ----- | -----------------------------



| | (i) | Gafisa
| | --- | ------



The
Company has a total of six stock option plans comprising common shares, launched in 2012, 2013, 2014, 2015, 2016 and 2018 which
follows the rules established in the Stock Option Plan of the Company.



The
granted options entitle their holders (employees) to purchase common shares of the Company’s capital, after periods that
range from one to four years of employment (essential condition to exercise the option), and expire six to ten years after the
grant date.



The
fair value of options is set on the grant date, and it is recognized as expense in profit or loss (as contra-entry to equity)
during the grace period of the plan, to the extent the services are provided by employees and management members.



Changes
in the stock options outstanding in the years ended December 31, 2018 and 2017, including the respective weighted average exercise
prices are as follows:



|                                                                                                | 2018                  | 2017                                       
|----------------------------------------------------------------------------------------------- | --------------------- | -------------------------------------------
|                                                                                                | Number
    of options | Weighted
    average exercise price (Reais)
|Options
    outstanding at the beginning of the year                                            | 841,172               | 16.99                                      
|Options
    granted                                                                             | 2,685,474             | 15.00                                      
|Options
    exercised (i)                                                                       | (21,079)              | (16.25)                                    
|Options
    cancelled for forfeiture (ii)                                                       | (2,252,076)           | (15.00)                                    
|Options
    cancelled and adjustment to number due to the discontinued operations of Tenda, net | (13,934)              | (0.09)                                     
|Options
    outstanding at the end of the year                                                  | 1,239,557             | 15.58                                      



| | (i) | In the year ended December 31, 2018, the amount received
through exercised options was R$418 (R$818 in 2017).
| | --- | -------------------------------------------------------------------------------------------------------------



| | (ii) | Options cancelled for forfeiture as the beneficiaries
who would be entitled were dismissed as part of the process of turnaround and streamlining of the corporate structure of the Company
(Note 1).
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December 31, 2018, the stock
options outstanding and exercisable are as:



|Options outstanding | Options exercisable                                
|------------------- | ---------------------------------------------------
|Number of options   | Weighted average remaining contractual life (years)
|                    |                                                    
|1,239,557           | 2.92                                               



During the year ended December
31, 2018, the Company granted 2,685,474 options in connection with its stock option plans comprising common shares (no option grant
in 2017).



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 18. | Equity --Continued
| | --- | ------------------



| | 18.3. | Stock option plan --Continued
| | ----- | -----------------------------



The
models used by the Company for pricing granted options are the Binomial model for traditional options and the MonteCarlo model
for options in the Restricted Stock Options format.



In
2018, the fair value of the options granted totaled R$17,032, which was determined based on the following assumptions. In view
of the cancellation of options for forfeiture of beneficiaries, the program’s fair value, considering the remaining options,
is R$1,071.



|                                         | 2018     
|---------------------------------------- | ---------
|Pricing model                            | Binomial 
|Exercise price of options (R$)           | R$15.00  
|Weighted average price of options ( (R$) | R$15.00  
|Expected volatility (%) – (*)            | 52%      
|Expected option life (years)             | 4.6 years
|Dividend income (%)                      | 1.98%    
|Risk-free interest rate (%)              | 6.64%    



(*)The
volatility was determined based on regression analysis of the ratio of the share volatility of Gafisa S.A. to the Ibovespa index.



| | 18.4. | Share-based payment – Phantom Shares
| | ----- | ------------------------------------



The Company has a total of two
cash-settled share-based payment plans with fixed terms and conditions, according to the plans approved by the Company, launched
in 2015 and 2016.



As of December 31, 2018, the
amount of R$4,602 (R$4,060 in 2017), related to the fair value of the phantom shares granted, is recognized in the heading “Other
payables” (Note 15).



| | 19. | Income tax and social contribution
| | --- | ----------------------------------



The
reconciliation of the effective tax rate for the years ended December 31, 2018 and 2017 is as follows:



|                                                                       |           |           
|---------------------------------------------------------------------- | --------- | ----------
|                                                                       | 2018      | 2017      
|                                                                       |           | (restated)
|Loss before income tax and social contribution, and statutory interest | (443,027) | (881,796) 
|Income tax calculated at the applicable rate - 34 %                    | 150,629   | 299,811   
|                                                                       |           |           
|Net effect of subsidiaries taxed by presumed profit and RET            | (11,892)  | (17,876)  
|Income from equity method investments                                  | (5,264)   | (65,810)  
|Stock option plan                                                      | (443)     | (1,190)   
|Reversal of goodwill                                                   | -         | (56,614)  
|Other permanent differences                                            | (968)     | (2,169)   
|Charges on payables to venture partners                                | 211       | (1,146)   
|Net effect on discontinued operations (a)                              | -         | (25,413)  
|Recognized (unrecognized) tax credits                                  | (110,522) | (106,493) 
|                                                                       | 21,751    | 23,100    
|                                                                       |           |           
|Tax expenses  - current                                                | (3,349)   | (2,832)   
|Tax income (expenses) – deferred                                       | 25,100    | 25,932    



| | (a) | Effect attributable
to discontinued operations not reflected in the profit base before taxes, however, with effect of reducing the tax base of the
entity.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 19. | Income tax and social contribution --Continued
| | --- | ----------------------------------------------



| | (ii) | Deferred income tax
and social contribution
| | ---- | -------------------------------------------



The
Company recognized deferred tax assets on tax losses and income tax and social contribution carryforwards for prior years, which
have no expiration, and for which offset is limited to 30% of annual taxable profit, to the extent the taxable profit is probable
to be available for offsetting temporary differences, based on the assumptions and conditions established in the business model
of the Company.



As
of December 31, 2018 and 2017, deferred income tax and social contribution are from the following sources:



| | (ii) | Deferred income tax
and social contribution --Continued
| | ---- | -------------------------------------------------------



|                                                                                |          
|------------------------------------------------------------------------------- | ---------
|                                                                                | 2018     
|Assets                                                                          |          
|Provisions for legal claims                                                     | 99,895   
|Temporary differences – Deferred PIS and COFINS                                 | 15,722   
|Provisions for realization of non-financial assets                              | 264,022  
|Temporary differences –  CPC adjustment                                         | 22,796   
|Other provisions                                                                | 11,838   
|Income tax and social contribution loss carryforwards                           | 375,007  
|                                                                                | 789,280  
|                                                                                |          
|Unrecognized deferred tax assets of continued operations                        | (705,866)
|                                                                                | (705,866)
|Liabilities                                                                     |          
|Negative goodwill                                                               | (2,069)  
|Temporary differences –CPC adjustment                                           | (67,170) 
|Differences between income taxed on cash basis and recorded on an accrual basis | (63,547) 
|                                                                                | (132,786)
|                                                                                |          
|Total net                                                                       | (49,372) 



The
balances of income tax and social contribution loss carryforwards for offset are as follows:



|                                                                 |           
|---------------------------------------------------------------- | ----------
|                                                                 | 2018      
|                                                                 | Income tax
|Balance of income tax and social contribution loss carryforwards | 1,104,648 
|Deferred tax asset (25%/9%)                                      | 276,162   
|Recognized deferred tax asset                                    | 15,273    
|Unrecognized deferred tax asset                                  | 260,889   



In the years ended December
31, 2018 and 2017, the effect of income tax and social contribution on statement of profit or loss of the Company is mainly caused
by the impairment recorded at the initial value of the portion of remeasurement of the investment stated at fair value.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 20. | Financial instruments
| | --- | ---------------------



The
Company and its subsidiaries engage in operations involving financial instruments. These instruments are managed through operational
strategies and internal controls aimed at providing liquidity, return and safety. The use of financial instruments for hedging
purposes is achieved through a periodical analysis of exposure to the risk that the management intends to cover (exchange, interest
rate, etc.) which is submitted to the corresponding Management bodies for approval, and performance of the proposed strategy.
The control policy consists of continuously monitoring the contracted conditions in relation to the prevailing market conditions.
The Company and its subsidiaries do not use derivatives or any other risky assets for speculative purposes. The result from these
operations is consistent with the policies and strategies devised by the Company’s management. The Company and its subsidiaries
operations are subject to the risk factors described below:



| | (i) | Risk considerations
| | --- | -------------------



| | a) | Credit risk
| | -- | -----------



The
Company and its subsidiaries restrict their exposure to credit risks associated with cash and cash equivalents, investing only
in short-term securities of top tier financial institutions.



With
regards to accounts receivable, the Company restricts its exposure to credit risks through sales to a broad base of customers
and ongoing credit analysis. Additionally, there is no relevant history of losses due to the existence of secured guarantee, represented
by real estate unit, for the recovery of its products in the cases of default during the construction period. As of December 31,
2018 and 2017, there was no significant credit risk concentration associated with customers.



| | b) | Derivative financial
instruments
| | -- | --------------------------------



The Company holds derivative
instruments to mitigate the risk arising from its exposure to index and interest volatility recognized at their fair value in profit
or loss for the year.



In the year ended December 31,
2018, the Company settled the following derivative contract for hedge against interest rate fluctuation.



|                                    | Reais                                                                    | Percentage                          | Validity                      | Gain
    (loss) not realized by derivative instruments - net
|----------------------------------- | ------------------------------------------------------------------------ | ----------------------------------- | ----------------------------- | ------------------------------------------------------------
|                                    |                                                                          |                                     |                               |                                                             
|Swap
    agreements (Fixed for CDI) | Face
    value                                                           | Original
    Index – asset position | Swap
    – liability position | Beginning                                                   
|                                    |                                                                          |                                     |                               |                                                             
|Banco Votorantim S.A.               | 130,000                                                                  | CDI
    + 1.90%                     | 118%
    CDI                  | 07/22/2014                                                  
|                                    | Total
    derivative financial instruments(Note 20.i.d and Note 20.ii.a) | -                                   | 404                          
|                                    |                                                                          |                                     |                               |                                                             
|                                    |                                                                          |                                     |                               | Current                                                     
|                                    |                                                                          |                                     |                               | Non-current                                                 



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)







| | 20. | Financial instruments --Continued
| | --- | ---------------------------------



| | (i) | Risk considerations--Continued
| | --- | ------------------------------



| | b) | Derivative financial
instruments --Continued
| | -- | --------------------------------------------



During
the year ended December 31, 2018, the income amount of R$763 (R$818 in 2017), which refers to net proceeds of the interest swap
transaction, arising from the payment in the amount of R$404 and the downward market variation of R$1,168, was recognized in the
“financial income (expenses)” line in the statement of profit or loss for the year, allowing correlation between the
effect of such transactions and interest rate fluctuation in the Company’s statement of financial position (Note 24).



Additionally,
during the year ended December 31, 2018, in the context of the treasury share repurchase program (Note 18.1), the Company used
derivative financial instruments, through forward contracts, to make transactions with shares traded in the market. The contracts
entered into total R$38,879 (Note 15), adjusted by the average rate of 0.71% over an average term of 41 days.



The
estimated fair value of derivative financial instruments purchased by the Company was determined based on information available
in the market and specific valuation methodologies. However, considerable judgment was necessary for interpreting market data
to produce the estimated fair value of each transaction, which may vary upon the financial settlement of transactions.



| | c) | Interest rate risk
| | -- | ------------------



Interest
rate risk arises from the possibility that the Company and its subsidiaries may experience gains or losses arising from fluctuations
in the interest rates of its financial assets and liabilities. Aiming to mitigate this kind of risk, the Company and its subsidiaries
seek to diversify funding in terms of fixed and floating rates. The interest rates on loans, financing and debentures are disclosed
in Notes 12 and 13. The interest rates contracted on financial investments are disclosed in Note 4. Accounts receivable from completed
real estate units (Note 5), are subject to annual interest rate of 12%, appropriated on a pro ratabasis.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 20. | Financial instruments --Continued
| | --- | ---------------------------------



| | (i) | Risk considerations--Continued
| | --- | ------------------------------



| | d) | Liquidity risk
| | -- | --------------



Liquidity
risk refers to the possibility that the Company and its subsidiaries do not have sufficient funds to meet their commitments in
view of the settlement terms of its rights and obligations.



To
mitigate liquidity risks, and to optimize the weighted average cost of capital, the Company and its subsidiaries monitor on an
on-going basis the indebtedness levels according to the market standards, and the fulfillment of covenants provided for in loan,
financing and debenture agreements, in order to guarantee that the operating-cash generation and the advance funding, when necessary,
are sufficient to meet the schedule of commitments, appropriately mitigating liquidity risk to the Company or its subsidiaries
(Notes 12 e 13).



The
maturities of financial instruments of loans, financing, suppliers, debentures, forward transactions, obligations assumed on assignment
of receivables, suppliers, payables for purchase of properties and advance from customers are as follows:



|Period
    ended December 31, 2018                                           |                     
|---------------------------------------------------------------------------- | --------------------
|Liabilities                                                                  | Less
    than 1 year
|Loans
    and financing (Note 12)                                            | 285,612             
|Debentures
    (Note 13)                                                     | 62,783              
|Forward
    transactions (Note 15)                                           | 38,879              
|Obligations
    assumed on assignment of receivables (Note 14)               | 25,046              
|Suppliers
    (Note 15 and Note 20.ii.a)                                     | 119,847             
|Payables
    for purchase of properties and advance from customers (Note 17) | 113,355             
|                                                                             | 645,522             
|Assets                                                                       |                     
|Cash and cash equivalents and short-term investments
    (Notes 4.1 and 4.2) | 137,160             
|Trade accounts receivable (Note 5)                                           | 467,993             
|                                                                             | 605,153             



F-65


Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 20. | Financial instruments --Continued
| | --- | ---------------------------------



| | (i) | Risk considerations--Continued
| | --- | ------------------------------



| | d) | Liquidity risk
--Continued
| | -- | --------------------------



Fair
value classification



The
Company uses the following classification to determine and disclose the fair value of financial instruments by the valuation technique:



Level
1: quoted prices (without adjustments) in active markets for identical assets or liabilities;



Level
2: inputs other than the quoted market prices within Level 1 that are observable for asset or liability, either directly (as prices)
or indirectly (derived from prices); and



Level
3: inputs for asset or liability not based on observable market data (unobservable inputs).



