In Foreign Parts: Bondi's old bohemians mourn a paradise lost

The murmur of Russian voices wafts over from a shady courtyard by the Bondi Pavilion, where a dozen grizzled old men gather daily to play dominoes and chess a few yards from Australia's most famous beach.

The men are a familiar sight outside the honey-coloured pavilion, where some have occupied the same tables for 25 years. All around them, though, Bondi is changing, with gentrification turning a blue-collar, multicultural neighbourhood into one of Sydney's most fashionable addresses.

As the developers march in, house prices and rents are shooting up, triggering an exodus of traditional residents and long-established small businesses. Celebrity spotting now rivals surfing as a local pursuit; on sunny days, the paparazzi stalk film stars such as Keanu Reeves and Nicole Kidman in Bondi's chic restaurants and pavement cafés.

Overlooking the beach, where a chill southerly whips the breakers into furious frothy peaks, Guido's Gelato Café stands empty and dark. The café – a fixture at the front of the pavilion for 41 years – closed its doors recently, unable to compete with wealthier bidders when the lease went out to tender.

The Pellicciari family, who ran the café, received a letter signed by hundreds of locals lamenting the demise of a Bondi institution. Ann Pellicciari, who once sold home-made ice creams out of the window for a shilling apiece, is heartbroken. Her son, Mario, says: "It's a terrible blow. We'd been in the same spot for so long and we hoped to make 50 years." The lease is owned by Waverley council, which says it has no choice but to maximise revenue from the prime beachfront site. With 2 million people visiting Bondi each year, the litter, crime and congestion make the neighbourhood increasingly expensive to run. Paul Pearce, mayor of Waverley, says the area is being "loved to death".

Guido's opened in 1961, when Bondi was a quiet beachside strip, undiscovered by the tourists. Mrs Pellicciari used to bribe bus drivers with free gelatos to bring their tour vehicles to the café.

The suburb was a working man's paradise, with cheap housing, good transport links and one of the world's most splendid surf beaches – even if bathers faced the hazard of raw sewage discharged straight into the ocean from an outfall pipe. The main parade boasted just one café, two milk bars and two fish-and-chip shops.

In the postwar years, the area was a first port of call for new immigrants, particularly New Zealand Maoris and East European Jews. Russian is still the second language in Bondi, and elderly women with tattoos on their wrists from Nazi concentration camps stroll along the promenade on Sunday afternoons.

Nowadays the new arrivals are high-income families, who outbid the locals at housing auctions. Bondi is also popular with actors, film directors and socialites. James Packer, son of the media tycoon Kerry Packer, is among those who call Bondi home.

The population is becoming less bohemian and more homogenised – an evolution not generally welcomed. "Bondi is losing its sense of community," says the Rev Paul Cameron, of the Uniting Church's Chapel by the Sea. "It is losing its soul."

Landmarks that have long made up the fabric of Bondi are disappearing. The Icebergs Club, whose members swim throughout the year in freezing water (sometimes chucking in blocks of ice to lower the temperature even further) recently reopened after an expensive facelift.

The ancient rock pool has been refurbished, but the clubhouse where the "Bergs" once enjoyed the cheapest beer in Sydney has been replaced by a five-star restaurant.

The Pellicciaris are not the only victims of soaring rents. Bates Milk Bar, owned by the same family since the 1940s, closed last year. One well-liked local restaurateur, Moussa Ndiaye, committed suicide in the face of mounting debt.

Relics of old Bondi remain, such as the 1930s cockroach- infested beachfront flats, now occupied by Japanese surfers. Mario Pellicciari believes the area has retained its identity despite the demographic changes. "The waves still lap up against the shore," he says. "Bondi is still Bondi."