Will there be water physics and higher water levels in this game?

I don't think there will be water physics. But if you want higher water levels put your land lower.

I think the only water physics that should be implemented is greatly decreasing the effect of grenades on players (rather than completely removing damage), and allowing players to incur less fall damage if falling in water.
Asides from those two quite simple things, it's a simple game - don't want anything too sophisticated.