The
classification level of fair value for financial instruments measured at fair value through profit or loss of the Company as of
December 31, 2018 and 2017 is as follows:



|                                  | Fair value classification
|--------------------------------- | -------------------------
|As of December 31, 2018           | Level 1                  
|                                  |                          
|Financial assets                  |                          
|Short-term investments (Note 4.2) | -                        



|                                               | Fair value classification
|---------------------------------------------- | -------------------------
|As of December 31, 2017                        | Level 1                  
|                                               |                          
|Financial assets                               |                          
|Short-term investments (Note 4.2)              | -                        
|Derivative financial instruments (Note 20.i.b) | -                        



In
the years ended December 31, 2018 and 2017, there were no transfers between the Levels 1 and 2 fair value classifications, nor
were transfers between Levels 3 and 2 fair value classifications.



| | (ii) | Fair value of financial instruments
| | ---- | -----------------------------------



| | a) | Fair value measurement
| | -- | ----------------------



The
following estimate fair values were determined using available market information and proper measurement methodologies. However,
a considerable amount of judgment is necessary to interpret market information and estimate fair value. Accordingly, the estimates
presented in this document are not necessarily indicative of amounts that the Company could realize in the current market. The
use of different market assumptions and/or estimation methodology may have a significant effect on estimated fair values.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 20. | Financial instruments —Continued
| | --- | --------------------------------



| | (ii) | Fair value of financial
instruments --Continued
| | ---- | -----------------------------------------------



| | a) | Fair value measurement
--Continued
| | -- | ----------------------------------



The
following methods and assumptions were used in order to estimate the fair value for each financial instrument type for which the
estimate of values is practicable.



| | (i) | The amounts of cash and cash equivalents, short-term investments,
accounts receivable, other receivables, suppliers, and other current liabilities approximate to their fair values, recorded in
the financial statements.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The fair value of bank loans and other financial debts
is estimated through future cash flows discounted using benchmark interest rates available for similar and outstanding debts or
terms.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
most significant carrying values and fair values of financial assets and liabilities as of December 31, 2018 and 2017 are as follows:



|                                                                             |                    |               
|---------------------------------------------------------------------------- | ------------------ | --------------
|                                                                             | 2018               | 2017          
|                                                                             | Carrying
    value | Fair
    value
|                                                                             |                    |               
|Financial
    assets                                                         |                    |               
|Cash and cash equivalents
    (Note 4.1)                                     | 32,304             | 32,304        
|Short-term investments
    (Note 4.2)                                        | 104,856            | 104,856       
|Derivative financial
    instruments (Note 20(i)(b))                         | -                  | -             
|Trade accounts receivable
    (Note 5)                                       | 642,009            | 642,009       
|Loans
    receivable (Note 21.1)                                             | 28,409             | 28,409        
|                                                                             |                    |               
|Financial liabilities                                                        |                    |               
|Loans and financing
    (Note 12)                                            | 623,747            | 555,855       
|Debentures (Note 13)                                                         | 265,666            | 302,126       
|Forward transactions
    – Share repurchase program (Note 15)                | 38,879             | 38,879        
|Suppliers                                                                    | 134,581            | 134,581       
|Obligations assumed
    on assignment of receivables (Note 14)               | 57,186             | 57,186        
|Payables for purchase
    of properties and advance from customers (Note 17) | 309,431            | 309,431       
|Loans payables (Note
    21.1)                                               | 15,451             | 15,451        



(*)
Fair value through profit or loss



(**)
Amortized cost



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 20. | Financial instruments --Continued
| | --- | ---------------------------------



| | (ii) | Fair value of financial
instruments --Continued
| | ---- | -----------------------------------------------



| | a) | Risk of debt acceleration
| | -- | -------------------------



As
of December 31, 2018, the Company has loans and financing, with restrictive covenants related to cash generation, indebtedness
ratios, capitalization, debt coverage, maintenance of shareholding position, and others. The breach of such obligations by the
Company may give rise to the acceleration of its debts and/or acceleration of other debts of the Company, including due to the
perform of any cross default or cross acceleration clauses, which may negatively impact the profit or loss of the Company and
the value of its shares.



These
restrictive covenants have been complied with by the Company and do not limit its ability to conduct its business as usual.



As
mentioned in Note 12, in view of the breach of the covenants of a CCB issue, the non-current portions of such transaction were
reclassified into short term. This transaction was settled on February 28, 2019, according to Note 32(iv).



The
balance of certain bank financing contracts was also reclassified into short term, because of the assignment, in 2016 and 2017,
of receivables provided in guarantee to financing contracts, as indicated in Note 12.



The
Company analyzed other debt contracts and did not identify any impact on the cross restrictive covenants in relation to the aforementioned
breach.



| | (iii) | Capital stock management
| | ----- | ------------------------



The
objective of the Company’s capital stock management is to guarantee the maintenance of a strong credit rating in institutions,
and an optimum capital ratio, in order to support the Company’s business and maximize value to shareholders.



The
Company controls its capital structure by making adjustments and adapting to current economic conditions. In order to maintain
its structure adjusted, the Company may pay dividends, return on capital to shareholders, raise new loans and issue debentures,
among others.



There
were no changes in objectives, policies or procedures during the years ended December 31, 2018 and 2017.



The
Company included in its net debt structure: loans and financing, debentures, obligations assumed on assignment of receivables,
and payables to venture partners less cash and cash equivalents and short-term investments:



|                                                                                                       |          
|------------------------------------------------------------------------------------------------------ | ---------
|                                                                                                       | 2018     
|                                                                                                       |          
|Loans and financing (Note 12)                                                                          | 623,747  
|Debentures (Note 13)                                                                                   | 265,666  
|( - ) Cash and cash equivalents and
        
        short-term investments (Note
        4.1 and 4.2) | (137,160)
|Net debt                                                                                               | 752,253  
|Equity                                                                                                 | 493,191  



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 20. | Financial instruments --Continued
| | --- | ---------------------------------



| | (iv) | Sensitivity analysis
| | ---- | --------------------



The
sensitivity analysis of financial instruments for the years ended December 31, 2018 and 2017, except swap contracts, which are
analyzed through their due dates, describes the risks that may incur material losses on the Company’s profit or loss, as
provided for by CVM, through Rule 475/08, in order to show a 10%, 25% and 50% increase/decrease in the risk variable considered.



As
of December 31, 2018, the Company has the following financial instruments:



| | a) | Short-term investments, loans and financing, and debentures
linked to Interbank Deposit Certificates (CDI);
| | -- | -----------------------------------------------------------------------------------------------------------



| | b) | Loans and financing and debentures linked to the Referential
Rate (TR) and CDI, and debentures indexed to the CDI and IPCA;
| | -- | ---------------------------------------------------------------------------------------------------------------------------



| | c) | Accounts receivable and payables for purchase of property,
linked to the National Civil Construction Index (INCC) and General Market Price Index (IGP-M).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



For
the sensitivity analysis in the year ended December 31, 2018, the Company considered the interest rates of investments, loans
and accounts receivables, the CDI rate at 6.40%, TR rate at 0%, INCC rate at 3.84%, IPCA rate at 3.75% and IGP-M rate at 7.55%.
The scenarios considered were as follows:



Scenario
I – Probable: 10% increase/decrease in the risk variables used for pricing



Scenario
II – Possible: 25% increase/decrease in the risk variables used for pricing



Scenario
III – Remote: 50% increase/decrease in the risk variables used for pricing



The
Company shows in the following chart the sensitivity to risks to which the Company is exposed, taking into account that the possible
effects would impact the future results, based on the exposures shown at December 31, 2018. The effects on equity are basically
the same of the profit or loss ones.



|                                        |                                | Scenario        
|--------------------------------------- | ------------------------------ | ----------------
|                                        |                                | I               
|Transaction                             | Risk                           | Increase
    10%
|                                        |                                |                 
|Financial
    investments               | Increase/decrease
    of CDI   | 715             
|Loans
    and financing                 | Increase/decrease
    of CDI   | (1,862)         
|Debentures                              | Increase/decrease
    of CDI   | (1,301)         
|                                        |                                |                 
|Net
    effect of CDI variation         |                                | (2,448)         
|                                        |                                |                 
|Loans
    and financing                 | Increase/decrease
    of TR    | -               
|                                        |                                |                 
|Net
    effect of TR variation          |                                | -               
|                                        |                                |                 
|Debentures                              | Increase/decrease
    of IPCA  | (178)           
|                                        |                                |                 
|Net
    effect of IPCA variation        |                                | (178)           
|                                        |                                |                 
|Accounts
    receivable                 | Increase/decrease
    of INCC  | 1,375           
|Payables
    for purchase of properties | Increase/decrease
    of INCC  | (1,144)         
|                                        |                                |                 
|Net
    effect of INCC variation        |                                | 231             
|                                        |                                |                 
|Accounts
    receivable                 | Increase/decrease
    of IGP-M | 1,896           
|                                        |                                |                 
|Net
    effect of IGP-M variation       |                                | 1,896           



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 21. | Related parties
| | --- | ---------------



| | 21.1. | Balances with related parties
| | ----- | -----------------------------



The
transactions between the Company and related companies are made under conditions and prices established between the parties.



|                                                           |         
|---------------------------------------------------------- | --------
|Current account                                            | 2018    
|                                                           |         
|Assets                                                     |         
|Current account(a):                                        |         
|Total SPEs                                                 | 51,624  
|Subsidiaries                                               | 43,004  
|Jointly-controlled investees                               | 8,587   
|Associates                                                 | 33      
|Condominium and consortia (b) and thirty party’s works (c) | 13,036  
|Loan receivable (d) (Note 20.ii.a)                         | 28,409  
|Dividends receivable                                       | -       
|                                                           | 93,069  
|                                                           |         
|Current portion                                            | 64,660  
|Non-current                                                | 28,409  
|                                                           |         
|Liabilities                                                |         
|Current account (a):                                       |         
|Total SPEs and Tenda                                       | (40,713)
|Subsidiaries                                               | (15,780)
|Jointly-controlled investees                               | (16,532)
|Associates                                                 | (8,401) 
|Loan payable(d) (Note 20.ii.a)                             | (15,451)
|                                                           | (56,164)
|                                                           |         
|Current portion                                            | (56,164)
|Non-current portion                                        | -       



| | (a) | The Company participates
in the development of real estate ventures with other partners, directly or through related parties, based on the formation of
condominiums and/or consortia. The management structure of these ventures and the cash management are centralized in the lead
partner of the venture, which manages the construction schedule and budgets. Thus, the lead partner ensures that the investments
of the necessary funds are made and allocated as planned. The sources and use of resources of the venture are reflected in these
balances, observing the respective interest of each investor, which are not subject to indexation or financial charges and do
not have a fixed maturity date. Such transactions aim at simplifying business relations that demand the joint management of amounts
reciprocally owed by the involved parties and, consequently, the control over the change of amounts reciprocally granted which
offset against each other at the time the current account is closed. The average term for the development and completion of the
ventures in which the resources are invested is between 24 and 30 months. The Company receives a compensation for the management
of these ventures.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Refers to transactions
between the lead partner of consortium, partners, and condominiums..
| | --- | -------------------------------------------------------------------------------------------



| | (c) | Refers to operations
in third-party’s works.
| | --- | --------------------------------------------



| | (d) | The loans of the Company
with its subsidiaries, shown below, are made to provide subsidiaries with cash to carry out their respective activities, subject
to the respective agreed-upon financial charges. The businesses and operations with related parties are carried out strictly at
arm’s length, in order to protect the interests of the both parties involved in the business.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
breakdown, nature and conditions of the balances of loans receivable and payable of the Company are as follows. Loans have maturity
from January 2019 and are tied to the cash flows of the related ventures.



|                                                                 |        |        |  |             
|---------------------------------------------------------------- | ------ | ------ |  | ------------
|                                                                 | 2018   | 2017   |  | Nature      
|                                                                 |        |        |  |             
|Lagunas - Tembok Planej. E Desenv. Imob. Ltda.                   | 5,486  | 4,778  |  | Construction
|Manhattan Residencial I - OAS Empreendimentos                    | 685    | 1,791  |  | Construction
|Target Offices & Mall- SPE Yogo Part. Emp. Imob. e Comasa Const. | 22,238 | 15,610 |  | Construction
|Total receivable                                                 | 28,409 | 22,179 |  |             
|                                                                 |        |        |  |             
|Dubai Residencial - Franere, Com. Const. e Imob. Ltda.           | 4,787  | 3,887  |  | Construction
|Parque Árvores- Franere, Com. Const. e Imob. Ltda.               | 7,877  | 4,673  |  | Construction
|Parque Águas- Franere, Com. Const. e Imob. Ltda.                 | 2,787  | 1,951  |  | Construction
|Total payable                                                    | 15,451 | 10,511 |  | Construction







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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)







| | 21. | Related parties --Continued
| | --- | ---------------------------



| | 21.1. | Balances with related parties --Continued
| | ----- | -----------------------------------------



In
the year ended December 31, 2018 the recognized financial income from interest on loans amounted to R$4,898 (R$2,220 in 2017)
(Note 24).



