Alright, if someone ever stumbles upon the same issue, here’s the solution. In a typical Epic fashion, there’s an undocumented console command:
“grass.MaxInstancesPerComponent” which defaults at 65536
While it may imply it limits the maximum amount of instances that can be spawned on a landscape component, what it actually does it define max amount of instances spawned in one chunk of some internal grass tool component (instanced mesh clusters) which are unrelated to landscape component size. Setting grass.MaxInstancesPerComponent to something like 128 to 1024 will give you much more granular, smaller chunks of grass being spawned.