What makes it seem all in his head to me are two things: the nonsensical dreamlike logic of not drinking the water or staring into reflective surfaces to switch bodies, and the fact that every single thing in the world is conveniently centred around Kevin.

I was almost able to accept the hotel as being a sort of real purgatory, but his bizarro Melbourne is just too much. The way he nearly immediately finds each person he needs to find seems hard to believe (why is Evie even in Australia at all?), and again, the whole place just seems too ridiculous to be real on any level. As a dream, what goes down seems reasonable, but not as a real thing.

Also, I suspect in the next episode we'll learn the reason Ms. Playford had Kevin ask about her kids' shoes is to confirm if the afterlife (and by extension God and her religion) is real. I'm guessing she already knows why they weren't wearing shoes (or knows part of the reason why), and when Kevin came back with no answer, that was likely confirmation for her that he didn't go to the real afterlife.