The
information regarding management transactions and compensation is described in Note 25.



| | 21.2. | Endorsements, guarantees and sureties
| | ----- | -------------------------------------



The
financial transactions of the subsidiaries are guaranteed by the endorsement or surety in proportion to the interest of the Company
in the capital stock of such companies, in the amount of R$218,344 as of December 31, 2018 (R$317,716 in 2017).



| | 22. | Net operating revenue
| | --- | ---------------------



|                                                                                                | 2018      | 2017       | 2016      
|----------------------------------------------------------------------------------------------- | --------- | ---------- | ----------
|                                                                                                |           | (restated) | (restated)
|Gross operating revenue                                                                         |           |            |           
|Real estate development, sale, barter transactions and construction services                    | 1,006,318 | 647,780    | 1,015,071 
|(Recognition) Reversal of allowance for expected credit losses and cancelled contracts (Note 5) | 41,827    | 187,284    | (23,925)  
|Taxes on sale of real estate and services                                                       | (87,254)  | (48,890)   | (67,965)  
|Net operating revenue                                                                           | 960,891   | 786,174    | 923,181   

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Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 23. | Costs and expenses by nature
| | --- | ----------------------------



These
are represented by the following:



|                                                                        |  |      |          |           
|----------------------------------------------------------------------- |  | ---- | -------- | ----------
|                                                                        |  | 2018 |          | 2017      
|                                                                        |  |      |          | (restated)
|Cost of real estate development and sale:                               |  |      |          |           
|Construction cost                                                       |  |      | (406,156 | )         
|Land cost                                                               |  |      | (211,962 | )         
|Development cost                                                        |  |      | (28,798  | )         
|Provision for loss on realization of properties for sale (Note 6 and 8) |  |      | (63,146  | )         
|Capitalized financial charges (Note 12)                                 |  |      | (112,904 | )         
|Maintenance / warranty                                                  |  |      | (23,203  | )         
|Total cost of real estate development and sale                          |  |      | (846,169 | )         
|                                                                        |  |      |          |           
|Selling expenses:                                                       |  |      |          |           
|Product marketing                                                       |  |      | (40,137  | )         
|Brokerage and sale commission                                           |  |      | (29,659  | )         
|Customer Relationship Management (CRM) and corporate marketing          |  |      | (14,386  | )         
|Other                                                                   |  |      | (249     | )         
|Total selling expenses                                                  |  |      | (84,431  | )         
|                                                                        |  |      |          |           
|General and administrative expenses:                                    |  |      |          |           
|Salaries and payroll charges                                            |  |      | (33,921  | )         
|Employee benefits                                                       |  |      | (3,554   | )         
|Travel and utilities                                                    |  |      | (922     | )         
|Services                                                                |  |      | (14,011  | )         
|Rents and condominium fees                                              |  |      | (5,780   | )         
|IT                                                                      |  |      | (11,026  | )         
|Stock option plan (Note 18.3)                                           |  |      | (1,927   | )         
|Reversal (Expense) of reserve for profit sharing (Note 25.iii)          |  |      | 14,750   |           
|Depreciation and amortization (Notes 10 and 11)                         |  |      | (21,290  | )         
|Other                                                                   |  |      | (698     | )         
|Total general and administrative expenses                               |  |      | (78,379  | )         
|                                                                        |  |      |          |           
|Other income (expenses), net:                                           |  |      |          |           
|Expenses with lawsuits (Note 16)                                        |  |      | (172,432 | )         
|Loss on realization of investment stated at fair value (Note 9)         |  |      | (112,800 | )         
|Other                                                                   |  |      | (13,703  | )         
|Total other income/(expenses), net                                      |  |      | (298,935 | )         







| | 24. | Financial income (expenses)
| | --- | ---------------------------



|                                                     |  | 2018 |          | 2017 |  | 2016
|---------------------------------------------------- |  | ---- | -------- | ---- |  | ----
|Financial income                                     |  |      |          |      |  |     
|Income from financial investments                    |  |      | 11,955   |      |  |     
|Derivative transactions (Note 20.i.b)                |  |      | 763      |      |  |     
|Financial income on loans (Note 21.i)                |  |      | 4,898    |      |  |     
|Other financial income                               |  |      | 1,937    |      |  |     
|Total financial income                               |  |      | 19,553   |      |  |     
|                                                     |  |      |          |      |  |     
|Financial expenses                                   |  |      |          |      |  |     
|Interest on funding, net of capitalization (Note 12) |  |      | (68,380  | )    |  |     
|Amortization of debenture cost                       |  |      | (4,224   | )    |  |     
|Payables to venture partners                         |  |      | -        |      |  |     
|Banking expenses                                     |  |      | (6,919   | )    |  |     
|Offered discount and other financial expenses        |  |      | (20,551  | )    |  |     
|Total financial expenses                             |  |      | (100,074 | )    |  |     



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 25. | Transactions with management and employees
| | --- | ------------------------------------------



| | (i) | Management compensation
| | --- | -----------------------



The
amounts recorded in the account “general and administrative expenses” for the years ended December 31, 2018 and 2017,
related to the compensation of the Company’s management members are as follows:



|                                      | Management compensation |                     
|------------------------------------- | ----------------------- | --------------------
|Year ended December 31, 2018          | Board of Directors      | Executive Management
|                                      |                         |                     
|Number of members                     | 5,5                     | 5,0                 
|Annual fixed compensation (in R$)     |                         |                     
|Salary / Fees                         | 1,264                   | 3,576               
|Direct and indirect benefits          | -                       | 151                 
|Others (INSS)                         | 253                     | 715                 
|Monthly compensation (in R$)          | 126                     | 370                 
|Total compensation                    | 1,517                   | 4,442               
|Total compensation and profit sharing | 1,517                   | 4,442               

|                                      |                         |                     
|------------------------------------- | ----------------------- | --------------------
|                                      | Management compensation |                     
|Year ended December 31, 2017          | Board of Directors      | Executive Management
|                                      |                         |                     
|Number of members                     | 7                       | 5                   
|Annual fixed compensation (in R$)     |                         |                     
|Salary / Fees                         | 1,693                   | 3,460               
|Direct and indirect benefits          | -                       | 203                 
|Others (INSS)                         | 339                     | 692                 
|Monthly compensation (in R$)          | 169                     | 363                 
|Total compensation                    | 2,032                   | 4,355               
|Profit sharing (Note 25 (iii))        | -                       | 1,625               
|Total compensation and profit sharing | 2,032                   | 5,980               
|                                      |                         |                     

|                                      |                         |                
|------------------------------------- | ----------------------- | ---------------
|                                      | Management compensation |                
|Year ended December 31, 2016          | Board of Directors      | Statutory Board
|                                      |                         |                
|Number of members                     | 7                       | 5              
|Annual fixed compensation (in R$)     |                         |                
|Salary / Fees                         | 1,682                   | 3,575          
|Direct and indirect benefits          | -                       | 345            
|Others (INSS)                         | 297                     | 715            
|Monthly compensation (in R$)          | 165                     | 386            
|Total compensation                    | 1,979                   | 4,635          
|Profit sharing (Note 25 (iii))        | -                       | 2,275          
|Total compensation and profit sharing | 1,979                   | 6,910          
|                                      |                         |                

There
is no amount related to expenses with option grant to current management members of the Company for the year ended December 31,
2018 (R$3,317 in 2017).



The
maximum aggregate compensation of the Company’s management members for the year 2018 was established at R$23,599 (R$18,739
in 2017), as fixed and variable compensation, as approved at the Annual Shareholders’ Meeting held on April 27, 2018.



On
the same occasion the compensation limit of the Fiscal Council members for their next term of office that ends in the Annual Shareholders’
Meeting to be held in 2019, was set at 10% of the compensation that, on average, was allocated to each officer of the Company,
excluding the benefits, representation allowances and profit sharing (R$261 in 2017).



| | (ii) | Sales transactions
| | ---- | ------------------



In
the years ended December 31, 2018 and December 31, 2017 no transaction of sale of units to current Management was carried out.





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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 25. | Transactions with management and employees --Continued
| | --- | ------------------------------------------------------



| | (iii) | Profit sharing
| | ----- | --------------



The
Company has a profit sharing plan that entitles its employees and management members, and those of its subsidiaries to participate
in the distribution of profits of the Company.



This
plan is tied to the achievement of specific targets, established, agreed-upon and approved by the Board of Directors at the beginning
of each year.



In
the year ended December 31, 2018, the Company recorded a reserve for profit sharing amounting to R$14,750 (expense of R$13,375
in 2017) in the account “General and Administrative Expenses" (Note 23).



|                               |          |       
|------------------------------ | -------- | ------
|                               | 2018     | 2017  
|                               |          |       
|Executive officers (Note 25.i) | -        | 1,625 
|Other employees                | -        | 11,750
|Reversal of provision          | (14,750) | -     
|Total profit sharing           | (14,750) | 13,375



Profit
sharing is calculated and reserved based on the achievement of the Company’s targets for the period.



As
shown in the previous tables and paragraphs, the aggregate compensation of Management and Fiscal Council members of the Company
is according to the limit approved at the Annual Shareholders’ Meeting held on April 27, 2018.



| | 26. | Insurance
| | --- | ---------



Gafisa
S.A. and its subsidiaries maintain insurance policies against engineering risk, barter guarantee, completion bond, and civil liability
related to unintentional personal damages caused to third parties and material damages to tangible assets, as well as against
fire hazards, lightning strikes, electrical damages, natural disasters and gas explosion. The contracted coverage is considered
sufficient by management to cover possible risks involving its assets and/or responsibilities.



The
liabilities covered by insurance and the respective amounts as of December 31, 2018 are as follows:



|Insurance type                                 | Coverage – R$
|---------------------------------------------- | -------------
|Engineering risks and completion bond          | 700,601      
|Civil liability (Directors and Officers – D&O) | 154,992      
|                                               | 855,593      



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 27. | Earnings (loss) per share
| | --- | -------------------------



In
accordance with CPC 41, the Company is required to report basic and diluted loss per share. The comparison data of basic and diluted
earnings/loss per share is based on the weighted average number of shares outstanding for the year, and all dilutive potential
shares outstanding for each reported year, respectively.



Diluted
earnings per share is computed similarly to basic earnings per share except that the outstanding shares are increased to include
the number of additional shares that would have been outstanding if the potential dilutive shares attributable to stock options
and redeemable shares of noncontrolling interest had been issued during the respective periods, using the weighted average stock
price.



The
following table shows the calculation of basic and diluted earnings and loss per share. In view of the loss for the year ended
December 31, 2018 and 2017, shares with dilutive potential are not considered, because the impact would be antidilutive.



|                                                                        |           |            |            
|----------------------------------------------------------------------- | --------- | ---------- | -----------
|                                                                        | 2018      | 2017       | 2016       
|Basic numerator                                                         |           | (restated) | (restated) 
|Undistributed loss from continued operations                            | (419,526) | (858,415)  | (587,255)  
|Undistributed profit (loss) from discontinued operations                | -         | 98,175     | (553,455)  
|Undistributed profit (loss), available for the holders of common shares | (419,526) | (760,240)  | (1,140,710)
|                                                                        |           |            |            
|Basic denominator (in thousands of shares)                              |           |            |            
|Weighted average number of shares (Note 18.1)                           | 41,147    | 26,891     | 26,921     
|                                                                        |           |            |            
|Basic earnings (loss) per share in Reais                                | (10,196)  | (28,271)   | (42.372)   
|From continued operations                                               | (10,196)  | (31,922)   | (21.814)   
|From discontinued operations                                            | -         | 3,651      | (20.558)   
|Diluted numerator                                                       |           |            |            
|Undistributed loss from continued operations                            | (419,526) | (858,415)  | (587,255)  
|Undistributed profit (loss) from discontinued operations                | -         | 98,175     | (553,455)  
|Undistributed loss, available for the holders of common shares          | (419,526) | (760,240)  | (1,140,710)
|                                                                        |           |            |            
|Diluted denominator (in thousands of shares)                            |           |            |            
|Weighted average number of shares (Note 18.1)                           | 41,147    | 26,891     | 26,921     
|Stock options                                                           | 572       | 61         | 95         
|Anti-dilution effect                                                    | (572)     | (61)       | (95)       
|Diluted weighted average number of shares                               | 41,147    | 26,891     | 26,921     
|                                                                        |           |            |            
|                                                                        |           |            |            
|Diluted earnings (loss) per share in Reais                              | (10.196)  | (28.271)   | (42.372)   
|From continued operations                                               | (10.196)  | (31.922)   | (21.814)   
|From discontinued operations                                            | -         | 3.651      | (20.558)   



| | 28. | Segment information
| | --- | -------------------



With
the completion of the discontinuation of Tenda’s operations (Note 8.2), the Company operates only in one segment, according
to the nature of its products.



Accordingly,
the reports used for making decisions are the consolidated financial statements, and no longer the analysis by operating segments.
Therefore, in line with CPC 22 – Operating Segments, the Company understands that there is no reportable segment to be disclosed
in the years ended December 31, 2018 and 2017.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 29. | Real estate ventures under construction – information
and commitments
| | --- | ---------------------------------------------------------------------



In
compliance with Circular Letter CVM/SNC/SEP 02/2018, related to the recognition of revenue from contracts for purchase and sale
of real state units not yet completed in Brazilian real estate development companies, the Company reports information on the ventures
in construction as of December 31, 2018:



|                                                                                    |  | Consolidated
|----------------------------------------------------------------------------------- |  | ------------
|                                                                                    |  | 2018        
|                                                                                    |  |             
|Unappropriated sales revenue of units sold                                          |  | 533,228     
|Unappropriated estimated cost of units sold                                         |  | (328,199)   
|Unappropriated estimated cost of units in inventory                                 |  | (167,942)   
|                                                                                    |  |             
|(i) Unappropriated sales revenue of units sold                                      |  |             
|Ventures under construction:                                                        |  |             
|(a)	Contracted sales revenue                                                        |  | 1,389,230   
|Appropriated sales revenue:                                                         |  |             
|Appropriated revenue                                                                |  | 889,593     
|Cancelled contracts – reversed revenue                                              |  | (33,591)    
|(b)	Net appropriated sales revenue                                                  |  | (856,002)   
|Unappropriated sales revenue (a+b) (a)                                              |  | 533,228     
|                                                                                    |  |             
|(ii) Income from damages for cancelled contracts                                    |  | 1,335       
|                                                                                    |  |             
|(iii) Unappropriated sales revenue of contracts not eligible to revenue recognition |  | 36,011      



|(iv) Allowance for cancelled contracts (liabilities)     |  |          
|-------------------------------------------------------- |  | ---------
|Adjustments in appropriated revenues                     |  | 131,863  
|Adjustments in trade accounts receivable                 |  | 82,847   
|Income from damages for cancelled contracts              |  | (19,606) 
|Liabilities – reversal/return due to cancelled contracts |  | 29,410   
|                                                         |  |          
|(v) Unappropriated estimated costs of units sold         |  |          
|Ventures under construction:                             |  |          
|(a)	Estimated cost of units                              |  | (868,655)
|Incurred cost of units:                                  |  |          
|Construction cost                                        |  | (561,256)
|Cancelled contracts – construction costs                 |  | 20,800   
|(b)	Net incurred cost                                    |  | (540,456)
|Cost to be incurred of units sold (a+b) (b)              |  | (328,199)



|(iii) Unappropriated estimated cost of units in inventory |  |          
|--------------------------------------------------------- |  | ---------
|Ventures under construction:                              |  |          
|Estimated cost of units                                   |  | (571,674)
|Incurred cost of units (Note 6)                           |  | 403,732  
|Unappropriated estimated cost                             |  | (167,942)



| | (a) | The unappropriated sales revenue of units sold are measured by
the face value of contracts, plus the contract adjustments and deducted for actual cancellations, not considering the effects of
the levied taxes and adjustment to present value, and do not include ventures that are subject to restriction due to a suspensive
clause (legal period of 180 days in which the Company can cancel a development), and therefore is not appropriated to profit or
loss.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The estimated cost of units sold and in inventory to be incurred
do not include financial charges, which are appropriated to properties for sale and profit or loss (cost of real estate sold) in
proportion to the real estate units sold as they are incurred.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December
31, 2018, the percentage of assets consolidated in the financial statements related to ventures included in the equity segregation
structure of the development stood at 25.1% (18.0% in 2017).



