As per my knowledge you did correct.
So is your personalization not worked?
is 'Test' value is in that LOV list?
Yes, Test is available in LOV.
Please suggest a solution
Give Property Name: INITIAL_VALUE and try.
Test if the event fires. Use Help, Diagnostics, Custom Code, Show Custom Events. Now navigate as you would through the form where you expect the field to be populated. In a lot of cases not all events fire. So if when-new-record-instance does not fire on your block ELEMENT that is the reason it's not working.
Make sure if it works you also add a where clause, otherwise it will always overwrite your field even if it has a value (unless that is your requirement).