Buying a cow from the other side of a mountain, as a Chinese proverb says, is always a risky business. You don't know if the trader you are dealing with is reliable, if the cow is the type you want or if it even exists. By now, the lesson of this age-old saying should have sunk deeply into the minds of those who have bought uncompleted residential flats in China in pre-sales. Many of the flats have failed to be built. Some developers have disappeared and the Hong Kong lawyers and agents who handled the sales say they are not responsible for the defaults. To protect the interests of buyers, a Law Reform Commission sub-committee has proposed that all sales of overseas uncompleted residential flats must be handled by licensed estate agents. Elaborate rules governing the provision of sufficient and accurate information on such properties by agents are recommended so buyers can turn to them for remedies caused by inaccurate or misleading sales descriptions. The proposal should help ensure buyers are not misled by bogus claims. However, estate agents complain it is unfair to hold them responsible for inaccurate information because the data is provided by developers. The argument is unacceptable. If the agents can't be sure of the accuracy of information about the properties they sell, then they shouldn't be peddling them to buyers. After all, the proposed legislation will provide for a 'due diligence' defence so that an agent will not be held responsible if he has taken all reasonable steps to check the information, and it was reasonable for him to rely on it. The spirit of the proposal is in line with the law governing licensed estate agents, who are required to check the accuracy of information about the properties they sell. The biggest problem raised by the commission report, however, is not the provision of accurate sales information, but the lack of a mechanism to ensure an overseas development pre-sold to local buyers will be completed and to provide compensation to buyers in case of defaults. Projects can fail for many reasons, such as developers going broke or buyers' money being misappropriated. In Hong Kong, to minimise the possibility of defaults, money paid by buyers in a pre-sale is held in trust by a solicitor and is released to the developer in stages in accordance with the actual progress of construction. The commission explored several options of setting up a similar mechanism for overseas properties, including stakeholding, trust accounts, insurance and bonds put up by developers, but all were considered difficult to implement. As the issue is outside its terms of reference, the commission refrained from making a proposal. Instead, it has suggested the Government undertake studies to find out the appropriate financial measures to protect all deposits and instalments paid by purchasers in case a project fails or is delayed. It remains to be seen if the Government will do as the commission suggests. But it is clear the commission's proposal on the provision of accurate information by agents will not, by itself, ensure overseas uncompleted flats sold to local buyers will be completed. The danger is, in the absence of a mechanism to ensure pre-sold overseas developments will be completed, a law guaranteeing the provision of accurate sales information may only give local buyers a false sense of security. With all the publicity on uncompleted developments in China, hardly anybody in Hong Kong is now interested in pre-sales of such projects. Although the commission's proposal is not aimed solely at Chinese developments and applies to all overseas uncompleted residential properties, the passage of a law ostensibly aimed at protecting buyers of such properties will give the impression that all will be right in future, when it will not. Understandably, Hong Kong people want their government to protect their interests. But they should not expect local laws to be able to solve their overseas problems. No country can do much to ensure a development in a foreign country will be completed simply because its citizens have bought into it. If a law on the provision of accurate sales information were to be passed, it should require the developer to state clearly and prominently if the country where the property is located has any schemes to ensure project completion and compensation for defaults. An encouraging sign is that China has taken steps to deal with the problem of uncompleted developments. The Construction Ministry recently issued a set of guidelines covering both uncompleted and completed flats, advising both domestic and foreign buyers what to look for to avoid being ripped off. In a sense, China in the 1990s is like Hong Kong in the 60s, when some local developers failed to complete their developments, prompting the authorities to introduce rules which have since prevented such defaults. Today, Hong Kong people are used to the pre-sale of uncompleted flats. Where they have erred is in hastily applying their local experience overseas without checking. While they can take the law for granted at home, they should not have had the same expectation overseas.