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 30. | Additional Information on the Statement of Cash Flows
| | --- | -----------------------------------------------------



| | (i) | Transactions that did
not affect Cash and Cash Equivalents
| | --- | ----------------------------------------------------------



The
Company and its subsidiaries performed the following investing and financing activities that did not affect cash and cash equivalents,
which were not included in the statements of cash flows:



|                                        | 2012 | 2018     | 2017      | 2016     
|--------------------------------------- | ---- | -------- | --------- | ---------
|                                        |      |          |           |          
|Capital contribution (reduction)        |      | (2,215)  | (12,360)  | 99,347   
|Capitalized financial charges (Note 12) |      | (35,686) | (74,310)  | (200,394)
|Physical barter – Land (Note 17)        |      | 38,030   | (14,648)  | (28,049) 
|                                        |      | 129      | (101,318) | (129,096)



| | (ii) | Reconciliation of the asset and liability changes with the cash flows from financing activities
| | ---- | -----------------------------------------------------------------------------------------------



|                                                      |                                               | Transactions
    affecting cash   | Transactions
    not affecting cash |                          
|----------------------------------------------------- | --------------------------------------------- | --------------------------------- | ----------------------------------- | -------------------------
|Consolidated                                          | Opening
        balance
        
        2017 | Funding/
        
        Receipt | Interest
        Payment            | Principal
        Payment
|                                                      |                                               |                                   |                                     |                          
|Loans, financing and
    debentures (Notes 12 and 13) | (1,104,897)                                   | (315,231)                         | 13,620                              | 528,252                  
|Loans (Note 21.1)                                     | 11,668                                        | -                                 | -                                   | (2,169)                  
|Paid-in capital (Note
    18.1)                       | (2,521,152)                                   | (167)                             | -                                   | -                        
|Capital reserve (Note
    18.1)                       | -                                             | (250,599)                         |                                     |                          
|                                                      | (3,614,381)                                   | (565,997)                         | 13,620                              | 526,083                  



| | 31. | Communication with regulatory bodies
| | --- | ------------------------------------



On
June 14, 2012, the Company received a subpoena from the Securities Exchange Commission’s Division of Enforcement related
to the Home Builders listed at SEC, Foreign Private Issuers (FPI). The subpoena requests that the Company provide all documents
from January 1, 2010 to July 10, 2012, the Company’s reply date related to the preparation of its financial statements,
including, among other things, copies of our financial policies and procedures, board and audit committee’s and operations
committee’s meeting minutes, monthly closing reports and any documents relating to possible financial or accounting irregularities
or improprieties, and internal audit reports. The SEC’s investigation is a non-public, fact-finding inquiry and is not clear
what action, if any, the SEC intends to take with respect to the information it gathers. The SEC subpoena does not specify any
charges. Until the publication of these financial statements, SEC has not issued any opinion.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 32. | Subsequent events
| | --- | -----------------



| | (i) | Change of registered office
| | --- | ---------------------------



The
Company disclosed a Notice to the Market on January 8, 2019, informing about the signature of a rental contract of a property
where the new registered office of the Company will be located, in Condomínio São Luiz, at Av. Pres. Juscelino Kubitschek,
1830, conjunto comercial, no 32, 3o andar, Bloco 2, Itaim Bibi, in the city of São Paulo, state of São
Paulo.



| | (ii) | Cancellation of treasury shares
| | ---- | -------------------------------



In
the meeting of the Board of Directors held on January 22, 2019, the cancellation of 370,000 shares was approved, acquired in the
scope of the Repurchase Program approved on September 28, 2018 (“Repurchase Program”), without reduction in capital,
which is represented by 43,357,589 registered book-entry common shares, with no par value.



| | (iii) | Change in shareholding
| | ----- | ----------------------



As
mentioned in Note 1, on February 14, 2019, 14,600,000 shares held by the group of its majority shareholder, GWI Asset Management
S.A., corresponding to 33.67% stake in the Company were auctioned. As a result of this auction, Planner Corretora de Valores S.A.,
by means of the investment funds it manages, became the holder of 8,000,000 common shares, corresponding to 18.45% of total common
shares issued by the Company.



In
the meeting of the Board of Directors held on February 17, 2019, Augusto Marques da Cruz Filho and Oscal Segall were appointed
to occupy two vacant positions for a term of office that expires in the following Annual Shareholders’ Meeting. Immediately
thereafter, the resignation of Messrs. Mu Hak You and Thiago Hi Joon You as Board members was recorded, the Board of Directors
remaining with five effective members.



On
February 20, 2019, the Company disclosed a Material Fact informing that the GWI Group, to which GWI Asset Management S.A. belongs,
started to hold, in aggregate, a total of 2,199,300 common shares, equivalent to 4.89% of the common shares issued by the Company.



In
the meeting of the Board of Directors held on March 13, 2019, in view of the confirmation, by the GWI Group, that it did not formulate,
under the terms of the Company’s Articles of Incorporation, a tender offer (“OPA”) by reaching significant shareholding
on January 22, 2019, an unanimous resolution was taken to call an Extraordinary Shareholders’ Meeting of the Company to
take resolution about the suspension of the GWI Group’s shareholder rights, under the terms of art. 52 of the Company’s
Articles of Incorporation. In view of the imminent call of annual and extraordinary shareholders’ meetings of the Company,
it was decided that such theme will be included in such meetings. On March 15, 2019, the Board of Directors took the resolution
to call the Extraordinary Shareholders’ Meeting to be held on April 15, 2019 (item vi), so that this item is included in
such ESM agenda.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 32. | Subsequent events --Continued
| | --- | -----------------------------



| | (iii) | Change in shareholding--Continued
| | ----- | ---------------------------------



On
March 15, 2019, Messrs. Thomas Reichenheim and Roberto Portella were elected to the remaining positions in the Company’s
Board of Directors, whose terms of office will expire in the following Shareholders’ Meeting.



The
Board of Directors is thus currently composed of seven members.



| | (iv) | Settlement of CCB
| | ---- | -----------------



As
mentioned in Note 12, on February 28, 2019, the Company settled the CCB transaction that exceeded the provision set in a restrictive
covenant in the total amount of R$24,301.



| | (v) | Polo Capital Securitizadora
| | --- | ---------------------------



On
February 5, 2019, Polo Capital Securitizadora disclosed a material fact informing that the Company started from January 2019 to
issue payment slips aiming to receive amounts arising from contracts for assignment of real estate receivables, entered into between
the parties. Immediately thereafter, the Company disclosed a notice to shareholders informing that (i) the theme was being disputed
at the appropriate level, including in court; (ii) the Polo Group and Gafisa, together with a construction company, partnered
to build a venture in Rio de Janeiro, for which the other partners did not make the necessary contribution of funds, equivalent
to each ownership interest, totaling the amount receivable by Gafisa of R$22,238 (Note 21.1), which is currently in dispute in
an arbitration process. Additionally, the Company informs that these matters are being disputed in court and arbitration process.



| | (vi) | Extraordinary Shareholders’ Meeting
| | ---- | -----------------------------------



On
March 15, 2019, the Company received a letter signed by Planner Corretora de Valores S.A. and Planner Redwood Asset Management
Admnistração de Recursos Ltda. (collectively referred to as “Planner”), in the capacity of administrators
of investment funds that hold, in aggregate, 18.45% stake in Gafisa’s capital, requiring the Company’s Board of Directors
to call the Extraordinary Shareholders’ Meeting (ESM), in order to change the administrative structure of Gafisa.



The
ESM occurred on April 15, 2019, at 9 a.m. at the Company’s registered office.



| | (vii) | Capital increase
| | ----- | ----------------



On
June 24, 2019, the Board of Directors ratified the capital increase approved at the Board of Directors’ Meeting held on
April 15, 2019, considering the subscription and contribution of 26,273,962 new common shares, of which 12,170,035 new common
shares at a price per share of R$5.12, and 14,103,927 new common shares at a price per share of R$4.96, totaling R$62,311 and
R$69,955, respectively.



On
October 23, 2019, the Board of Directors ratified the capital increase approved at the Board of Directors’ Meeting held
on August 15, 2019, considering the subscription and contribution of 48,968,124 new common shares, of which 45,554,148 new common
shares at a price per share of R$5.58, and 3,413,976 new common shares at a price per share of R$5.42, totaling R$254,195 and
R$18,504, respectively.





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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 32. | Subsequent events --Continued
| | --- | -----------------------------



| | (viii) | Gafisa’s divestment in AUSA
| | ------ | ---------------------------



On
October 21, 2019, the Company disclosed a Material Fact informing our shareholders and the market in general that we entered into
a Purchase and Sale, Stock Redemption, Corporate Restructuring Agreement with Alphaville Urbanismo S.A., Private Equity AE Investimentos
e Participações S.A. and affiliates of PEAE, aiming at setting forth the terms and conditions to put into effect
our divestment in Alphaville. Currently, we hold 21.20% of Alphaville’s shares. This decrease from our previous 30% stake
is a result of a capital increase in Alphaville performed by affiliates of PEAE. This transaction totals the amount of R$100 million,
to be paid by means of credit offset and delivery of assets. The close of the deal depends upon compliance with usual condition
precedents, including a corporate restructuring of certain assets of Alphaville, the obtainment of third parties’ consent
and corporate approvals. The referred transaction is in line with portfolio optimization and improvement of the Company’s
capital allocation, aiming at creating value for our shareholders.



***



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)









| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Description of the GAAP differences
| | --- | -----------------------------------



The
Company’s accounting policies and its consolidated financial statements comply with and are prepared in accordance with
Brazilian GAAP.



A
summary of the Company’s principal accounting policies under Brazilian GAAP that differ significantly from US GAAP is set
forth below.



| | (i) | Revenue recognition
| | --- | -------------------



Under
both Brazilian GAAP and US GAAP, the Company should apply the following steps for revenue recognition: 1) identify the contract
with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the
transaction price to the performance obligations in the contract; 5) recognize revenue when the Company satisfies a performance
obligation.



Under
Brazilian GAAP, real estate development sales revenues, costs and related expenses are recognized based on the transfer of control,
which is performed over time, according to the satisfaction or not of the contractual performance obligations. Revenue is recognized
using the percentage-of-completion method for each project, this percentage being measured in view of the incurred cost in relation
to the total estimated cost of the respective project. Land is treated as a portion of budgeted construction costs and is appropriated
proportionally to each real estate development. Under the percentage-of-completion method of accounting, revenues for work completed
are recognized prior to receipt of actual cash proceeds or vice-versa. Revenues start to be recognized under the percentage-of-completion
when the Company is no longer able to cancel the launched project, after the sales period established by law.



Under
USGAAP, the Company follows the guidance of ASC 606-10-25-30 (ASU 2014-09 – Revenue from contracts with customers (Topic
606)) to recognize the sale of individual units upon delivery of keys for each real estate unit, as an indicator of the transfer
of the control, to depict the transfer of promised real estate units to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those real estate units. Revenues start to be recognized when the Company
satisfies a performance obligation at a point in time by transferring the real estate units to customers, which occurs when the
customer obtains control of it. The amount of recognized revenue is the transaction price that is allocated to that performance
obligation.



ASU
2014-09 is effective for annual reporting periods beginning after December 15, 2017. As a transition method, the Company has recognized
the cumulative effect of initially applying this guidance as an adjustment to the opening balance of retained earnings as of January
01, 2017 to all contracts at the date of initial adoption (Notes 3.1 and 33 (c)(i).





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| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016--Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Description of the GAAP differences--Continued
| | --- | ----------------------------------------------



| | (i) | Revenue recognition--Continued
| | --- | ------------------------------



| | (a) | Allowance for credit losses
| | --- | ---------------------------



Under
Brazilian GAAP, expected losses are measured using one of the following bases: 12-month expected credit losses, and full lifetime
expected credit losses, and the Company carries out the measurement of the allowance regarding the expected credit losses on contracts
sold, which is recorded together with the recognition of the respective revenue.



Under
USGAAP, ASU 2016-13: Financial Instruments—Credit Losses (Topic 326) related to the allowance for credit losses is effective
for fiscal years beginning after December 15, 2019. Therefore, for USGAAP purposes, the Company has derecognized its allowance
for expected credit losses.



| | (ii) | Business combinations
| | ---- | ---------------------



Until
December 31, 2008, under Brazilian GAAP, goodwill arose from the difference between the amount paid and the Brazilian GAAP book
value (normally also the tax basis) of the net assets acquired. This goodwill was normally attributed to the difference between
the book value and the market value of assets acquired or justified based on expectation of future profitability and was amortized
over the remaining useful lives of the assets or up to ten years. Effective January 1, 2009, goodwill is no longer amortized under
Brazilian GAAP as is the case in US GAAP. Negative goodwill arises under Brazilian GAAP when the fair value of assets acquired
and liabilities assumed exceeds the purchase consideration; negative goodwill is not generally amortized but is registered as
a gain in profit and loss. For US GAAP purposes, when a business combination process generates negative goodwill, this amount
is recognized as a bargain purchase gain. Additionally, investments in affiliates, including the corresponding goodwill on the
acquisition of such affiliates are tested, at least, annually for impairment.



Under
US GAAP, fair values are assigned to acquired assets and liabilities in business combinations, including identifiable assets.
Any residual amount is allocated to goodwill. Goodwill is not amortized but, instead, is assigned to an entity’s reporting
unit and tested for impairment at least annually. The differences in relation to Brazilian GAAP arise principally from the measurement
of the consideration paid under US GAAP using the fair value of shares and put options issued, and the effects of amortization
which are not recorded for US GAAP purposes (goodwill amortization is also no longer recorded for Brazilian GAAP purposes effective
January 1, 2009).





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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016--Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Description of the GAAP differences--Continued
| | --- | ----------------------------------------------



| | (ii) | Business Combination--Continued
| | ---- | -------------------------------



| | Tenda | acquisition transaction
| | ----- | -----------------------



Under
Brazilian GAAP, the acquisition was consummated on October 21, 2008. As part of the acquisition of a controlling interest in Tenda,
the Company contributed the net assets of FIT Residencial amounting to R$411,241, acquiring 60% of the shareholders’ equity
of Tenda.



