"It is heartbreaking. I discover another decades-old shop replaced by an expensive eatery every time I walk around Centre Street and High Street," says Lau Kwok-wai, executive director of the Conservancy Association Centre for Heritage (Cache).

Lau knows Sai Ying Pun well. Cache is headquartered at the Old Tsan Yuk Maternity Hospital - a 1922 red-brick colonial building that houses the Western District Community Centre and various non-governmental organisations. It is among a number of historic buildings serving as a reminder of the area's long heritage.

Sai Ying Pun means "western encampment", and most historians agree that the military camps in question were temporary ones set up by the British when they landed in 1841. It was designated an official district in 1857, loosely spanning the area between Sheung Wan and Western. Back then, the coastal area was already thriving with salted-fish stalls, pawn shops, Chinese medicine vendors and warehouses. Local families and native labourers lived up the precipitous slope (Centre Street is still Hong Kong's steepest road), and there was a large group of Hakka who fled raging wars in southern China. These were served by the Basil Mission, along High Street, which conducted services only in the Hakka dialect from 1852, when it was set up, until 1984.

At the other end of the street stands a former psychiatric hospital commonly known as the "High Street haunted house". The 121-year-old Old Mental Hospital has been partly preserved and turned into the well-used Sai Ying Pun Community Complex Community Hall.

This and the Old Tsan Yuk Maternity Hospital are great examples of how the government has retained historic buildings under its adaptive reuse programme. But it is not the future of graded buildings that Lau and others are worried about.

The tenement clusters of Sai Ying Pun are exceptional, Lau says, but he expects the impending arrival of the MTR to replace most of them with looming apartment blocks.

Conservationists regret the loss of these "walk-ups" - they are not just architecture, but a way of life. Anyone looking down from nearby high-rises would see plenty of life on the tenement roofs: people watering thriving pot plants or just stealing a quiet moment to gaze at the sky.

In his book, , the late Carl T. Smith had this to say about a Sai Ying Pun tenement terrace:

"In Yu Lok Lane I found an old-style gabled Chinese roof, a relaxed, unhurried, quiet atmosphere, an old lady dozing in the sun, a young student doing homework, two persons busy at cottage work on a table in the open air, four women at a card game, wash [sic] strung on lines."

That was 21 years ago. Today, Yu Lok Lane has been razed, barring two old houses being kept as a "feature pavilion", to make way for a URA luxury complex.

It is easy to get sentimental about the loss, but Sidney Lee Chi-hang, district councillor for Centre Street, contends that many older residents would rather not stay in tenement buildings.

"Most calls I receive are from older constituents begging me to help them find developers to buy them out. I have no means of doing that, but these people are struggling with the extra costs of installing fire-safety features and replacing windows under new regulations. You are talking about just four or five households in each block sharing a massive bill," he says.

The rise of more tower blocks is inevitable, Lee says, and he worries about a lack of parking in Sai Ying Pun's narrow streets. He ventures a possible solution: replace the 60-year-old former Western Magistracy Building along Pok Fu Lam Road with a multi-storey car park. But he concedes that this idea would likely face fierce opposition by conservationists.

Such pro-development views may find wide support among some residents for practical reasons, but they alarm Professor Ng Mee Kam, who specialises in geography and resource management at Chinese University. She argues that old neighbourhoods hold values that are not measurable in monetary terms, and that the government has abdicated its responsibility to care for the well-being of long-term residents.

"The URA was the one that started the gentrification of Sai Ying Pun by building large-scale luxury developments. A lot of residents here are renting, so they get no compensation. The government ought to have considered the provision of public housing in the area as part of the redevelopment of Western district," she says.

Sai Ying Pun also boasts a strong community support network, either in the form of family members living nearby, neighbours who keep an eye on each other, or friendly shopkeepers who look after your child while you run a few errands, she adds.

The wholesale invasion by luxury flats, new high-end restaurants and supermarket chains shows how "brain-washed" believers of market forces interpret development, she says. But it destroys diversity and widens the extraordinary disconnect between the real fabric of Hong Kong society and the bricks and mortar of the city.

Many small business proprietors have given up hope. "This place will probably not be here in a few years' time," says the owner of Chee Loi Heung Eggrolls, who asked to be identified as Ms Chan.

The 40-year-old shop does extremely brisk business, but it is impossible for her to match the rent paid by restaurant chains eyeing the growing yuppie population.

"The locals all know me, and they are rooting for us. But landlords are not signing anything longer than a two-year lease with small businesses like ours. Many of my neighbours have had to close when their leases expire. There is no room for negotiation because restaurants can pay HK$100,000 a month for the same space. That's many times more than what we can ever afford," she says.

Castelo Concepts is one example of the deep-pocketed tenants that landlords adore. The international restaurant group will soon open a Jaspa's restaurant along Centre Street and a separate grill house round the corner. Unlike Chan, owner Wayne Parfitt has secured a much longer, nine-year, lease. He says he is happy to get it because excellent prospects in Sai Ying Pun are sure to send rent much higher.

The MTR will bring more expatriates and westernised residents to the area, he says, but not the party crowd. Sai Ying Pun would never become "Lan Kwai Fong number two", because there are few shop spaces big enough to accommodate restaurants and bars, he says.

Businesses that own their premises are not immune to change, says Ha Chung-kin of Tin Bo Lau, a joss-paper factory just off Eastern Street. "I have been offered HK$25 million for this 800-square-foot space. Not many people can turn that down, which is why a lot of joss-paper shops down in Queen's Road West are selling out. I am staying put because my children are also in the business, and we are proud of what we do. What we make is part of Hong Kong's cultural heritage," he says.

Professor Ng concedes there is little to be done, short of the government introducing new rules to conserve entire areas, rather than just individual buildings. But a multidisciplinary team from the university has been methodically charting Sai Ying Pun's transformation since 2008 - a rare long-term study conducted on a Hong Kong neighbourhood. The university has also worked with Cache and King's College to promote community awareness among residents.

Not all developers are insensitive to the area's history. Tucked away in quiet Tak Sing Lane is a row of seven beautifully restored tenement buildings. They were acquired by a local architect who spent years tracking down the different landlords - including one who was in jail - in order to take over the whole terrace.

"He feels strongly that these buildings should not be demolished, and he is not selling," says Olivia Toh of Knight Frank, the agency in charge of letting the Tak Sing Lane properties.

There are others who have turned rundown tenements into attractive modern homes, and this may well be the most sustainable way to preserve these charming buildings.

But what it won't save is the community. Carl T. Smith's old lady dozing in the sun would likely be unable to pay HK$20,000 a month in rent.

"The rule of the game is whoever affords the rent will set the rules. If you are poor, you are not allowed to have space in this city," says Ng.