Investor sentiment has started to cool for new Toronto condos, the latest sign that the sharp rise in borrowing costs is slowing the country’s frenetic real estate market.

Realtors are seeing a pullback among retail condo investors as they wait for fallout from the next round of interest-rate hikes from the Bank of Canada. The central bank’s two rate increases this year have already made mortgages more expensive. At the same time, a jump in new condo prices has helped curb investor interest, according to condo research group Urbanation Inc., which forecasts market activity to drop significantly.

“We do expect new condo launch and sales activity to slow materially in the second half of the year,” said Urbanation president Shaun Hildebrand. “Buyers won’t be as willing to absorb higher prices because of diminished profit outlook and rents not covering expenses,” he said.

The cost of a preconstruction condo is at a record high near $1,400 per square foot, which makes it difficult for investors to cover their monthly mortgage, condo fees and other housing expenses with rent from tenants.

Condo builders are also dealing with a shortage of construction workers and soaring building-materials costs, which means developers will likely delay project launches as they reassess the market.

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