Under
US GAAP, the total cost of the acquisition has been allocated to the assets acquired and the liabilities assumed based on their
respective fair values. Acquired intangible assets include, R$73,038 assigned to existing development contracts, which were amortized
in straight-line over the estimated useful lives up to 6 years. For the year ended December 31, 2014, the amount of R$11,447 was
amortized, totaling the accumulated amount of R$73,038. Also, R$54,741 was assigned to registered trademarks, which were determined
to have indefinite useful lives, and are not amortized, but are tested for impairment at least annually. For the year ended December
31, 2016, a provision for impairment loss for its total amount was recorded due to Tenda’s presentation as a discontinued
operation (Notes 8.2 and 33(d)(iv)).



On
December 31, 2009, the shareholders of Gafisa and Tenda approved the merger by Gafisa of total outstanding shares issued by Tenda.
Because of the merger, Tenda became a wholly-owned subsidiary of Gafisa on that date.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016--Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Description of the GAAP differences--Continued
| | --- | ----------------------------------------------



| | (iii) | Classification of balance sheet line items
| | ----- | ------------------------------------------



Under
Brazilian GAAP, the classification of certain balance sheet items is presented differently from US GAAP. The Company has recast
its consolidated balance sheet under Brazilian GAAP to present a condensed consolidated balance sheet in accordance with US GAAP
(Note 33(d)(i)). The reclassifications are summarized as follows:



| | · | Under
Brazilian GAAP, restricted cash is presented as short-term investment in the balance sheet (Note 4.2(d)). For US GAAP purposes,
restricted cash is presented separately outside of short-term investment.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Under
Brazilian GAAP, the assets and liabilities included within a disposal group classified as held for sale, must be presented separately
in a single line only for the current year. For US GAAP purposes, according to ASU 2014-08, an entity is required to present,
for each comparative period, the assets and liabilities of a disposal group that includes an asset classified as held for sale
separately in the asset and liabilities sections.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Under
Brazilian GAAP, when the Company is in breach of a covenant, the waiver must be in place before the balance sheet date in order
for the debt to be classified as a non-current liability. Under US GAAP even if the waiver is obtained after the balance sheet
date, but before the issuance of the financial statements, the debt will still be classified as a non-current liability.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Classification of statement of income (operations)
line items
| | ---- | -------------------------------------------------------------



Under
Brazilian GAAP, in addition to the issues noted above, the classification of certain income and expense items is presented differently
from US GAAP. The Company has recast its statement of income (loss) prepared under the Brazilian GAAP to present a condensed consolidated
statement of income (loss) in accordance with US GAAP (Note 33(d)(ii)). The reclassifications are summarized as follows:



| | · | Under
Brazilian GAAP accounts receivable present value adjustment and monetary variation are recorded in the operating revenue. For
US GAAP purpose the realization of accounts receivable present value adjustment and monetary variation are classified in the financial
income/expense.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The
net income differences between Brazilian GAAP and US GAAP (Note 33(b)(i)) were incorporated in the consolidated statement of profit
or loss in accordance with US GAAP.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016--Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Description of the GAAP differences--Continued
| | --- | ----------------------------------------------



| | (v) | Deferred taxes
| | --- | --------------



Deferred
tax differences between Brazilian GAAP and US GAAP arise related to the adjustments mentioned above.



Under
Brazilian GAAP, deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against
which the asset can be utilized. During the year ended December 31, 2016, the Company derecognized a portion of the previously
recognized deferred tax assets under Brazilian GAAP since it was no longer probable to realize the deferred tax assets.



Under
US GAAP, deferred tax assets are recognized in full. A valuation allowance reduces the deferred tax asset to the amount that is
the more-likely-than-not to be realized.



Deferred
tax assets are recognized to the extent supported by reversing taxable temporary differences under both Brazilian GAAP and US
GAAP for our most significant tax-paying components. Furthermore, for US GAAP purposes, deferred income tax results are allocated
between the pretax loss from operations and the gain on discontinued operations. The differences in the amount of deferred tax
asset considered realizable for the respective years are an expense of R$19,930 in 2018 and a reversal of R$ 12,519 and R$134,010
in 2017 and 2016, respectively. Additionally, there is no tax benefit associated with share-based payments due to the valuation
allowance position.



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Reconciliation of significant differences between Brazilian
GAAP and US GAAP
| | --- | ----------------------------------------------------------------------------



| | (i) | Net income (loss)
| | --- | -----------------



|                                                                                | Note        | 2018      | 2017       | 2016       
|------------------------------------------------------------------------------- | ----------- | --------- | ---------- | -----------
|                                                                                |             |           | (restated) | (restated) 
|Net income (loss) under Brazilian GAAP attributable to owners of Gafisa S.A.    |             | (419,526) | (760,240)  | (1,140,710)
|Revenue recognition - net operating revenue                                     | 33(a)(i)    | (166,968) | 297,324    | 901,177    
|Revenue recognition - operating costs                                           | 33(a)(i)    | 135,937   | (182,367)  | (479,592)  
|Revenue recognition – allowance for expected credit losses                      | 33(a)(i)    | (2,243)   | (754)      | 4,816      
|Non-controlling interests on adjustments above                                  | 33(a)(i)    | -         | -          | (343)      
|Equity pick-up                                                                  | 33(a)(i)    | 1,637     | 27,946     | (7,075)    
|Present value adjustment on revenue recognition adjustments above and other     |             | (48)      | 244        | 4,969      
|Deferred tax on adjustments above, net of valuation allowance                   | 33(a)(v)    | (1,407)   | (3,986)    | (134,010)  
|Reversal of valuation allowance in US GAAP to offset 2016 recognition in BRGAAP | 33(a)(v)    | -         | -          | 283,132    
|Discontinued operation adjustments                                              | 33(b)(i)(b) | -         | -          | 53,519     
|                                                                                |             |           |            |            
|Net income (loss) attributable to shareholders of Gafisa under US GAAP          |             | (452,618) | (621,833)  | (514,117)  
|                                                                                |             |           |            |            
|Net income attributable to the non-controlling interests under US GAAP          |             | (1,750)   | (281)      | 2,214      
|                                                                                |             |           |            |            
|Net income (loss) under US GAAP                                                 |             | (454,368) | (622,114)  | (511,903)  
|Weighted-average number of shares outstanding in the year (in thousands)        |             |           |            |            
|Common shares                                                                   |             | 41,147    | 26,891     | 26,921     
|Earnings (loss) per share attributable to shareholders of Gafisa                |             |           |            |            
|Basic                                                                           | 33(d)(iv)   | (11.0426) | (23.1347)  | (19.0150)  
|Diluted                                                                         | 33(d)(iv)   | (11.0426) | (23.1347)  | (19.0150)  



| | (a) | Net income (loss) from continuing operations
| | --- | --------------------------------------------



|                                                                                | Note      | 2018      | 2017       | 2016      
|------------------------------------------------------------------------------- | --------- | --------- | ---------- | ----------
|                                                                                |           |           | (restated) | (restated)
|Net income (loss) under Brazilian GAAP from continuing operations.              |           | (421,276) | (858,696)  | (579,135) 
|Revenue recognition - net operating revenue                                     | 33(a)(i)  | (166,968) | 297,324    | 901,177   
|Revenue recognition - operating costs                                           | 33(a)(i)  | 135,937   | (182,367)  | (479,592) 
|Revenue recognition – allowance for expected credit losses                      | 33(a)(i)  | (2,243)   | (754)      | 4,816     
|Equity pick-up                                                                  | 33(a)(i)  | 1,637     | 27,946     | (7,075)   
|Present value adjustment on revenue recognition adjustments above and other     |           | (48)      | 244        | 4,969     
|Deferred tax on adjustments above, net of valuation allowance                   | 33(a)(v)  | (1,407)   | 29,394     | (134,010) 
|Reversal of valuation allowance in US GAAP to offset 2016 recognition in BRGAAP | 33(a)(v)  | -         | -          | 283,132   
|                                                                                |           |           |            |           
|Net income (loss) under US GAAP from continuing operations                      |           | (454,368) | (686,909)  | (5,718)   
|Weighted-average number of shares outstanding in the year (in thousands)        |           |           |            |           
|Common shares                                                                   |           | 41,147    | 26,891     | 26,921    
|Earnings (loss) per share from continuing operations                            |           |           |            |           
|Basic                                                                           | 33(d)(iv) | (11.0426) | (25.5442)  | (0.2124)  
|Diluted                                                                         | 33(d)(iv) | (11.0426) | (25.5442)  | (0.2124)  
|                                                                                |           |           |            |           



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016--Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Reconciliation of significant differences between Brazilian
GAAP and US GAAP--Continued
| | --- | ---------------------------------------------------------------------------------------



| | (i) | Net income (loss)--Continued
| | --- | ----------------------------



| | (b) | Net income (loss) from discontinued operations
| | --- | ----------------------------------------------



|                                                                            | Note      | 2018 | 2017     | 2016     
|--------------------------------------------------------------------------- | --------- | ---- | -------- | ---------
|                                                                            |           |      |          |          
|Net income (loss) under Brazilian GAAP from discontinued operations.        |           | -    | 98,175   | (559,704)
|Revenue recognition - net operating revenue                                 | 33(a)(i)  | -    | 85,460   | (5,874)  
|Revenue recognition - operating costs                                       | 33(a)(i)  | -    | (60,367) | (9,713)  
|Equity pick-up                                                              | 33(a)(i)  | -    | (741)    | 2,042    
|Present value adjustment on revenue recognition adjustments above and other |           | -    | 971      | 463      
|Deferred tax on adjustments above, net of valuation allowance               | 33(a)(v)  | -    | (33,815) | (147)    
|Impairment loss remeasurement                                               | 33(d)(iv) | -    | (24,888) | 66,748   
|Discontinued operation adjustments                                          | 33(b)(i)  | -    | (33,380) | 53,519   
|                                                                            |           |      |          |          
|Net income (loss) under US GAAP from discontinued operations                |           | -    | 64,796   | (506,185)
|Weighted-average number of shares outstanding in the year (in thousands)    |           |      |          |          
|Common shares                                                               |           | -    | 26,891   | 26,921   
|Earnings (loss) per share from discontinued operations                      |           |      |          |          
|Basic                                                                       | 33(d)(iv) | -    | 2.4096   | (18.8026)
|Diluted                                                                     | 33(d)(iv) | -    | 2.4041   | (18.8026)



| | (ii) | Equity
| | ---- | ------



|                                                               | Note     | 2018        | 2017       | 2016       
|-------------------------------------------------------------- | -------- | ----------- | ---------- | -----------
|                                                               |          |             | (restated) | (restated) 
|Equity under Brazilian GAAP                                    |          | 491,317     | 711,222    | 1,794,374  
|Revenue recognition - net operating revenue                    | 33(a)(i) | (1,097,861) | (914,334)  | (1,183,708)
|Revenue recognition - operating costs                          | 33(a)(i) | 847,643     | 696,072    | 871,585    
|Revenue recognition – allowance for expected credit losses     | 33(a)(i) | 1,820       | 4,063      | 4,816      
|US GAAP adjustment equity accounted investees                  | 33(a)(i) | (8,014)     | (10,533)   | (59,819)   
|Deferred tax on adjustments above, net of valuation allowance  | 33(a)(v) | 3,639       | 5,048      | 9,035      
|                                                               |          |             |            |            
|Equity attributable to shareholders of Gafisa under US GAAP    |          | 238,544     | 491,538    | 1,436,283  
|                                                               |          |             |            |            
|Equity attributable to non-controlling interests under US GAAP |          | 1,874       | 3,847      | 1,710      
|                                                               |          |             |            |            
|Equity under US GAAP                                           |          | 240,418     | 495,385    | 1,437,993  







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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)







| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016-- Continued
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Reconciliation of significant differences between Brazilian
GAAP and US GAAP--Continued
| | --- | ---------------------------------------------------------------------------------------



| | (ii) | Equity--Continued
| | ---- | -----------------



|Condensed changes in total equity
        under US GAAP | 2018      | 2017       | 2016      
|------------------------------------------------------- | --------- | ---------- | ----------
|                                                        |           | (Restated) | (Restated)
|At beginning of the year                                | 495,385   | 1,437,993  | 1,955,926 
|Changes in equity, BRGAAP                               | (52,449)  | 818        | (8,684)   
|Capital reduction (Tenda spin-off)                      | -         | (327,230)  | -         
|Stock options                                           | 1,304     | 3,500      | 5,114     
|Net profit (loss) attributable to Gafisa                | (452,618) | (621,833)  | (514,117) 
|Capital increase                                        | 250,766   | -          | -         
|Non-controlling interests                               | (1,973)   | 2,137      | (234)     
|Other                                                   | 3         | -          | (12)      
|At end of the year                                      | 240,418   | 495,385    | 1,437,993 



|Condensed equity under US GAAP                                                                  | 2018        | 2017        | 2016       
|----------------------------------------------------------------------------------------------- | ----------- | ----------- | -----------
|                                                                                                |             | (Restated)  | (Restated) 
|Equity                                                                                          |             |             |            
|Common shares, comprising 39,784,169 shares outstanding 
(2017 – 27,102,118; 2016 – 26,989,913) | 2,521,319   | 2,521,152   | 2,740,662  
|Treasury shares                                                                                 | (58,950)    | (29,089)    | (32,524)   
|Accumulated reserve (losses)                                                                    | (2,223,825) | (2,000,525) | (1,271,855)
|                                                                                                |             |             |            
|Total equity attributable to shareholders of Gafisa                                             | 238,544     | 491,538     | 1,436,283  
|                                                                                                |             |             |            
|Equity attributable to non-controlling interests                                                | 1,874       | 3,847       | 1,710      
|                                                                                                |             |             |            
|Total equity                                                                                    | 240,418     | 495,385     | 1,437,993  



| | (c) | Recent US GAAP accounting pronouncements
| | --- | ----------------------------------------



| | (i) | Recently adopted US GAAP accounting standards
| | --- | ---------------------------------------------



The
adoption of the following Updates is neither applicable nor had a material impact on our consolidated financial statements.





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Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Recent US GAAP accounting pronouncements--Continued
| | --- | ---------------------------------------------------



| | (i) | Recently adopted US GAAP accounting standards--Continued
| | --- | --------------------------------------------------------



In
November 2015, the FASB issued ASU 2015-17 - Balance Sheet Classification of Deferred Taxes. To simplify the presentation of deferred
income taxes, the amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a
classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement
of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity
be offset and presented as a single amount is not affected by the amendments in this Update. The amendments in this Update will
align the presentation of deferred tax assets and liabilities with International Financial Reporting Standards (IFRS). For public
business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after
December 15, 2016.



