Mauricio Pochettino's side go into their game with Southampton on Sunday sitting 10 points behind leaders Chelsea.
Despite being off the pace in the Premier League title race this season, Spurs remained in contention for the top-flight trophy last term until a 2-2 draw away to Chelsea in May saw the crown go to Leicester City.
But Modric, who played for Tottenham between 2008 and 2012, believes his former side have made significant progress in the last few years which makes them well-placed to challenge for the title in the coming years.
"I think Tottenham are developing in the right direction, they are doing well each year and getting better each year," he told Sky Sports.
"Now they are real contenders for the title, maybe not this year, but if they keep going in the right direction, with a new training ground and new stadium, the great support, they have all the qualities around. Hopefully in the future they can win the Premier League.
When then asked if Spurs are better-placed now to holding onto their star players, Modric replied: "Of course that is the key for each team, to keep your best players.
"Now Tottenham have changed their politics a little bit and they want to keep their best players.
"That's one way to help you get to the top and win the Premier League."