In
March 2016, the FASB issued ASU 2016-07 - Simplifying the Transition to the Equity Method of Accounting. The amendments in this
Update eliminate the requirement to retroactively adopt the equity method of accounting. For public business entities, the amendments
in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016.



In
March 2016, the FASB issued ASU 2016-09: Improvements to Employee Share-Based Payment Accounting. The areas for simplification
in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in
this Update are effective for annual periods beginning after December 15, 2016.





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Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Recent US GAAP accounting pronouncements--Continued
| | --- | ---------------------------------------------------



| | (i) | Recently adopted US GAAP accounting standards--Continued
| | --- | --------------------------------------------------------



In
October 2016, the FASB issued ASU 2016-17: Consolidation (Topic 810): Interests held through Related Parties that are under Common
Control. The amendments in this Update do not change the characteristics of a primary beneficiary in current generally accepted
accounting principles (GAAP). Therefore, a primary beneficiary of a variable interest entity (VIE) has both of the following characteristics:
(1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the
obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from
the VIE that could potentially be significant to the VIE. The amendments in this Update improve GAAP because, in situations involving
common control, a single decision maker focuses on the economics to which it is exposed when determining whether it is the primary
beneficiary of a VIE before potentially evaluating which party is most closely associated with the VIE. The amendments in this
Update are effective for fiscal years beginning after December 15, 2016.



In
December 2016, the FASB issued ASU 2016-19: Technical Corrections and Improvements. The amendments in this Update cover a wide
range of Topics in the Accounting Standards Codification. The reason for each amendment is provided before each of the amendments
for clarity and ease of understanding. The amendments generally fall into one of the following types of categories: Amendments
related to differences between original guidance and the Accounting Standards Codification; Guidance clarification and reference
corrections; Simplification and Minor improvements. Most of the amendments in this Update do not require transition guidance and
are effective upon issuance of this Update.



The
following Updates related to Topic 606 were adopted, as it follows:



In
May 2014, the FASB issued ASU 2014-09 - Revenue from contracts with customers (Topic 606). The amendments in ASU 2014-09 create
revenue from contracts with customers (Topic 606), and supersede the revenue recognition requirements in revenue recognition (topic
605), including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition,
the amendments supersede the cost guidance in revenue recognition—construction-type and production-type contracts (subtopic
605-35), and create new subtopic 340-40, other assets and deferred costs—Contracts with Customers. In summary, the core
principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017.





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Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Recent US GAAP accounting pronouncements--Continued
| | --- | ---------------------------------------------------



| | (i) | Recently adopted US GAAP accounting standards--Continued
| | --- | --------------------------------------------------------



In
March 2016, the FASB issued ASU 2016-08 - Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The core
principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. To achieve that core principle, an entity should apply the following steps: 1. Identify the contract(s)
with a customer; 2. Identify the performance obligations in the contract; 3. Determine the transaction price; 4. Allocate the
transaction price to the performance obligations in the contract; and 5. Recognize revenue when (or as) the entity satisfies a
performance obligation. The amendments in this Update do not change the core principle of the guidance. The amendments clarify
the implementation guidance on principal versus agent considerations. For public business entities, the amendments in this Update
affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet
effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date
and transition requirements of Update 2014-09.



In
April 2016, the FASB issued ASU 2016-10: Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing. The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. The amendments in this Update do not change the core principle of the guidance in Topic
606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations
and the licensing implementation guidance, while retaining the related principles for those areas. The effective date and transition
requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and
any other Topic amended by Update 2014-09).



In
May 2016, the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients. The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. The amendments in this Update do not change the core principle of the guidance in Topic
606. Rather, the amendments in this Update affect only some of the narrow aspects of Topic 606.





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Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Recent US GAAP accounting pronouncements--Continued
| | --- | ---------------------------------------------------



| | (i) | Recently adopted US GAAP accounting standards--Continued
| | --- | --------------------------------------------------------



The
effective date and transition requirements for the amendments in this Update are the same as the effective date and transition
requirements for Topic 606 (and any other Topic amended by Update 2014-09).



In
December 2016, the FASB issued ASU 2016-20: Technical Corrections and Improvements (Topic 606): Revenue from Contracts with Customers.
The amendments in this Update include items brought to the Board’s attention through a variety of sources, including: the
Codification’s online feedback mechanism; submissions to the Transition Resource Group for Revenue Recognition (TRG); and
stakeholders’ technical inquiries. The amendments in this Update affect narrow aspects of the guidance issued in Update
2014-09. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements
for Topic 606 (and any other Topic amended by Update 2014-09).



In
September 2017, the FASB issued ASU 2017-13: Revenue
Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments
to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements
and Observer Comments (SEC Update). : This Update adds, amends, and supersedes SEC paragraphs of the ASC related to the adoption
and transition provisions of ASU No. 2014-09, Revenue from Contracts with Customers and ASU 2016-02, Leases for
public business entities. It is effective upon issuance.



Based
on the assessments undertaken, the adoption of the requirements above, has changed the revenue recognition, from over the time
(PoC method) to a point in time, upon delivery of keys for each real estate unit. ASUs Topic 606 are effective for annual reporting
periods beginning after December 15, 2017. As a transition method, the Company applied the full retrospective method and has recognized
the cumulative effect of initially applying this guidance as an adjustment to the opening balance of retained earnings as of January
01, 2016 to all contracts at the date of initial application. The effects of this adoption are demonstrated as follows:





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Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Recent US GAAP accounting pronouncements--Continued
| | --- | ---------------------------------------------------



| | (i) | Recently adopted US GAAP accounting standards--Continued
| | --- | --------------------------------------------------------







|Statement
    of financial position                       | Originally
    reported balances as of 12/31/2017 | Impact
    from applying ASUs Topic 606 | Balances
    after applying ASUs Topic 606 as of 12/31/2017 |  | Originally
    reported balances as of 12/31/2016 | Impact
    from applying ASUs Topic 606 | Balances
    after applying ASUs Topic 606 as of 12/31/2016
|--------------------------------------------------------- | ------------------------------------------------- | --------------------------------------- | ----------------------------------------------------------- |  | ------------------------------------------------- | --------------------------------------- | -----------------------------------------------------------
|Assets                                                    |                                                   |                                         |                                                             |  |                                                   |                                         |                                                            
|Trade accounts receivable
    of development and services | 336,674                                           | (194,805)                               | 141,869                                                     |  | 446,612                                           | (427,207)                               | 19,405                                                     
|Properties for sale                                       | 1,102,487                                         | 614,146                                 | 1,716,633                                                   |  | 1,489,232                                         | 810,483                                 | 2,299,715                                                  
|Other current assets                                      | 366,948                                           | 5,780                                   | 372,728                                                     |  | 1,625,495                                         | 7,415                                   | 1,632,910                                                  
|Total current assets                                      | 1,806,109                                         | 425,121                                 | 2,231,230                                                   |  | 3,561,339                                         | 390,691                                 | 3,952,030                                                  
|Total non-current
    assets                              | 1,079,615                                         | (117,649)                               | 961,966                                                     |  | 1,644,975                                         | (127,762)                               | 1,517,213                                                  
|Total Assets                                              | 2,885,724                                         | 307,472                                 | 3,193,196                                                   |  | 5,206,314                                         | 262,929                                 | 5,469,243                                                  
|                                                          |                                                   |                                         |                                                             |  |                                                   |                                         |                                                            
|Liabilities                                               |                                                   |                                         |                                                             |  |                                                   |                                         |                                                            
|Total current liabilities                                 | 1,319,623                                         | 473,141                                 | 1,792,764                                                   |  | 2,426,577                                         | 535,585                                 | 2,962,162                                                  
|Total non-current
    liabilities                         | 905,046                                           | 1                                       | 905,047                                                     |  | 1,069,084                                         | 4                                       | 1,069,088                                                  
|Total equity                                              | 661,055                                           | (165,670)                               | 495,385                                                     |  | 1,710,653                                         | (272,660)                               | 1,437,993                                                  
|Total liabilities
    and equity                          | 2,885,724                                         | 307,472                                 | 3,193,196                                                   |  | 5,206,314                                         | 262,929                                 | 5,469,243                                                  
|                                                          |                                                   |                                         |                                                             |  |                                                   |                                         |                                                            
|Statement
    of profit or loss                           | Originally
    reported balances as of 12/31/2017 | Impact
    from applying ASUs Topic 606 | Balances
    after applying ASUs Topic 606 as of 12/31/2017 |  | Originally
    reported balances as of 12/31/2016 | Impact
    from applying ASUs Topic 606 | Balances
    after applying ASUs Topic 606 as of 12/31/2016
|Net operating revenue                                     | 750,616                                           | 352,596                                 | 1,103,212                                                   |  | 854,572                                           | 1,025,992                               | 1,880,564                                                  
|Operating costs                                           | (916,211)                                         | (193,111)                               | (1,109,322)                                                 |  | (985,789)                                         | (559,005)                               | (1,544,794)                                                
|Operating (expenses)
    / income                         | (449,353)                                         | -                                       | (449,353)                                                   |  | (316,182)                                         | 6,739                                   | (309,443)                                                  
|Financial income (expense)                                | (105,091)                                         | (1,932)                                 | (107,023)                                                   |  | (14,609)                                          | (11,070)                                | (25,679)                                                   
|Income tax and social
    contribution                    | 56,075                                            | (3,582)                                 | 52,493                                                      |  | 45,492                                            | 3,549                                   | 49,041                                                     
|Income from equity
    method investments                 | (130,165)                                         | (46,752)                                | (176,917)                                                   |  | (63,616)                                          | 8,209                                   | (55,407)                                                   
|Profit from (loss
    on) continued operations            | (794,129)                                         | 107,219                                 | (686,910)                                                   |  | (480,132)                                         | 474,414                                 | (5,718)                                                    
|Profit from discontinued
    operations                   | 64,796                                            | -                                       | 64,796                                                      |  | (506,185)                                         | -                                       | (506,185)                                                  
|Non-controlling interests                                 | 2,732                                             | (3,013)                                 | (281)                                                       |  | (1,161)                                           | 3,375                                   | 2,214                                                      
|Net profit (loss)
    for the year                        | (732,065)                                         | 110,232                                 | (621,833)                                                   |  | (985,156)                                         | 471,039                                 | (514,117)                                                  





Reconciliation
of the opening statement of financial position as of January 1, 2016:





|Statement
    of financial position | Originally
    reported balances | Impact
    from applying ASUs Topic 606 | Balances
    after applying ASUs Topic 606 as of 01/01/2016 |  |  |  | 
|----------------------------------- | -------------------------------- | --------------------------------------- | ----------------------------------------------------------- |  |  |  | 
|Assets                              |                                  |                                         |                                                             |  |  |  | 
|Total current assets                | 4,876,159                        | 641,343                                 | 5,517,502                                                   |  |  |  | 
|Total non-current
    assets        | 1,812,689                        | (278,525)                               | 1,534,164                                                   |  |  |  | 
|Total Assets                        | 6,688,848                        | 362,818                                 | 7,051,666                                                   |  |  |  | 
|                                    |                                  |                                         |                                                             |  |  |  | 
|Liabilities                         |                                  |                                         |                                                             |  |  |  | 
|Total current liabilities           | 2,486,947                        | 292,899                                 | 2,779,846                                                   |  |  |  | 
|Total non-current
    liabilities   | 1,497,019                        | 818,875                                 | 2,315,894                                                   |  |  |  | 
|Total equity                        | 2,704,882                        | (748,956)                               | 1,955,926                                                   |  |  |  | 
|Total liabilities
    and equity    | 6,688,848                        | 362,818                                 | 7,051,666                                                   |  |  |  | 







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December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Recent US GAAP accounting pronouncements--Continued
| | --- | ---------------------------------------------------



| | (i) | Recently adopted US GAAP accounting standards--Continued
| | --- | --------------------------------------------------------



In
January 2016, the FASB issued ASU 2016-01 - Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments
in this Update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. For
public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years.



In
August 2016, the FASB issued ASU 2016-15: Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash
Payments. The amendments in this Update provide guidance on the following eight specific cash flow issues: debt prepayment or
debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that
are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a
business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance
policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests
in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments
in this Update are effective for fiscal years beginning after December 15, 2017.



In
October 2016, the FASB issued ASU 2016-16: Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The
Board decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory
when the transfer occurs. Consequently, the amendments in this Update eliminate the exception for an intra-entity transfer of
an asset other than inventory. Two common examples of assets included in the scope of this Update are intellectual property and
property, plant, and equipment. The amendments in this Update do not include new disclosure requirements; however, existing disclosure
requirements might be applicable when accounting for the current and deferred taxes for an intra-entity transfer of an asset other
than inventory. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2017.



In
November 2016, the FASB issued ASU 2016-18: Statement of Cash Flows (Topic 230): Restricted Cash. The amendments in this Update
require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash
and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows. The amendments in this Update do not provide a definition of
restricted cash or restricted cash equivalents. The amendments in this Update are effective for fiscal years beginning after December
15, 2017.





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Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Recent US GAAP accounting pronouncements--Continued
| | --- | ---------------------------------------------------



| | (i) | Recently adopted US GAAP accounting standards--Continued
| | --- | --------------------------------------------------------



In
January 2017, the FASB issued ASU 2017-01: Business Combinations (Topic 805): Clarifying the Definition of a Business. Under the
current implementation guidance in Topic 805, there are three elements of a business—inputs, processes, and outputs. While
an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs,
outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not
required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired
set with their own inputs and processes. The amendments in this Update provide a screen to determine when a set is not a business.
The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated
in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number
of transactions that need to be further evaluated. The amendments in this Update are effective to annual periods beginning after
December 15, 2017.



In
February 2017, the FASB issued ASU 2017-05: Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets
(Subtopic 610-20). The amendments in this Update clarify that a financial asset is within the scope of Subtopic 610-20 if it meets
the definition of an in substance nonfinancial asset. The amendments in this Update also clarify that nonfinancial assets within
the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. The amendments
in this Update clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised
to a counterparty and derecognize each asset when a counterparty obtains control of it. The amendments also clarify that an entity
should allocate consideration to each distinct asset by applying the guidance in Topic 606 on allocating the transaction price
to performance obligations. The amendments in this Update require an entity to derecognize a distinct nonfinancial asset or distinct
in substance nonfinancial asset in a partial sale transaction when it (1) does not have (or ceases to have) a controlling financial
interest in the legal entity that holds the asset in accordance with Topic 810 and (2) transfers control of the asset in accordance
with Topic 606. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2017.



In
March 2017, the FASB issued ASU 2017-07: Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this Update require that an employer report
the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent
employees during the period. The amendments in this Update also allow only the service cost component to be eligible for capitalization
when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset). The amendments in this
Update are effective for





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Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Recent US GAAP accounting pronouncements--Continued
| | --- | ---------------------------------------------------



| | (i) | Recently adopted US GAAP accounting standards--Continued
| | --- | --------------------------------------------------------



annual
periods beginning after December 15, 2017. The adoption of ASU 2017-07 is not applicable to our consolidated financial statements.



In
May 2017, the FASB issued ASU 2017-09: Compensation-Stock
Compensation (Topic 718): Scope of Modification Accounting. : The amendments in this Update provide guidance about which changes
to the terms or conditions of a share-based payment award require an entity to apply modification accounting in FASB ASC 718.
The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods,
beginning after December 15, 2017. Early adoption is permitted. The amendments in this update should be applied prospectively
to an award modified on or after the adoption date.



| | (ii) | Recently issued US GAAP accounting standards
| | ---- | --------------------------------------------



In
June 2016, the FASB issued ASU 2016-13: Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized
cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account
that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected
to be collected on the financial asset. In addition, available-for-sale accounting recognizes that value may be realized either
through collection of contractual cash flows or through sale of the security. Therefore, the amendments limit the amount of the
allowance for credit losses to the amount by which fair value is below amortized cost because the classification as available
for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection
would result in the realization of an amount less than fair value. The amendments in this Update are effective for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the
fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.



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Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Recent US GAAP accounting pronouncements--Continued
| | --- | ---------------------------------------------------



| | (ii) | Recently issued US GAAP accounting standards--Continued
| | ---- | -------------------------------------------------------



In
January 2017, the FASB issued ASU 2017-03: Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method
and Joint Ventures (Topic 323) - Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November
17, 2016 EITF Meetings. This Accounting Standards Update adds an SEC paragraph and amends other Topics pursuant to an SEC Staff
Announcement made at the September 22, 2016 and November 17, 2016 Emerging Issues Task Force (EITF) meetings: Amendments to Topic
250 - Accounting changes and error corrections; Amendments to Topic 326 - Financially instruments - Credit losses; Amendments
to Topic 606 - Revenue from contracts with customers; Amendments to Topic 842 - Leases and Amendments to Topic 323 - Investments
- Equity method and joint ventures- Income taxes. The effective date and transition requirements for the amendments in this Update
are the same as the effective date and transition requirements of the respective amended Topics.



In
January 2017, the FASB issued ASU 2017-04: Intangibles—Goodwill and Other (Topic 350). Under the amendments in this Update,
an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with
its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting
unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting
unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the
reporting unit when measuring the goodwill impairment loss, if applicable. The amendments in this Update are effective for the
Company’s annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.



In
February 2017, the FASB issued ASU 2017-06: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic
962), Health and Welfare Benefit Plans (Topic 965). The amendments in this Update require all plans to disclose (1) their master
trust’s other asset and liability balances and (2) the dollar amount of the plan’s interest in each of those balances.
The amendments will require the health and welfare benefit plan to disclose the name of the defined benefit pension plan in which
those investment disclosures are provided, so that participants can easily access those statements for information about the 401(h)
account assets, if needed. The amendments in this Update are effective for fiscal years beginning after December 15, 2018. Early
adoption is permitted.





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Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Recent US GAAP accounting pronouncements--Continued
| | --- | ---------------------------------------------------



| | (ii) | Recently issued US GAAP accounting standards--Continued
| | ---- | -------------------------------------------------------



In
March 2017, the FASB issued ASU 2017-08: Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization
on Purchased Callable Debt Securities. The amendments in this Update shorten the amortization period for certain callable debt
securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The
amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.
The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2018. Early adoption is permitted.



In
May 2017, the FASB issued ASU 2017-11: Earnings
Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting
for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.
The amendments in this Update change the classification of certain equity-linked financial instruments (or embedded features)
with down round features. The amendments also clarify existing disclosure requirements for equity-classified instruments. For
freestanding equity-classified financial instruments, the amendments require entities that present earnings per share in accordance
with FASB ASC 260, Earnings Per Share, to recognize the effect of the down round feature when it is triggered. That effect is
treated as a dividend and as a reduction of income available to common shareholders in basic earnings per share. Convertible instruments
with embedded conversion options that have down round features would be subject to the specialized guidance for contingent beneficial
conversion features (in FASB ASC 470), including related earnings per share guidance (in FASB ASC 260). The amendments in Part
II of this Update recharacterize the indefinite deferral of certain provisions of FASB ASC 480, Distinguishing Liabilities from
Equity, that now are presented as pending content in the Codification, to a scope exception. For public business entities, the
amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted.
The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting
effect.



In
August 2017, the FASB issued ASU 2017-12: Derivatives
and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This Update improves the financial reporting
of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial
statements. In addition to that main objective, the amendments in this Update make certain targeted improvements to simplify the
application of the hedge accounting guidance in current GAAP. For public business entities, the amendments in this Update are
effective for fiscal years beginning after December 15, 2018. Early application is permitted.





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Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Recent US GAAP accounting pronouncements--Continued
| | --- | ---------------------------------------------------



| | (ii) | Recently issued US GAAP accounting standards--Continued
| | ---- | -------------------------------------------------------



In
November 2017, the FASB issued ASU 2017-14: Income
Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers
(Topic 606) (SEC Update). : This Update adds, amends, and supersedes SEC paragraphs of the ASC pursuant to Staff Accounting
Bulletin No. 116 and SEC Release 33-10403 and is effective upon issuance.



In
February 2018, the FASB issued ASU 2018-02: Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update require an entity to disclose
a description of its accounting policy for releasing income tax effects from accumulated other comprehensive income. The amendments
in this Update are effective for fiscal years beginning after December 15, 2018. Early application is permitted.



In
February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic
825): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update clarify certain
aspects of the guidance issued in Update 2016-01. The amendments in this Update are effective for fiscal years beginning after
December 15, 2017.



In
June 2018, the FASB issued ASU 2018-07: Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for
acquiring goods and services from nonemployees. The amendments in this Update are effective for fiscal years beginning after December
15, 2018. Early application is permitted.



In
August 2018, the FASB issued ASU 2018-13: Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement. The amendments in this Update modify the disclosure requirements on fair value measurements
in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and
benefits. The amendments in this Update are effective for fiscal years beginning after December 15, 2019. Early application is
permitted.





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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | US GAAP condensed consolidated financial information
| | --- | ----------------------------------------------------



Based
on the reconciling items and discussion above, the Gafisa S.A. consolidated balance sheets, statements of income (loss), and statement
of changes in shareholders’ equity (see b(ii)) under US GAAP have been recast in condensed format as follows:



| | (i) | Condensed consolidated balance sheets under US GAAP
| | --- | ---------------------------------------------------



|                                      |  | 2018 |           | 2017       |  | 2016      
|------------------------------------- |  | ---- | --------- | ---------- |  | ----------
|Assets                                |  |      |           | (Restated) |  | (Restated)
|Current assets                        |  |      |           |            |  |           
|Cash and cash equivalents             |  |      | 32,304    |            |  |           
|Short-term investments                |  |      | 97,895    |            |  |           
|Restricted short-term investments     |  |      | 6,961     |            |  |           
|Trade accounts receivable, net        |  |      | 83,433    |            |  |           
|Properties for sale                   |  |      | 1,790,103 |            |  |           
|Prepaid expenses                      |  |      | 2,668     |            |  |           
|Other                                 |  |      | 198,284   |            |  |           
|Assets held from sale (Note 33(d)(iv) |  |      | -         |            |  |           
|                                      |  |      | 2,211,648 |            |  |           
|Non-current assets                    |  |      |           |            |  |           
|Investments in associates             |  |      | 308,833   |            |  |           
|Property and equipment, net           |  |      | 20,073    |            |  |           
|Intangibles assets                    |  |      | 11,770    |            |  |           
|Trade accounts receivable, net        |  |      | 32,301    |            |  |           
|Properties for sale                   |  |      | 198,941   |            |  |           
|Other                                 |  |      | 123,602   |            |  |           
|                                      |  |      | 695,520   |            |  |           
|                                      |  |      |           |            |  |           
|Total assets                          |  |      | 2,907,168 |            |  |           



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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | US GAAP condensed consolidated financial information--Continued
| | --- | ---------------------------------------------------------------



| | (i) | Condensed consolidated balance sheets under US GAAP--Continued
| | --- | --------------------------------------------------------------



|                                                                          |  | 2018 |           | 2017       |  | 2016      
|------------------------------------------------------------------------- |  | ---- | --------- | ---------- |  | ----------
|Liabilities                                                               |  |      |           | (Restated) |  | (Restated)
|Current liabilities                                                       |  |      |           |            |  |           
|Loans and financing                                                       |  |      | 285,612   |            |  |           
|Debentures                                                                |  |      | 62,783    |            |  |           
|Payables for purchase of properties                                       |  |      | 101,285   |            |  |           
|Payables for goods and services suppliers                                 |  |      | 119,847   |            |  |           
|Taxes and labor contributions                                             |  |      | 31,566    |            |  |           
|Advances from customers                                                   |  |      | 680,398   |            |  |           
|Obligations assumed on the assignment of receivables                      |  |      | 25,046    |            |  |           
|Other                                                                     |  |      | 366,140   |            |  |           
|Liabilities directly associated with assets held for sale (Note 33(d)(iv) |  |      | -         |            |  |           
|                                                                          |  |      | 1,672,677 |            |  |           
|Non-current liabilities                                                   |  |      |           |            |  |           
|Loans and financing                                                       |  |      | 338,135   |            |  |           
|Debentures                                                                |  |      | 202,883   |            |  |           
|Deferred tax liabilities and social contribution                          |  |      | 49,372    |            |  |           
|Payables for purchase of properties                                       |  |      | 196,076   |            |  |           
|Obligations assumed on the assignment of receivables                      |  |      | 32,140    |            |  |           
|Payables to venture partners                                              |  |      | -         |            |  |           
|Provisions for legal claims                                               |  |      | 155,608   |            |  |           
|Other                                                                     |  |      | 19,859    |            |  |           
|                                                                          |  |      | 994,073   |            |  |           
|                                                                          |  |      |           |            |  |           
|Equity attributable to shareholders of Gafisa                             |  |      | 238,544   |            |  |           
|Equity attributable to non-controlling interest                           |  |      | 1,874     |            |  |           
|                                                                          |  |      |           |            |  |           
|Total equity                                                              |  |      | 240,418   |            |  |           
|                                                                          |  |      |           |            |  |           
|Total liabilities and equity                                              |  |      | 2,907,168 |            |  |           



F-101


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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | US GAAP condensed consolidated financial information--Continued
| | --- | ---------------------------------------------------------------



| | (ii) | Condensed consolidated statements of operations under
US GAAP
| | ---- | -------------------------------------------------------------



|                                                                                          |  | 2018 |          | 2017       |  | 2016      
|----------------------------------------------------------------------------------------- |  | ---- | -------- | ---------- |  | ----------
|Gross operating revenue                                                                   |  |      |          | (Restated) |  | (Restated)
|Real estate development and sales of properties                                           |  |      | 897,846  |            |  |           
|Taxes on services and revenues                                                            |  |      | (79,782  | )          |  |           
|                                                                                          |  |      |          |            |  |           
|Net operating revenue                                                                     |  |      | 818,064  |            |  |           
|Operating costs                                                                           |  |      | (736,614 | )          |  |           
|                                                                                          |  |      |          |            |  |           
|Gross (loss) profit                                                                       |  |      | 81,450   |            |  |           
|                                                                                          |  |      |          |            |  |           
|Operating income (expenses)                                                               |  |      |          |            |  |           
|Selling general and administrative expenses                                               |  |      | (141,520 | )          |  |           
|Other                                                                                     |  |      | (320,226 | )          |  |           
|Income (loss) before financial income and expenses and income tax and social contribution |  |      | (380,296 | )          |  |           
|                                                                                          |  |      |          |            |  |           
|Financial income                                                                          |  |      | 19,553   |            |  |           
|Financial expenses                                                                        |  |      | (100,121 | )          |  |           
|Income (loss) before income tax and social contribution                                   |  |      | (460,864 | )          |  |           
|                                                                                          |  |      |          |            |  |           
|Current tax, including social contribution                                                |  |      | (3,349   | )          |  |           
|Deferred tax, including social contribution                                               |  |      | 23,692   |            |  |           
|Total income tax and social contribution                                                  |  |      | 20,343   |            |  |           
|                                                                                          |  |      |          |            |  |           
|Income (loss) before equity in results and                                                |  |      |          |            |  |           
|non-controlling interests                                                                 |  |      | (440,521 | )          |  |           
|Income from equity method investments                                                     |  |      | (13,847  | )          |  |           
|                                                                                          |  |      |          |            |  |           
|Net loss for the year for continuing operations                                           |  |      | (454,368 | )          |  |           
|                                                                                          |  |      |          |            |  |           
|Net income (loss) for the year for discontinued operations                                |  |      | -        |            |  |           
|                                                                                          |  |      |          |            |  |           
|Net loss for the year                                                                     |  |      | (454,368 | )          |  |           
|                                                                                          |  |      |          |            |  |           
|Net income (loss) attributable to the non-controlling interests                           |  |      | (1,750   | )          |  |           
|Net loss attributable to shareholders of Gafisa                                           |  |      | (452,618 | )          |  |           



| | (iii) | Condensed consolidated statements of comprehensive
income (loss)
| | ----- | ----------------------------------------------------------------



|                                       |  | 2018 |          | 2017       |  | 2016      
|-------------------------------------- |  | ---- | -------- | ---------- |  | ----------
|                                       |  |      |          | (Restated) |  | (Restated)
|Net loss for the year                  |  |      | (454,368 | )          |  |           
|                                       |  |      |          |            |  |           
|Total comprehensive loss, net of taxes |  |      | (454,368 | )          |  |           
|                                       |  |      |          |            |  |           
|Attributable to:                       |  |      |          |            |  |           
|Non-controlling interests              |  |      | (1,750   | )          |  |           
|Shareholders of Gafisa                 |  |      | (452,618 | )          |  |           





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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | US GAAP condensed consolidated financial information--Continued
| | --- | ---------------------------------------------------------------



| | (iv) | Disposal group held for sale
| | ---- | ----------------------------



As
explained in Note 8.2, the results of operations of Tenda have been presented as discontinued operations in the Company’s
2017, 2016 and 2015 consolidated statements of operations.



The
assets and liabilities of the group of assets held for sale are presented separately in the consolidated financial statements.
The net income (loss) of discontinued operations is presented as a single amount in the statement of operations, contemplating
the total after-tax profit or loss of such operations less any impairment-related loss, as demonstrated below:



|                                                               | 2017      | 2016     
|-------------------------------------------------------------- | --------- | ---------
|                                                               |           |          
|Impairment loss (i)                                            | -         | (543,357)
|Disposal group held for sale (ii)                              | -         | 1,802,654
|Total disposal group held for sale                             | -         | 1,259,297
|                                                               |           |          
|Liabilities directly associated with assets held for sale (ii) | -         | 722,516  
|                                                               |           |          
|Reversal of impairment loss (i)                                | 215,440   | -        
|Portion related to payable for sale of shares (ii)             | (107,720) | -        
|Impairment loss                                                | (47,666)  | (543,357)
|Tenda’s net income for the period ended May 04, 2017 (iii)     | 47,666    | 37,172   
|Transaction costs                                              | (9,545)   | -        
|Deferred tax on adjustments above, net of valuation allowance  | (33,379)  | -        
|Net income (loss) of discontinued operations                   | 64,796    | (506,185)



| | (i) | The measurement of non-current asset held for sale at
the lower of its carrying value and the fair value less cost to sell. For the period ended May 04, 2017, the fair value of discontinued
operations was adjusted, considering the weighted average price per share for exercising preemptive rights at R$12.12 (R$8.13
per share as of December 31, 2017).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Amount of R$107,720 related to the obligation to sell
50% of Construtora Tenda S.A.’s shares for the price of R$8.13 per share, settled on May 04, 2017, reflected in the profit
or loss of discontinued operation, in order to reflect the difference between the fair value of the group of assets held for sale
and the effective selling price.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | The amounts of the disposal group held for sale, liabilities
directly associated with assets held for sale, and profit or loss of discontinued operations, net of the eliminations related
to intercompany transactions.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | US GAAP condensed consolidated financial information--Continued
| | --- | ---------------------------------------------------------------



| | (iv) | Disposal group held for sale--Continued
| | ---- | ---------------------------------------



For
purposes of compliance with paragraph 50-5B of ASC 205-20 Presentation of financial information – Discontinued Operations,
the Company shows below the main classes of assets and liabilities classified as held for sale of the former subsidiary Tenda
under USGAAP as of December 31, 2016 after eliminations of consolidation items, demonstrated as follows:



|Assets                                                         |  | 2016
|-------------------------------------------------------------- |  | ----
|Current assets                                                 |  |     
|Cash and cash equivalents                                      |  |     
|Short-term investments                                         |  |     
|Trade accounts receivable                                      |  |     
|Properties for sale                                            |  |     
|Land for sale                                                  |  |     
|Other current assets                                           |  |     
|Total current assets                                           |  |     
|Non-current                                                    |  |     
|Trade accounts receivable                                      |  |     
|Properties for sale                                            |  |     
|Other non-current assets                                       |  |     
|Investments                                                    |  |     
|Property and equity and intangible assets                      |  |     
|Total non-current assets                                       |  |     
|                                                               |  |     
|Total assets                                                   |  |     
|                                                               |  |     
|Liabilities                                                    |  |     
|Current liabilities                                            |  |     
|Loans, financing and debentures                                |  |     
|Payables for purchase of properties and advance from customers |  |     
|Other payables                                                 |  |     
|Total current liabilities                                      |  |     
|Non-current liabilities                                        |  |     
|Loans, financing and debentures                                |  |     
|Payables for purchase of properties and advance from customers |  |     
|Provisions for legal claims                                    |  |     
|Other payables                                                 |  |     
|Total non-current liabilities                                  |  |     
|                                                               |  |     
|Total liabilities                                              |  |     
|                                                               |  |     

The
main lines of the statement of operations of the subsidiary Tenda are as follows:



|Statement of operations               |  | Period ended May 04, 2017 |          | 2016
|------------------------------------- |  | ------------------------- | -------- | ----
|                                      |  |                           |          |     
|Net operating revenue                 |  |                           | 496,004  |     
|Operating costs                       |  |                           | (329,511 | )   
|Operating expenses, net               |  |                           | (105,652 | )   
|Depreciation and amortization         |  |                           | (4,381   | )   
|Financial income (expenses)           |  |                           | (4,736   | )   
|Income tax and social contribution    |  |                           | (4,954   | )   
|Income from equity method investments |  |                           | 237      |     
|Non-controlling interests             |  |                           | (659     | )   
|Net income (loss) for the year        |  |                           | 47,666   |     



F-104


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Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary
                                         of Principal Differences between Brazilian GAAP and accounting principles generally accepted
                                         in the United States “US GAAP” for the years ended December 31, 2018, 2017
                                         and 2016- Continued
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | (d) | US GAAP condensed consolidated financial information--Continued
| | --- | ---------------------------------------------------------------



| | (v) | Earnings (loss) per share
| | --- | -------------------------



Under
US GAAP, the presentation of earnings (loss) per share is required for public companies, including earnings (loss) per share from
continuing operations and net income (loss) per share on the face of the statement of income (loss), and the per share effect
of changes in accounting principles, discontinued operations and extraordinary items either on the face of the income statement
or in a note. A dual presentation is required: basic and diluted. Computations of basic and diluted earnings per share data should
be based on the weighted average number of shares outstanding during the period and all dilutive potential shares outstanding
during each period presented, respectively.



The
Company has issued employee stock options (Note 18.3), the dilutive effects of which are reflected in diluted earnings per share
by application of the “treasury stock method”. Under the treasury stock method, earnings per share are calculated
as if options were exercised at the beginning of the period, or at time of issuance, if later, and as if the funds received were
used to purchase the Company’s own stock. When the stock options’ exercise price is greater than the average market
price of shares, diluted earnings per share are not affected by the stock options. Under US GAAP and Brazilian GAAP, potentially
dilutive securities are not considered in periods where there is a loss as the impact would be anti-dilutive. For the years ended
December 31, 2017, December 31, 2016 and December 31, 2015 potentially dilutive stock options were not considered.



F-105


Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | US GAAP condensed consolidated financial information--Continued
| | --- | ---------------------------------------------------------------



| | (v) | Earnings (loss) per share--Continued
| | --- | ------------------------------------



The
table below presents the determination of net income available (loss) allocated to common shareholders and weighted average common
shares outstanding used to calculate basic and diluted earnings (loss) per share.



|                                                                                  | 2018      | 2017       | 2016      
|--------------------------------------------------------------------------------- | --------- | ---------- | ----------
|                                                                                  |           | (Restated) | (Restated)
|Basic numerator                                                                   |           |            |           
|Declared dividends                                                                | -         | -          | -         
|U.S. GAAP undistributed profit (loss)                                             | (452,618) | (621,833)  | (514,117) 
|Allocated U.S. GAAP undistributed profit (loss) available for Common shareholders | (452,618) | (621,833)  | (514,117) 
|                                                                                  |           |            |           
|                                                                                  |           |            |           
|Basic denominator (in thousands of shares)                                        |           |            |           
|Weighted-average number of shares                                                 | 41,147    | 26,891     | 26,921    
|Basic earnings (loss) per share – U.S. GAAP - R$                                  | (11.0000) | (23.1242)  | (19.0972) 



|                                                                                  | 2018      | 2017       | 2016      
|--------------------------------------------------------------------------------- | --------- | ---------- | ----------
|                                                                                  |           | (Restated) | (Restated)
|Diluted numerator                                                                 |           |            |           
|Dividends proposed                                                                | -         | -          | -         
|U.S. GAAP undistributed profit (loss)                                             | (452,618) | (621,833)  | (514,117) 
|                                                                                  |           |            |           
|Allocated U.S. GAAP undistributed profit (loss) available for Common shareholders | (452,618) | (621,833)  | (514,117) 
|                                                                                  |           |            |           
|Diluted denominator (in thousands of shares)                                      |           |            |           
|Weighted-average number of shares                                                 | 41,147    | 26,891     | 26,921    
|Stock options                                                                     | 572       | 61         | 95        
|Antidilutive effect                                                               | (572)     | (61)       | (95)      
|                                                                                  |           |            |           
|Diluted weighted-average number of shares                                         | 41,147    | 26,891     | 26,921    
|                                                                                  |           |            |           
|Diluted earnings (loss) per share – U.S. GAAP - R$                                | (11.0000) | (23.1242)  | (19.0972) 



F-106


Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | US GAAP condensed consolidated financial information--Continued
| | --- | ---------------------------------------------------------------



| | (vi) | Additional information – income taxes
| | ---- | -------------------------------------



| | Change | in the valuation allowance for net operating losses and
temporary differences was as follows:
| | ------ | ---------------------------------------------------------------------------------------------



|                                                            | 2018      | 2017       | 2016      
|----------------------------------------------------------- | --------- | ---------- | ----------
|                                                            |           | (Restated) | (Restated)
|Opening balance at January 1                                | (660,645) | (517,413)  | (457,848) 
|(-) Discontinued operation valuation allowance at January 1 | -         | -          | 280,715   
|Benefit of the utilization of operating loss carryforwards  |           |            | -         
|Change in valuation allowance                               | (98,078)  | (143,232)  | (340,280) 
|Closing balance at December 31                              | (758,723) | (660,645)  | (517,413) 



The
Company reduces its deferred tax asset with a valuation allowance such that the amount of the net deferred tax asset is the amount
that is more likely than not to be realized. During the year 2018, movements in the valuation allowance amounted to a net increase
of R$98,078 and there was no utilization of operating loss carryforwards.



During
the year 2017, movements in the valuation allowance amounted to a net increase of R$143,232 and there was no utilization of operating
loss carryforwards.



During
the year 2016, movements in the valuation allowance amounted to a net increase of R$340,280 and there was no utilization of operating
loss carryforwards. Of this amount, R$207,436 is related to the valuation allowance on the provision for impairment loss of discontinued
operations.



The
Company records the financial statement effects of an income tax position when it is more likely than not, based on the technical
merits, that it will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is
measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with a
taxing authority.



As
of December 31, 2018, 2017 and 2016, the Company has no amount recorded for any uncertainty in income taxes.





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Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | US GAAP condensed consolidated financial information--Continued
| | --- | ---------------------------------------------------------------



| | (vi) | Additional information – income taxes--Continued
| | ---- | ------------------------------------------------



Gafisa
S.A. and its subsidiaries file income tax returns in Brazil. Brazilian income tax returns are subject to inspections by tax authorities
for the period beginning in 2012 and forward, i.e., within 5 years after the filing.



| | (vii) | Statement of comprehensive income (loss)
| | ----- | ----------------------------------------



Comprehensive
income (loss) is comprised of net income (loss) and other comprehensive income (loss) that include charges or credits directly
to equity which are not the result of transactions with owners.



| | (viii) | Statement of cash flows
| | ------ | -----------------------



For
each period for which a statement of profit or loss is presented and required to be reconciled to US GAAP, SEC rules require that
the Company provide either a statement of cash flows prepared in accordance with US GAAP or IFRS; or furnish in a note to the
financial statements a qualified description of the material differences between cash or funds flows reported in the primary financial
statements and cash flows that would be reported in a statement of cash flows, prepared in accordance with US GAAP.



|Statement of Cash flow | 2018     | 2017      | 2016     
|---------------------- | -------- | --------- | ---------
|                       |          |           |          
|Operating activities   | 31,450   | 206,865   | 269,666  
|Investing activities   | (3,061)  | 320,737   | 162,455  
|Financing activities   | (24,612) | (528,609) | (456,813)
|                       |          |           |          

The
Company’s primary differences in net income (loss) between Brazilian GAAP and net income (loss) for US GAAP are explained
in items 33(a) (ii) to (vi) above. The statement of cash flows for Brazilian GAAP was prepared based on CPC 3(R2) - Statement
of Cash Flows.



| | (ix) | Statement of value added
| | ---- | ------------------------



The
statement of value added for new Brazilian GAAP was prepared based on CPC 09 - “Demonstração do Valor Adicionado.”
For US GAAP, this statement is not required.





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Table of Contents


Gafisa S.A.



Notes to the consolidated financial statements

December 31, 2018

(Amounts in thousands of Brazilian
Reais, except as otherwise stated)





| | 33. | Supplemental Information - Summary of Principal Differences
between Brazilian GAAP and accounting principles generally accepted in the United States “US GAAP” for the years ended
December 31, 2018, 2017 and 2016- Continued
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | US GAAP condensed consolidated financial information--Continued
| | --- | ---------------------------------------------------------------



| | (x) | Information on significant investees
| | --- | ------------------------------------



|                                             |  | Significant investee:         |           |                                  |  | Other investees:
|-------------------------------------------- |  | ----------------------------- | --------- | -------------------------------- |  | ----------------
|                                             |  | Alphaville
    Urbanismo S.A. |           | Jointly-controlled
    investees |  |                 
|                                             |  | 2018                          |           | 2017                             |  | 2016            
|                                             |  |                               |           |                                  |  |                 
|                                             |  |                               |           |                                  |  |                 
|Current assets                               |  |                               | 1,139,892 |                                  |  |                 
|Non-current assets                           |  |                               | 879,812   |                                  |  |                 
|Current liabilities                          |  |                               | 813,567   |                                  |  |                 
|Non-current liabilities                      |  |                               | 2,255,091 |                                  |  |                 
|                                             |  |                               |           |                                  |  |                 
|Net revenue                                  |  |                               | 202,502   |                                  |  |                 
|Operating costs                              |  |                               | (223,083  | )                                |  |                 
|Gross profit                                 |  |                               | (20,581   | )                                |  |                 
|Profit (loss) from Continued Operations      |  |                               | (665,651  | )                                |  |                 
|Net income (loss)                            |  |                               | (665,651  | )                                |  |                 
|Net income (loss) attributable to the entity |  |                               | (657,560  | )                                |  |                 
|                                             |  |                               |           |                                  |  |                 





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F-109